Just Pursuits

ethics and economics.

Are People Rational? Does it Matter?

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A common argument against markets is that people are not as rational as economists would have us believe.

Now, ‘rational’ in the economic sense is not quite the same as our common interpretation of the word (and often what appears to be irrational is more rational to the individual than it appears on the outside), but let’s put that aside for now.

Let’s assume that people often do utterly fail to behave rationally. My question is, is this really a good justification for casting markets aside? I don’t think so. The advantage of markets is that they encourage people to be rational, by rewarding them for smart decisions and letting them experience the consequences of bad ones. Shouldn’t we, at the very least, be encouraging people to be more rational? Isn’t rationality something that we should value? Does the fact that people do not always behave rationally mean that we shouldn’t let them exercise their own minds and make their own decisions? Does it give us the right to treat them like children instead of fellow mature adults by making their decisions for them? And if their decisions are made for them, what incentive do they have to become better rational thinkers?

But there is yet another important consideration. If it is in fact true that human beings are generally irrational and that we are all human beings, who’s to say that a politician or government bureaucrat will be more likely to be rational than the individuals he or she oversees? Are governments really more rational than market players? Most of those who are in positions of market influence have gained their positions through proving their rationality in the market. This is not likely the case for politicians and bureaucrats.

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Written by mikeikon

October 11, 2009 at 5:11 pm

Posted in economics

Tagged with , ,

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