Economic and Emotional Rationality: An Application to Wealth Concentration

Jose Rigoberto Parada-Daza, Miguel Ignacio Parada-Contzen
DOI: 10.4236/tel.[phone]                

Abstract

This Paper presents a theoretical outline regarding the Emotional Well-being (EW) function as an extension of the economic utility function. EW includes habitual factors that are always present in everyday decision making. Firstly, an analytical-mathematical conceptualization of EW is carried out, followed by a study of the concept of emotional security, in order to define a new idea of emotional rationality as a complement to economic rationality. An explanation is put forth, as an application, of the concentration of wealth phenomenon according to the focus on economic and emotional rationality. The conclusion is that EW is a theoretical approach which can clarify the understanding of the decision making process in economics activities.

Keywords

Utility Function; Emotional Well-Being; Economic Rationality; Emotional Rationality; Concentration of Wealth

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	J. R. Parada-Daza, “The Utility Function and the Emotional Well-Being Function,” Electronic Journal of Business Ethics and Organization Studies, Vol. 9, No. 2, 2004, pp. 22-29.
[2]	J. R. Parada-Daza, “A Valuation Model for Corporate Social Responsibility,” Social Responsibility Journal, Vol. 5, No. 3. 2009, pp. 284-299.
[3]	P. Brilius, “Economic Crisis and SMES Sustainability Policies: Application of Emotional Well-Being Function for Analysis,” Journal of Advanced Research in Management, Vol. 1, No. 1, 2010, pp. 16-29.
[4]	J. R. Parada-Daza, “Economic Ethics and Emotional Well-Being,” Journal of Behavioral Studies in Business, Vol. 6, No. 1, 2012, pp. 1-12.
[5]	T. E. Copeland and J. F. Weston, “Finantial Theory and Corporate Policy,” 3rd Edition, Addison-Wesley Publishing Company, New York, 1992, p. 89.
[6]	J. M. Marín and G. Rubio, “Economía Financiera,” Antoni Bosch Editor, Barcelona, 2001, pp. 777-781.
[7]	R. Merton, “Continuous-Time Finance,” Blackwell Publishers Ltd., Oxford, 1996, p. 138.
[8]	R. Jarrow, “Finance Theory,” Prentice-Hall International Editions, Upper Saddle River, 1988, p. 199.
[9]	W. F. Sharpe, “Teoría de Cartera y del Mercado de Capitales,” Ediciones Deusto S.A., Bilbao,1976, p. 237.
[10]	J.-J. Laffont, “The Economics of Uncertainty and Information,” The MIT Press, Cambridge, 1995, p. 8.
[11]	C. D. Carroll, “Why Do the Rich Save Much?” The Johns Hopkins University, Baltimore, 1998.
[12]	J. Robinson, “Economic Philosophy,” Aldine, Chicago, 1962.
[13]	G. Debreu, “La Théorie de la Valeur,” Dunod, Paris, 1966.
[14]	H. Markowitz, “Portfolio Selection,” Yale University Press, New Haven, 1959.
[15]	J. W. Pratt, “Risk Aversion in the Small and in the Large,” Econometrica, Vol. 32, No. 1-2, 1964, pp. 122-136. doi:10.2307/1913738
[16]	J. Ait-Sahalia and M. Brandt, “Variable Selection for Portfolio Choise,” National Bureau of Economic Research (NBER), 2001.
[17]	A. Ang, G. Bekaert and J. Liu, “Why Stocks May Disappoint?” EFA 0669, 2000.
[18]	R. Mehra and E. Prescott, “The Equity Premium: A Puzzle,” Journal of Monetary Economy, Vol. 15, No. 2, 1985, pp. 145-161. doi:10.1016/0304-3932(85)90061-3
[19]	I. Friend and M. Blume, “The Demand for Risky Assets,” American Economic Review, Vol. 65, No. 5, 1975, pp. 900-922.
[20]	S. Hwang and S. Satchell, “Valuing Information Using Utility Functions: How Much Should We Pay for Lineal Factor Model?” The European Journal of Finance, Vol. 11, No. 1, 2005, pp. 1-16. doi:10.1080/1351847042000286630
[21]	H. Inhaber and S. Carroll, “How Rich Is Too Rich? Income and Wealth in America,” Prarger Publisher, New York, 1992.
[22]	J. C. T. Mao, “Quatitative Analysis of Financial Decision,” The Macmillan Co., New York, 1969.
[23]	B. Demidovich, “Análisis Matemático,” Undécima Edición, Edit Paraninfo, Madrid, 1993, p. 247.