This is a presentation that was made to Stellenbosch Institute of Advanced Studies on Flexibly-Bounded Rationality.

1. Flexibly-bounded Rationality
Tshilidzi Marwala
University of Johannesburg

2. Principles of Rational Decision
• Rationality: Indivisible
• Logic
– It has to make logical sense
• Information
– It has to be based on information
• Optimization
– It has to not waste resources

3. Rationality: Decision Action
• An agent acts rationally if in its decision action
it uses relevant information and logic to make
an optimized decision
• An agent acts irrationally if in its decision
action it either not use relevant information or
uses irrelevant information or is illogical or is
not optimized
• Rational decision action is made out of causal
and correlation models

4. Decision Process
• A decision process is made out of decision actions
• Decision actions are either rational or irrational
• The degree through which a decision process
satisfices (satisfies and suffices) is based on the
outcome of the dialectic interplay between
rationality and irrationality of each decision
action
• Hegel’s concept of dialectic of thesis (rationality)
and antithesis (irrationality) of decision actions in
a decision process synthesize whether the
process satisfices or not

5. Rationality: Decision Process
• A decision process is rational if all decision
actions that form the decision process are all
rational
• A decision process is irrational if at least one
of the decision actions that form the decision
process is irrational

6. Masindi: Is he rational?
• Patient Masindi is diagnosed with a serious heart problem.
On the morning of day 1 he goes to the astrologer who tells
him to jump and thereafter goes straight to see a
cardiologist who examines him and tells him that he is
going for an operation the following day. The following day
before going to the operation room he consults an
astrologer to strengthen the chances of success of the
operation. Now, in the process of dealing with his heart
problem, is Masindi being rational?
• Decision Actions: Seeing doctor, Seeing
astrologer, Operation, Jump
• Decision Process: All the decision actions taken

7. Rational Decision Making

8. Bounded-Rational Decision Making

9. Complete Data: Missing Data
Estimation

10. Incomplete/Imperfect Information

11. Model: Causal Model
• Y=f(x)
• Principle: It is impossible to rationally predict accurately information that does
not already exist

12. Causal Model: Modelling Conflict

13. Causal Model: Economic Modelling

14. Causal Model: Condition Monitoring

15. Flexibly-Bounded Rationality

16. Bounded versus Flexibly Bounded
Rational

17. Generalized Decision Making

18. Example: Condition Monitoring

19. Example: Modelling HIV

20. Example: Modelling Interstate Conflict
Data: Distance, Contingency, Major
Power, Democracy, Allies, Dependency and
Capability
Autoassociative Network
Intelligent Machine
Militarized Interstate
Dispute

21. Irrational Decision Making
• The fact that for rational decision making
involve information, logic and optimization
implies that human beings are largely
irrational beings
• How then do they satisfice given the fact that
they are irrationally
• Is satisficing the property of rationality

22. Irrational Decision Making
• In order to satisfice the following steps should
be followed:
– Break the decision making process into a series of
decision actions
– Classify each action as either rational or irrational
– Apply the theory of dialectics or game theory to
weight rational actions against irrational actions

23. Example: Nongqawuse the Xhosa
prophet
Nongqawuse the Xhosa prophet advised her
community to kill all their cattle and crops so that
God can drive the British into the sea (Peires, 1989).
The overwhelming majority (95% of community
members) killed the cattle and crops. The decision
process this community followed had both rational
and irrational decision actions but was overall
irrational. This resulted in famine and deaths.
Theory of marginalization of irrationality (noise to
signal ratio) the outcome was not satisficing
because rationality (thesis) and irrationality
(antithesis) synthesized an unsatisficing outcome.

24. • Questions??