Rationality and Emotions: A Model of Inner Games and Ego Identity

This paper develops a framework of Inner Games with Ego Identity to discuss an individual’s rationality and emotions in decision making. Following previous efforts of taking psychological insights into economics, this paper dives into the multi-faceted human psychology and proposes a new framework of the decision maker’s Inner Games with Ego Identity in the context of a relationship, and integrates the components of beliefs about oneself and the other one in a relationship into the structure. Moreover, I assume that individuals are motivated mainly by their Ego Identity other than by direct pleasure from consumption, and the utility is derived from the inner state at the moment of decision making. As an application, I define and understand emotions in the framework, such as anger, guilt, and disappointment. For example, I distinguish five types of anger, such as healthy anger to protect one’s personal boundary, and anger to threaten others for some purpose. I end with a discussion of several directions for future research.