Conceptualizing Irrationality as an Implicit Economic Variable

Abstract

We review the necessary concepts of irrationality that emerged in economics over the last few decades. In this paper we propose irrationality as an implicit economic variable with the irrational customers as economic agents. The theory of Utility maximization and Bounded rationality along with social welfare is kept as the building block of the new conceptualization. The discussion centers around the commodity market alone, however, the basic concept is applicable to any economic transaction. If a decision is irrational, the transaction shifts away from equilibrium in a macroeconomic setup.