What is it about?

In state-of-the-art measurements, people differ little in how rational they are in their economic decisions, and how much money they waste due to suboptimal choices. Existent differences, if any, are hard to distinguish from random fluctuations. Hence, trying to identify determinants of economic rationality (e.g. education or intelligence) presents a challenge.

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Why is it important?

Identifying potential determinants of rationality—interpreted as a characteristic of decision makers—is of great relevance from an applied science perspective: both policy makers and industry have a pronounced interest in understanding which individuals make rational decisions, be it to design effective policies, enhance equity, or fine-tune talent selection processes. However, especially for research at the frontier of foundation to application, we must ensure that our measurements are precise and reliable. Here, we show that established empirical measurements of rationality are not reliable enough, implicating the urgent need for advances in measurement of rationality.

Perspectives

This started off as an idea I had in summer 21 for a low-budget side project, but quickly developed into the piece I am most satisfied with so far. The idea - to fire-test the standard measures of economic rationality - was inspired by my own, sometimes challenging research experiences using these measures.

Dr. Felix Jan Nitsch
INSEAD

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This page is a summary of: On the reliability of individual economic rationality measurements, Proceedings of the National Academy of Sciences, July 2022, Proceedings of the National Academy of Sciences, DOI: 10.1073/pnas.2202070119.
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