Flexibly-Bounded Rationality

Flexibly-bounded Rationality Tshilidzi Marwala University of Johannesburg


This is a presentation that was made to Stellenbosch Institute of Advanced Studies on Flexibly-Bounded Rationality.

Transcript of Flexibly-Bounded Rationality

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Flexibly-bounded Rationality

Tshilidzi MarwalaUniversity of Johannesburg

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Principles of Rational Decision

• Rationality: Indivisible• Logic– It has to make logical sense

• Information– It has to be based on information

• Optimization– It has to not waste resources

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Rationality: Decision Action

• An agent acts rationally if in its decision action it uses relevant information and logic to make an optimized decision

• An agent acts irrationally if in its decision action it either not use relevant information or uses irrelevant information or is illogical or is not optimized

• Rational decision action is made out of causal and correlation models

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Decision Process

• A decision process is made out of decision actions• Decision actions are either rational or irrational• The degree through which a decision process

satisfices (satisfies and suffices) is based on the outcome of the dialectic interplay between rationality and irrationality of each decision action

• Hegel’s concept of dialectic of thesis (rationality) and antithesis (irrationality) of decision actions in a decision process synthesize whether the process satisfices or not

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Rationality: Decision Process

• A decision process is rational if all decision actions that form the decision process are all rational

• A decision process is irrational if at least one of the decision actions that form the decision process is irrational

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Masindi: Is he rational?• Patient Masindi is diagnosed with a serious heart problem.

On the morning of day 1 he goes to the astrologer who tells him to jump and thereafter goes straight to see a cardiologist who examines him and tells him that he is going for an operation the following day. The following day before going to the operation room he consults an astrologer to strengthen the chances of success of the operation. Now, in the process of dealing with his heart problem, is Masindi being rational?

• Decision Actions: Seeing doctor, Seeing astrologer, Operation, Jump

• Decision Process: All the decision actions taken

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Rational Decision Making

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Bounded-Rational Decision Making

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Complete Data: Missing Data Estimation

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Incomplete/Imperfect Information

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Model: Causal Model• Y=f(x)• Principle: It is impossible to rationally predict accurately information that does not already


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Causal Model: Modelling Conflict

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Causal Model: Economic Modelling

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Causal Model: Condition Monitoring

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Flexibly-Bounded Rationality

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Bounded versus Flexibly Bounded Rational

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Generalized Decision Making

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Example: Condition Monitoring

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Example: Modelling HIV

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Example: Modelling Interstate Conflict

Data: Distance, Contingency, Major Power, Democracy, Allies, Dependency and Capability

Autoassociative Network

Intelligent Machine

Militarized Interstate Dispute

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Irrational Decision Making

• The fact that for rational decision making involve information, logic and optimization implies that human beings are largely irrational beings

• How then do they satisfice given the fact that they are irrationally

• Is satisficing the property of rationality

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Irrational Decision Making

• In order to satisfice the following steps should be followed:– Break the decision making process into a series of

decision actions– Classify each action as either rational or irrational– Apply the theory of dialectics or game theory to

weight rational actions against irrational actions

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Example: Nongqawuse the Xhosa prophet

Nongqawuse the Xhosa prophet advised her community to kill all their cattle and crops so that God can drive the British into the sea (Peires, 1989). The overwhelming majority (95% of community members) killed the cattle and crops. The decision process this community followed had both rational and irrational decision actions but was overall irrational. This resulted in famine and deaths. Theory of marginalization of irrationality (noise to signal ratio) the outcome was not satisficing because rationality (thesis) and irrationality (antithesis) synthesized an unsatisficing outcome.

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• Questions??