Talk about rationality again

I have already talked about rationality several times. The economic definition for rationality is people’s preferences are rational when people’s preferences are complete and their preferences are transitive. People’s preferences are complete basically means people can tell their preferences about their consumptions and people’s preferences are transitive means people rank their preferences, the product with a higher rank is always preferred to the product with a lower rank. Today I want to focus on these two conditions for proving rationality.

The first question is “do we always know what we prefer”. For this question, I need to say in most cases, when people are comparing two products, they usually can tell their preferences, when they do not tell the differences, it usually means the two products are indifferent.

The second question is whether or not we can rank preferences in a particular straight order (not a circle). I have already discussed this question many times. In general, we are often easier to make decisions when we are only offered with a limited number of choices; however, when we are offered with many choices, we find it far more difficult to make our decisions. Based on this phenomenon, when people are offered limited options, they are more likely to be rational. Of course, in reality, we have to face multiple and complicated problems often. Therefore, we tend to behave irrationally when facing the complicated reality. In order to reduce the probability of being irrational, people limit their choices, or create layers of sub choice sets, so they no longer need to choose one option among a relatively limited number of choices.

To conclude, when we know what we want or create subsets of options, we can limit the number of available choices, this can improve the probability of being rational.