Economic Defenses for Rational Behavior in Economics

Abstract

The various historical and disciplinary analyses of rational behavior in this book lead inextricably to an overarching conclusion: Perfect rational behavior, the type widely presumed in neoclassical economics – a decision making process in which people flawlessly (with impeccable consistency and transitivity) make choices among known alternatives with known resources at their disposable – is not, and cannot be, descriptive of the full scope of the human predicament. Frank Knight’s observations regarding “scientific economics” is key to understanding the limits of rational behavior for people and the limits of economics as a means of understanding human behavior: “The first question in regard to scientific economics is the question of how far life is rational, how far its problems reduce to the form of using given means to achieve given ends.....[L]ife is at bottom an exploration in the field of values, an attempt to discover values, rather than on the knowledge of them to produce and enjoy them to the greatest possible extent” (1935, p. 105). Nevertheless, there can be a rationality of a sort – and an economics of a sort – so far as wants are determined and to the extent that people can and do contemplate the relative merits of alternative courses of production and consumption. Behavioral psychologists and economists have more recently documented many imperfections in human rationality, and its derivatives, decision making, and behaviors (see Chap. 6), but neoclassical economists should neither consider such findings unexpected nor deny them. Oddly, as will be seen in Chaps. 10 and 11, the behaviorals’ findings should even be welcomed as a reason d’etre for the economics as a course of study and method for thinking and deducing insights about real-world human behavior.