Seminar Series

Analysing irrational choices

Whether we buy a chocolate bar or remortgage our house, before we can take action we usually make a decision. But how rational are these decisions? Internal consistency can serve as a simple norm of rationality, especially when individual preferences are involved. A graph-theoretical definition of inconsistency is established that covers phenomena such as the "Ellsberg Paradox" (preference reversal) and the "money pump" argument (intransitivity). A decomposition technique is derived from the definition and variants of the decomposition are applied to compare block designs, to investigate heuristics, and to identify critical choices. The technique is explained and various applications are outlined.