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A rational measure of irrationality

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  • Davide Carpentiere
  • Alfio Giarlotta
  • Stephen Watson

Abstract

All possible types of deterministic choice behavior are classified by their degree of irrationality. This classification is performed in three steps: (1) select a benchmark of rationality, for which this degree is zero; (2) endow the set of choices with a metric to measure deviations from rationality; and (3) compute the distance of any choice behavior from the selected benchmark. The natural candidate for step 1 is the family of all rationalizable behaviors. A possible candidate for step 2 is a suitable variation of the metric described by Klamler (2008), which displays a sharp discerning power among different types of choice behaviors. In step 3 we use this new metric to establish the minimum distance of any choice behavior from the benchmark of rationality. Finally we describe a measure of stochastic irrationality, which employs the random utility model as a benchmark of rationality, and the Block-Marschak polynomials to measure deviations from it.

Suggested Citation

  • Davide Carpentiere & Alfio Giarlotta & Stephen Watson, 2023. "A rational measure of irrationality," Papers 2302.13656, arXiv.org, revised Mar 2023.
    • Handle: RePEc:arx:papers:2302.13656
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    References listed on IDEAS

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