Trade-off talking rational economic person (TOTREP) is one term, among others, used to denote, in the field of
choice
A choice is the range of different things from which a being can choose. The arrival at a choice may incorporate motivators and models. For example, a traveler might choose a route for a journey based on the preference of arriving at a give ...
analysis, the rational, human agent of economic decisions.
Origin of the term
The term was first used notably in
David M. Kreps' ''Notes on the Theory of Choice'' (1988).
[
] Kreps, in his preface, acknowledges Mike Harrison for first using the acronym Totrep. In his work on the theory of choice
Michael Allinghamcharacterizes the notion "denoted by TOTREP" as something "both to admire and worry about".
[Allingham, Michael. ''Rational Choice'', London and Basingstoke: Macmillan, 5 September 1999] Studies of the concept of the Trade-off Talking Rational Economic Person are now routinely conducted in the related fields of theory of choice, the mathematics of decision making,
[E.]
"The Logic of Preferences"
assignment in Harvard University
Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1636 as Harvard College and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of highe ...
, Spring 2000 etc.
Attributes
Totrep denotes an agent of economic decisions with
strict preferences. The setting of the
preference relations presumes
["Theory of Choice"]
University of Florida
The University of Florida (Florida or UF) is a public land-grant research university in Gainesville, Florida. It is a senior member of the State University System of Florida, traces its origins to 1853, and has operated continuously on its ...
that
* One, single person, i.e. Totrep, is making choices;
* A
finite set
In mathematics, particularly set theory, a finite set is a set that has a finite number of elements. Informally, a finite set is a set which one could in principle count and finish counting. For example,
:\
is a finite set with five elements. T ...
of choices of possible outcomes is proposed, each associated with a defined or undefined probability of happening; the sum of probabilities equals 1;
* Totrep's preferences are defined
axiomatically among the choices proposed;
* The
representation of Totrep's preferences is stated through a
utility function
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
, which is typically a function from Totrep's set of choice to real numbers;
* The axioms defining Totrep's preferences must be both
sufficient
In logic and mathematics, necessity and sufficiency are terms used to describe a conditional or implicational relationship between two statements. For example, in the conditional statement: "If then ", is necessary for , because the truth of ...
(if axioms hold, then representation is possible) and
necessary (if representation holds, then axioms must hold); and finally
* The axioms are consistent (axioms can be satisfied simultaneously),
independent
Independent or Independents may refer to:
Arts, entertainment, and media Artist groups
* Independents (artist group), a group of modernist painters based in the New Hope, Pennsylvania, area of the United States during the early 1930s
* Independe ...
(no subset of axioms implies the others, i.e. there is no overlap), and
intuitive (easy to understand).
Ethical considerations
In attempts to legitimatize economic theory as ethical, the question was asked about how to "teach or preach to economists or ethicists how to become more ethical".
["Ethics and efficiency in organizations"]
by Kjell Hausken,
', 1 September 1996 In this, social scientis
Kjell Hauskenposits the notion that, "if acting virtuously contributes to a character or personality which subsequently and indirectly influences economic
gents reputation beneficially in the long run, then this action is to be recommended if the long-term benefit of the beneficial reputation outweighs the short-term benefit of a more deceitful or vicious action."
Hausken observes that, the "ethical economic
gent is actually "a trade-off talking rational economic person", who constantly carries out "a
cost–benefit analysis
Cost–benefit analysis (CBA), sometimes also called benefit–cost analysis, is a systematic approach to estimating the strengths and weaknesses of alternatives. It is used to determine options which provide the best approach to achieving benefits ...
where
reputation
The reputation of a social entity (a person, a social group, an organization, or a place) is an opinion about that entity typically as a result of social evaluation on a set of criteria, such as behavior or performance.
Reputation is a ubiquitous ...
is a relevant input, constantly focusing on her real
interests in a broad sense, and constantly thinking long term."
Empirical objections
Empirical research, from the 1970s onwards (research that eventually established the field of
behavioral economics
Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory. ...
), showed that the Totrep model of rationality cannot be safely considered as representative of real-life human affairs.
Kreps himself initially describes the models of choice presented in his book as both
normative
Normative generally means relating to an evaluative standard. Normativity is the phenomenon in human societies of designating some actions or outcomes as good, desirable, or permissible, and others as bad, undesirable, or impermissible. A norm in ...
and
descriptive but, in the final chapter of his book, where he briefly outlines the paradoxes of
Allais (1953) and
Ellsberg (1961), ultimately acknowledges that Totrep modelling should be presumed to be merely normative, since the "evidence
howsindividuals are very poor intuitive
statistician
A statistician is a person who works with theoretical or applied statistics. The profession exists in both the private and public sectors.
It is common to combine statistical knowledge with expertise in other subjects, and statisticians may w ...
s" and "use
heuristic
A heuristic (; ), or heuristic technique, is any approach to problem solving or self-discovery that employs a practical method that is not guaranteed to be optimal, perfect, or rational, but is nevertheless sufficient for reaching an immediate ...
procedures which sometimes bias their choices in ways that the standard models don't capture."
See also
References
Further reading
*{{cite book , editor1-last=Kahneman , editor1-first=Daniel, editor1-link=Daniel Kahneman , editor2-last= Slovic , editor2-first= Paul, editor2-link= Paul Slovic , editor3-last= Tversky , editor3-first=Amos, editor3-link=Amos Tversky, title=Judgment Under Uncertainty: Heuristics and Biases , publisher=
Cambridge University Press
Cambridge University Press is the university press of the University of Cambridge. Granted letters patent by King Henry VIII in 1534, it is the oldest university press in the world. It is also the King's Printer.
Cambridge University Pr ...
, date=1982, edition=1st , isbn=978-0521284141
New classical macroeconomics
Choice modelling
Rational choice theory
Utility