The rationality of adaptive decision-making and the feasibility of optimal growth planning

This paper challenges the conventional economic assumption of rational decision-making by exploring the practicality of adaptive decision-making, particularly in household consumption/saving planning. It compares the optimal growth model, based on rational expectations and perfect foresight, with a budget-controlled adaptive model using replicator dynamics and the Plan-Do-Study-Act (PDSA) cycle. The findings reveal that while the optimal growth model yields a unique, but unstable, path, the adaptive model generates diverse and stable growth paths comparable to the optimal path in terms of social welfare. Numerical results demonstrate that a significant portion of these adaptive paths achieve a high percentage of the optimal social welfare level, highlighting the feasibility and practical manageability of adaptive decision-making.

Shungo Sakaki