Decision Making- I (Rationality and Logical Positivism)

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  • Topic: Rationality, Rational choice theory, Positivism
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Decision making- I (Rationality and Logical Positivism)
Lijo John
FPM06/10-Q
Economics defined as the social phenomenon of wealth getting and wealth using activities of the human kind is one of the most elegant definitions given by Richard T. Ely. The definition in itself requires one to divulge into the methodology of identifying the relations under the contemplation of the philosophical community. Rationality in economics forms the important basis of the analysis of this paradigm. The economics whether normative or positivist was not just the allocation of resources but also the rational allocation of the scarce resources (Simon, 1978). The rational decision making in economics can be compared with other social sciences which again evaluate the empirical evidences observable and try to connect the theory with the observations. But these methods are sometimes ineffective since the actual number of factors affecting the implicit and the explicit variations in the unit of analysis cannot be always generalized. The attempt to generalize the observations leads to the general theory which fails to explain the variabilites. The existence of this general theory is as good as the its absence since it requires much effort trying to mend something that was conceived with a flaw. The effort to explain any such conclusions using a theory can lead to either a strong theory or a weak one. The rationality extends beyond the realm of theorizing. Its interpretive explanation of the observed facts using qualitative evaluation of observation allowing the imagination to allow substantially theorizes and allows subjective evaluation. Simon (1978) comments on the bounded rationality by evaluating the pre-computer era where the number of factors that were considered in decision making were few. The technological innovation has increased the purview of thought to a great extent, but never the less the theorising still needs the human intellect to analyse the interplay between the factors to explain the certain observed and unobserved facts. The importance of the procedural rationality can be found in this case where not just the decisions made to be rational but the procedure for decision making should be rational too. These shift in the thought process and the reinforcements of the ideas by the technological innovation gives the basic change in the man’s faculty to make the rational choices and his computational capabilities. The advances of the intellectual capability for the rational decision making is not restricted to the obvious decision making arena but to the paradigmatic shift for the objectivistic approach of theory building to the interpretive approach of theory building. The neoclassical economist treat rationality as a vivid function of decision making since the computational power of the human brain is limited and limited variance form the observation is the critical requirement of the unit analysis of the facts. The rationality in neoclassical paradigm requires the rationality in the process rather than the product. The process is given more importance since the analysis of the facts, the methodology used supersedes the impetus to generalize the observation since almost all the action and ability to reach the factual assumptions and very little form the assumptions of optimization. Another approach to it says that we need to concentrate our efforts on testing the conclusions and not the assumptions (Simon,1986). The counter argument to this will be that the assumptions are the major structural requirements to imply the generalization of the theorizing process. The assumptions impart the structural stability to the theory and if the structural inclination is biased towards the certain observation the theorizing will reinforce the implication. Since the assumptions are the manifestation of the bounded rationality, removal of assumptions form the questionable domain seems to be highly unreasonable. The bounded rationality cannot...
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