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Organizations and their effectiveness-2016/Key concept definitions
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=== Mike === Definition (formal): An individual's preferences are rational if they are complete (meaning that for any two outcomes, one is preferred to the other, or neither is preferred to the other) and transitive (meaning that if cows are preferred to telephones, and telephones are preferred to Wonder Bread, then cows are preferred to Wonder Bread). This is the standard definition that comes up in any graduate-level microeconomics textbook (such as Mas-Collel, Whinston, and Green). Definition (less formal): An individual choice is rational if we can think of it coming from a cost-benefit analysis made by the decision maker. This cost-benefit analysis does not need to be made consciously, and this definition does not require that the decision maker not make any mistakes. It just means that the decision maker does not systematically make decisions she knows are a bad idea (in the sense that, according to whatever preferences she has, she does not systematically make decisions for which the costs outweigh the benefits). The costs and benefits of the decision do not need to be immediate, financial, or even concrete.
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