The Effect of the Relative Rationality on the Economic Decision-Making. The Impact of the Emotional Adjusted Value on the Expected Value and Expected Utility

Abstract

The goal of the research is to study the human behaviour in decision making and test if the decisions are made through “relative rationality”. The relative rationality’s idea of the research is to incorporate emotion within the decision-making process to calculate what the researcher has named “Emotional Adjusted Value” equation (“EAV”), to integrate the “emotional revenues and emotional cost” with the traditional economic revenues and cost. The sum of all EAV multiplied with the probability of the event give the “Emotional Adjusted Expected Value”. The researcher has developed a flowchart to “price” the emotion in economic value, this allows to calculate the monetary subjective value of the emotion with the goal to figure out the “true” subjective value of the choice considering both economic and emotional factors. The researcher has elaborated the Emotional Adjusted Expected Utility ’s idea, where the standard subjective utility of the payoff is replaced by the utility of “Emotional Adjusted Value” and multiplied by the subjective probability to get more accurate subjective utility value considering both emotional and economic factors under decision making process. Keywords: relative rationality, human behaviour in decision making, subjective emotional revenues, subjective emotional cost, emotional adjusted value, emotional adjusted expected value, emotional adjusted expected utility, behavioural economics, choice under uncertainty, role and effects of psychological, emotional, social factors on decision making.