When investible amount is limiting and not the investment opportunities, a ratio model is appropriate whereas when the investment opportunities are limiting and not investible amount, a difference model is appropriate.
Science is not a recent “invention”. The fundamental logic and method of science consisting of observations, questioning, making and testing hypotheses evolved with us and is very much a part of the evolved human mind. Articulation of these principles is relatively recent. Many illustrative examples of scientific thinking from today’s hunter gatherer societies have been documented. Moreover people use certain innate and intuitive principles of logic, science and mathematics which we are yet to understand. I will illustrate this with one example of intuitive mathematics of the illiterate that we are trying to understand. The profit from a deal is measured in terms of its costs or investment versus its benefits or returns. However, in economics as well as in evolutionary biology optimization theory sometimes uses the ratio of investment to returns and at other times the difference between the two. In optimality theory both ratio model and difference model is used, but there is no clear understanding about when one should do difference optimization and when ratio optimization. We worked out the rules for when to use of ratio and when to use difference optimization. When investible amount is limiting and not the investment opportunities, a ratio model is appropriate whereas when the investment opportunities are limiting and not investible amount, a difference model is appropriate. While studying the economic decisions of farmers we realized that farmers were are already using these rules in the correct contexts although they did not have a conscious knowledge of these rules. Intuitive economics of illiterate people works on certain principles that science is yet to understand completely. Studying the subconscious thinking and decision making processes of people is likely to reveal at least some new scientific principles that people commonly use but science hasn’t realized so far.