Question

Please label the statements as true or false regarding rationality.

a. You are currently in a labeling module. Turn off browse mode or quick nav, Tab to items, Space or Enter to pick up, Tab to move, Space or Enter to drop.
b. Rational people will always choose the option that maximizes income.
c. The rationality assumption is used to simplify models. Risk aversion is an example of irrationality.
d. One of the root causes of credit card overuse is due to mental accounting.

Answer 1

The statements are labelled as true or false regarding rationality as follows:

Statement                                       Label

a. In a labeling module                  False

b. Choice of rational people         True

c. Risk aversion is irrationality      True

d. Mental accounting cannot

   cause credit card overuse        False

Rationality demands that a person's decision is based on logic or reason.  Irrationality presupposes the absence of rationality or reason.

Again, there is no logicality in the first and fourth statements but rationality is observed in the second and third statements.

Thus, a good example of irrationality is risk aversion, which is also a risky gamble.

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