Rationality (Economics)

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Rationality has a special meaning in economics, having to do with ideal models of human thinking that generally do not match what humans are actually capable of and are known to do. Humans use other methods instead: see Actual Human Rationality. In addition, Austrian economists redefine rationality to mean something entirely different.

Links

Actual Human Rationality (17 links)
Human reason consists of MANY methods besides logic, notably informal fallacies and heuristic reasoning.
Homo economicus (15 links)
AKA Economic Man. The idea that humans are individualistic, rational, economic maximizers. A common, simplifying assumption in most economic models, also known as economic rationality. It is also commonly agreed that this assumption is false. Behavioral studies with the Ultimatum Game are good evidence that it is false.
4 Ways We Are Not Rational And How It Affects Economics [More...]
Economics is still taught as if people were unemotional rational actors, unswayed in their quest for maximum efficiency.
Applying Economics To Bacon [More...]
The market is too complex for consumers to understand and compare all the options. We have neither the time, the knowledge nor the patience to buy and taste 40 different types of bacon and find which is the best. Instead we guess. This means that an inefficient (either overpriced or poor quality) product can remain on the market for a long time and may even dominate.
Economic Incentives Don’t Always Do What We Want Them To [More...]
"On their own, markets can’t deliver outcomes that are just, acceptable -- or even efficient." And "Financial incentives are nowhere near as powerful as they are usually assumed to be."
Libertarianism is an Ideology Built on Neoclassical Economics [More...]
"One of the things that has always put me off libertarianism is that it clearly has neoclassical economics at its heart. The only difference is that all of the flaws – assumptions, rational economic man, framing issues as governments versus markets – are transposed onto a political ideology."
Licence to be Bad: How Economics Corrupted Us (book, online)
A history of how plutocratically funded economic propaganda has reshaped our ideas of morality. Enthralling history.
Nudge Policies [More...]
"Once you have admitted that people's decisions are affected by these kinds of factors, an obvious question is whether public policy might make use of how decisions are presented to influence behavior."
Nudge: Improving Decisions About Health, Wealth, and Happiness (book, online) (1 link)
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Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions (book, online)
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Quantum Epistemology for Business [More...]
Decision making based on any data has problems analogous to those of Quantum Mechanics. These make pretenses to "rationality" heuristic at best.
Rationality: A Second-Best Theorem [More...]
"To see what's going on here, remember Lancaster and Lipsey's theory of the second best. They show that if there is a market imperfection welfare might be improved by introducing another imperfection. For example, if there is a monopoly, price controls might be welfare-enhancing."
What Do Austrians Mean by "Rational"? [More...]
A bald-faced redefinition to mean non-reflexive behavior. Thus the most insane or random behavior is "rational" to Austrian economists.

Quotations

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