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 Originally Posted by Poopadoop
That's interesting. Do all of these models assume people behave rationally then, but with varying degrees of information?
"Rational" is acting according to subjective preferences. So, for the most part, yes. I say "for the most part" because there is some small movement in economics against this idea. And I don't really understand why. The best I have gathered from discussions with some professors is that the "irrationalist" portion emerges in part from redefining things. So what Richard Thaler would call "irrational", traditional Chicago economists like Gary Becker would call "rational."
But yes, we assume the aggregation of investors want more money rather than less money and that they act according to how they perceive to do that.
I almost completely disagree with the "irrationalist" approach. It isn't even economics per se. It started out of psychology. Psychology is fine, but it's not the same as economics. I asked one of my profs (the best one I've had) what the Gary Becker (champion of rationalism) type would think of the Richard Thaler (champion of irrationalism) views, and he said Becker would say something along the lines of how in some technical way the irrationalists might be right but even so it wouldn't change any of the modeling since the modeling attempts to incorporate all possible preferences.
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