Economic Rationality

Most economic models today are based on the concept of economic rationality and therefore subject to criticism on its predictability of human behaviour. It is of great importance that policy makers base their decisions in accordance to true human behaviour and that they are not bound to rely on idealised and stylised economic models solely. Redefining rationality from a biological perspective can lead to better predictability and the roles of relative and absolute payoff maximisation in defining rationality is important in the role of rationality (Shutters, 2009).

Practical or instrumental rationality refers to the capacity of the individual to answer the question of ‘what to do’ through reasoning or reflection. It is the ability to distinguish

The concepts of risk and risk perception are clearly defined as opposed to the concept of trust. According to Hansson (2004) risk is defined as the probability of future but not certain harm or the expected disutility of such harm. Risk perception is the mental representation of a risk, as realized in emotions such as fear and in cognitive states such as prediction. The definition of trust is more troublesome and can be interpreted through the research in social sciences such as psychology, sociology, management studies, philosophy, economics and political science. Nickel & Vaesen (2102) defines trust as “a disposition willingly to rely on another person or entity to perform actions that benefit or protect oneself or one’s interests in a given domain” (Nickel & Vaesen,

An individual form its subjective judgement of opinion and ability in comparison with other individuals. If there are group differences between individuals, it has been shown that their behaviour will change in order to alter the situation and minimise those differences between individuals. Actions taken to reduce discrepancies in opinion are rather uncomplicated to uniform in comparison to the case of abilities where two conflicting forces are present. The first forces action to reduce the discrepancy but the other is the willingness to do better and better, which results in the failure of reaching a uniform and a social steady state. This is demonstrated in competitive behaviour, actions to protect dominance and in different types of cooperative behaviour (Festinger, 1954, pp.9). From the social comparison processes in the social psychology theory, one can draw parallels to the concepts of equity and fairness. Distributive justice norms include the concepts of equity, equality and fairness. The first concept includes social comparisons such as receiving different pay for different amounts of work whereas fairness is an outcome of distributive justice norms. Adams (1965) defined inequity as the difference or inequality between people’s outcome (salary)-input