8 ms·

Rationality, in the economic sense, doesn't mean making objectively correct decisions as perceived from the outside. It means to make decisions in the furtheran

Rationality, in the economic sense, doesn't mean making objectively correct decisions as perceived from the outside. It means to make decisions in the furtherance of a particular subjective goal. Making decisions that later turn out to be counter to those ends does not mean that person was behaving irrationality, just that they were wrong. In other words, economically irrational actors are individuals who act consistently against their own self interest, even as they perceive it. Almost no one is irrational in that sense. It's a loose definition, but it's all that is needed to make markets functional.

dragonwriter 8y ago
> It means to make decisions in the furtherance of a particular subjective goal. The particular subjective goal is “experienced utility”, and economic rationality not only presumes that that can be meaningfully summed across time but also that the decision made will be made with perfect information as to resulting utilities and disutility and maximize the net lifetime experienced utility.
- testvox 8y ago
  Why would economic rationality assume that the decision made will be made with perfect information as to resulting utilities and disutility and maximize the net lifetime experienced utility? This seems like a non sequitur, and a really silly assumption. Wouldn't economic rationality assume that the decisions of actors are rational rather than based on perfect information about their consequences?
  - dragonwriter 8y ago
    > Why would economic rationality assume that the decision made will be made with perfect information as to resulting utilities and disutility and maximize the net lifetime experienced utility I didn't invent rational choice theory, so don't ask me to justify it. Ok, well, I'll take a stab at it—the whole concept is exquisitely well crafted as a basis for the argument that liberal (in the classical sense) economic, and even political, systems are ideal in terms of experienced human outcome. > Wouldn't economic rationality assume that the decisions of actors are rational rather than based on perfect information about their consequences? Economic rationality is defined to include both perfect information and optimality given that information, so there is no “instead of”—your two alternatives are different phrasings of the same thing.
    - TheCoelacanth 8y ago
      Where are you getting the idea that rational choice theory necessarily assumes perfect information? That is the simplest model of rationality, but there are others. Wikipedia[1] lists three others in addition to perfect information: > Perfect information: The simple rational choice model above assumes that the individual has full or perfect information about the alternatives, i.e., the ranking between two alternatives involves no uncertainty. > Choice under uncertainty: In a richer model that involves uncertainty about the how choices (actions) lead to eventual outcomes, the individual effectively chooses between lotteries, where each lottery induces a different probability distribution over outcomes. The additional assumption of independence of irrelevant alternatives then leads to expected utility theory. > Inter-temporal choice: when decisions affect choices (such as consumption) at different points in time, the standard method for evaluating alternatives across time involves discounting future payoffs. > Limited cognitive ability: identifying and weighing each alternative against every other may take time, effort, and mental capacity. Recognising the cost that these impose or cognitive limitations of individuals gives rise to theories of bounded rationality. [1] https://en.wikipedia.org/wiki/Rational_choice_theory https://en.wikipedia.org/wiki/Rational_choice_theory

dragonwriter 8y ago

> It means to make decisions in the furtherance of a particular subjective goal. The particular subjective goal is “experienced utility”, and economic rationality not only presumes that that can be meaningfully summed across time but also that the decision made will be made with perfect information as to resulting utilities and disutility and maximize the net lifetime experienced utility.

testvox 8y ago
Why would economic rationality assume that the decision made will be made with perfect information as to resulting utilities and disutility and maximize the net lifetime experienced utility? This seems like a non sequitur, and a really silly assumption. Wouldn't economic rationality assume that the decisions of actors are rational rather than based on perfect information about their consequences?
- dragonwriter 8y ago
  > Why would economic rationality assume that the decision made will be made with perfect information as to resulting utilities and disutility and maximize the net lifetime experienced utility I didn't invent rational choice theory, so don't ask me to justify it. Ok, well, I'll take a stab at it—the whole concept is exquisitely well crafted as a basis for the argument that liberal (in the classical sense) economic, and even political, systems are ideal in terms of experienced human outcome. > Wouldn't economic rationality assume that the decisions of actors are rational rather than based on perfect information about their consequences? Economic rationality is defined to include both perfect information and optimality given that information, so there is no “instead of”—your two alternatives are different phrasings of the same thing.
  - TheCoelacanth 8y ago
    Where are you getting the idea that rational choice theory necessarily assumes perfect information? That is the simplest model of rationality, but there are others. Wikipedia[1] lists three others in addition to perfect information: > Perfect information: The simple rational choice model above assumes that the individual has full or perfect information about the alternatives, i.e., the ranking between two alternatives involves no uncertainty. > Choice under uncertainty: In a richer model that involves uncertainty about the how choices (actions) lead to eventual outcomes, the individual effectively chooses between lotteries, where each lottery induces a different probability distribution over outcomes. The additional assumption of independence of irrelevant alternatives then leads to expected utility theory. > Inter-temporal choice: when decisions affect choices (such as consumption) at different points in time, the standard method for evaluating alternatives across time involves discounting future payoffs. > Limited cognitive ability: identifying and weighing each alternative against every other may take time, effort, and mental capacity. Recognising the cost that these impose or cognitive limitations of individuals gives rise to theories of bounded rationality. [1] https://en.wikipedia.org/wiki/Rational_choice_theory https://en.wikipedia.org/wiki/Rational_choice_theory