Human, a.k.a the "irrational" animal?

In our daily life,we often come across time that we have to make decision.Whether to study or play, to sleep or wake up, to eat MacDonald or KFC. As you can see, life is full of "whether this or that" dilemma. Sometimes, it is pain in the ass when there are myriad of choices. It could be trivial, as well as critical. Either way, it affects our life to a certain extent. And when it comes to economics, we have a belief that human are "rational" which mean we make logical and consistent while maximizing value choice. In which, we called it "the best decision".

Of course, if human were to be rational, the world would be such problem-less and peaceful. Kim Jong-un, the president of North Korea, would have not created nuclear weapon and provoked the world with it for war; HK students would have not ended their life at such young age; Nikolas Cruz, the 19-years old gun shooter, would have not started the mass shooting and taken 17 lives away on 14th of February at his Florida school. Perhaps, in the genesis, Adam and Eve would have not eaten "that apple". All those aforementioned incidents began to push us to question the fundamental belief of economics: Are we really rational decision maker? Do we really know what "the best decision" is?

Many of us claimed that themselves is a very logical person. To know whether you are really a rational decision maker, let’s do a little test. This experiment was performed in my management class by my lecturer recently, and the outcomes to me were rather shocking and unexpected, in which I considered pretty “irrational”. So the story begins by:

Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal:

-If one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives that full year sentences.

-If both stay silent, both prisoners are sentenced to only one months in jail for a minor charge.

-If each betrays the other, each receives one year sentence.

Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?

The situation can be expressed in this Prisoner's Dilemma Matrix.

The lecturer let two of the students to be the representative of Prisoner A and Prisoner B. I was the former one and a classmate as the latter one. On the count of 3, he let both of us to shout out our decision loud. And of course, as a rational person which I thought I am, I chose "staying silent", as heavier punishment would be received by us if we both betray. Obviously. nobody would want that. Nonetheless, my classmate chose "Betray", which was totally out of the blue. As a result, the punishment of serving full year in jail was received by me and she went free.

In that case, there were four option: win-win, win-lose, lose-win and lose-lose. Beyond any doubt, "win-win" is the best option. Assuming that classmates don't know my answer yet, regardless of the possibility of my answer to be betray or stay silent, she had already decided to go for either a win-lose or lose-lose game. And that is absolutely not maximizing benefit at all for either side. But why she still chose 'betray"? For the experiment, "trust" played a crucial role in determining the quality of the decision. In fact, despite of being classmate, me and that classmate were stranger to each other. Certainly, lots of suspicions were going on in her head. Hence, it showed that the trust issue among us affected our both decision making process which thus resulted in an irrational decisions.

So what lead to human to be such illogical? To explain this, we have to do little a cross-over with psychology. In management, we have got thoroughly 20 cognitive biases explain the behavior. Down below are the 8 examples from those biases:

In many sense, this topic is indeed arguable and there is no right or wrong to any explanation. Some people therefore called economics as "blackboard economics", an economics that pay little attention to the correspondence between the theory and the real world. But anyhow, it is an interesting science of human behavior.