POLI SCI 348 Lecture Notes - Lecture 5: Rationality, Prospect Theory, Loss Aversion
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What is the unit behaving rationally: leaders, states, ngos, private market actors, domestic institution, international institution. Taking individual preferences and turning them into social preferences. Non-demanding definition of rationality i. e. goal-oriented behavior is a seemingly reasonable assumption. Will be thinking of player as implicitly choosing optimal strategies, even if they do not go through the actual process of calculation that game theory assumes. Making decisions which have bad outcomes is not rational. Belief: as probability statement about the effectiveness of an actor for achieving various outcomes. Actions don"t choose outcomes; they make decisions that result in many outcomes. Piui=p1u1+p2u2++pxux (i): an outcome in s, the set of all possible outcomes. Rationality requires actors to take the action which maximizes one"s expected utility. Making decisions which end poorly isn"t irrational if it"s a calculated risk. The president is considering whether or not to propose a set of sanctions against a hostile oil producing country.