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 Originally Posted by NightGizmo
Wuf -- I think you're generally right that people make decisions that they think are right at that particular moment. But that doesn't mean that they are acting rationally, objectively speaking.
All of your examples show that people can act extremely irrationally -- doesn't that conflict with an economic model that relies on the premise that all agents in the system are acting in their rational self-interest?
In the context of economic self-interest, rationality =! reason.
Moving your hand away from a flame because it hurts is rational. Jumping because a loud noise scares you is rational. Getting upset with somebody because you don't like their skin color is rational. Buying Lucky Charms because you want Lucky Charms is rational. Buying Fruit Loops instead, for whatever reason, is also rational. Cutting yourself because you like pain is rational. Attempting an unsuccessful suicide because you want attention is rational.
In a sense, doing what you want is the most rational thing you can do. Irrational would be if your hand touches a hot burner and your brain sends all the signals that it's hot and you feel the pain and you think the pain and you have no reason whatsoever to not pull your hand away, yet you don't pull your hand away. In this sense, irrationality is describing the impossible. This is rational: wanting something is wanting it. This is irrational: wanting something is not wanting it.
Economic rationality is like saying that organisms are causal agents. Economists describe rationality through utility because that's the only way it makes sense. The other options are that behavior is random or counter-rational like the leave-hand-on-burner-even-though-brain-says-pull-away example.
Probably all of the confusion can be cleared up by noting that rationality in economics is totally different than the way the term is used colloquially and in other fields. Economic rationality has nothing to do with it being "good" or "smart" but with it being what you most want at the time.
Economic rationality may seem like an unimportant concept since it's completely arbitrary and unfalsifiable, but part of why economists like it is because it provides a useful perspective. For example, when you hear about somebody committing suicide, you think "it couldn't have been so bad, that was a bad decision, etc.", but what economists say is that the person committed suicide because it was the best option they saw, it was the thing they wanted the most. I would argue that this is intuitive. Even though you may think committing suicide for the types of reasons people typically do is unreasonable, I suspect you would agree that it only makes sense that somebody would do it if they saw it as the best option. I mean, when somebody kills himself, the net conscious/subconscious value assessment of his options is not "I most want to eat this burger;" it is instead "I most want to kill myself."
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