Sunday, 22 March 2015

Rationality in Economics

At an Economics conference last week, Alan Kirman made the point that when economists say "rational", they don't mean rational as most people think i.e. fully optimising, relentlessly all-knowing calculating.  They mean "consistent".

Lots of psychology looks at individual motivations, what should economics do with all these studies?  Here is Peter Abel in a paper I have not seen before.

Psychologists and, indeed, many sociologists often allege that economists adopt
an over-simple model of the individual (i.e. usually rational, calculating and self-
interested). Maybe they do, but the important point is, nevertheless, that the social
sciences should only adopt the simplest model of the individual consistent with
validated psychology theory, which can in turn contribute to an account of the sys-
tem state. This being the case, the social sciences will not always, or even usually,
shift with changing fashions in our understanding of individual psychology. Unfor-
tunately many sociologists have not taken this lesson to heart, with the result that
a type of literature has evolved which tries to locate ever more refined ways of
understanding individuals and their interactions. Social scientists have very little to
learn from this literature.

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