Are People Rational in the Economists Sense.

Topics: Rational choice theory, Economics, Neoclassical economics Pages: 10 (3562 words) Published: April 6, 2011
Topic A:
Are people rational (in the economists sense) and reasonable (in the lawyers sense)? Whatever your answer to that question, does it matter?

Human behavior is a complex subject and people make decisions everyday that will not only affect themselves, but other people around them. This essay will attempt to show whether people are rational in an economist’s sense, and reasonable in a lawyer’s sense. Whatever the outcome, there will be a discussion into if it matters, and how this behavior is useful for lawyers and economists in coming to decisions, and making predictions. Most generally, a necessary, natural or logical association or adaptation between ends and the means for their attainment defines rational behaviour (Boudon, 1982). Choice is said to be rational when it is deliberative and consistent. The decision maker has thought about what he or she will do and can give a reasoned justification for the choice (Ullen,1999). Therefore one expects that there will be no wild and inexplicable swings in the objects of their choices and that the means chosen to effectuate the goals of the decision maker will be reasonably well-suited to the attainment of those goals (Nozick, 1993). Economics is described by Lionel Robbins as the science, which describes human behaviour as a relationship between (given) ends and scarce means, which have alternative uses. Consequently assumptions have to be made about people, how they behave, and how they make decisions. Moreover, the behavior of an economy reflects the behavior of the individuals that make up that economy (Mankiw and Taylor, 2006), supporting how important these assumptions are.

Economists assume people are rational with well-ordered preferences (Wessels 2006). Moreover, rational choice theory states these preferences are transitive and rational people seek and act to maximize utility, which they derive from those preferences, subject to various constraints (Ullen, 1999). Another assumption within the theory is that preferences are complete; so a rational person can always state what preference is preferred, or be indifferent (Lecture Notes). Moreover, rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior (Blume and Easley, 2008). The definition of "rationality" in the theory simply means that an individual acts as if balancing costs against benefits, to arrive at an action that maximizes personal advantage (Freidman 1953), otherwise known as utility. An example is a professional accountant who spends 50 hours a week in his office, earning £100 an hour for his labour, he chooses to spend 2 hours gardening on a Saturday, when he could have hired a gardener to do it for him. The opportunity cost of mowing his lawn would be £200 plus the value of leisure he could have enjoyed when not gardening. He could have hired a gardener for £20, compared to the opportunity cost of £200, which seems a bargain. Consequently is the accountant acting irrationally? Under the established discipline that gardening is classified as work, it would seem the accountant is indeed acting irrationally, however, the accountant may have acted to do some gardening for stress relief, which constitutes as leisure, therefore gaining utility of happiness, and showing its not irrational at all. In addition this can also be linked the blurring of leisure and work classifications in recent years.

The rational choice framework is widely used as the dominant theoretical paradigm within microeconomics (Gibbons, 1992). Subsequently, most neoclassical economists assume people are “rational” and are self-interested (Mankiw and Taylor, 2006), but the term is narrowly used in economics, so as to exclude from the domain of the many rational phenomena that psychology would include in its definition of rational (Herbert 1986). Furthermore, in economics, rationality is viewed in terms of the...

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