Question

1. The text (page. 220-221) tells the story of Mr. Jones who sues Mr. Smith for taking his briefcase even though he loses a significant amount of money. It also tells the story of why Mr. Jones will make Mr. Smith an offer above the rational choice prediction if they are considering a joint venture where both must participate or the venture fails. Explain what is causing these deviations from rational choice theory and why some knowledge of the person you are dealing with is important. (20 points)

Answer 1

These deviations are likely to be caused by emotions and it is important to have information about the person you are dealing with to favor your interests and make the best decision.

The Rational Choice Theory states:

• A person will always make decisions to favor himself or herself
• Decisions are based on rational calculations

Despite this, individuals might make irrational decisions if:

• Emotions
• External factors

In the case of Mr. Jones, he makes an irrational decision because by suing Mr. Smith he loses more money. This is likely motivated by emotions such as a desire for justice or a desire to revenge.

Moreover, in this situation, it is shown Mr. Jones does not have enough information about the person he is dealing with (Mr. Smith) and this lack of knowledge does not allow him to make the best decision possible.

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