Rational and irrational decision making

We call a decision rational if this decision yields an economic advantage for the decision maker. The decision is called irrational when the decision entails an economic disadvantage for the decision maker. It should be noted that there is nothing wrong with taking irrational decisions because there may be valid considerations to justify them. Political decisions are sometimes rational, but often they are irrational, as is illustrated in Table 15.1.

Computer aided decision making is generally associated with rational decision making. It should be noted, however, that computer modelling can contribute to both rational and irrational decision making, as we will illustrate with the case of an airport in the North Sea+.

* Published in (Van Gunsteren, 2005) and reproduced here by courtesy of Elsevier Science Ltd.

+The mathematics of the case have been elaborated further in (Galperin, 2002).

Table 15.1 Some major political decisions in Europe Decision Rational/Irrational

Formation of the European Union Rational. The yearly cost savings of a united

Europe were estimated well over $ 300 billion. Concorde project Irrational. The UK and France lost billions of dollars in the venture. As a loss was expected, the collaboration contract between the two countries included a clause that no one could stop the project before its completion. The decision was taken for prestige, not profit. Introduction of the Euro-dollar Irrational, as far as the northern countries is concerned. These countries used to have a high productivity compared to the southern countries. The central banks could correct for the differences by appropriate devaluation of the southern countries' currencies. This is no longer possible with the Eurodollar. Inflation imported from the Southern countries is unavoidable. The decision for one money unit was nevertheless taken.

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