Why does Economics assume rationality?
Updated: Mar 26, 2022
To a certain extent, I regret that I was major in Economics in university. Economics assumes that people are rational i.e. individuals always make prudent and logical decisions which provide them with the highest amount of personal utility. For many years, I took this assumption almost like the truth unconsciously. Well…. even if not the truth… I saw it as the RIGHT to be. One should be rational! One should park the feeling aside! Such judgement has been reinforced in my mind as it is the norm in the banking industry and in Hong Kong. (I have worked in banks and lived in Hong Kong for decades.)
On reflection, even outside the Economics / Banking / Hong Kong domain, the world does not really seem to welcome irrationality. Normally, when someone said, ‘He is irrational’, it often carries certain negative connotation.
Why would the world push away irrationality? I think it is about predictability. Back to the definition mentioned above, if all are rational, we always make prudent and logical decisions which provide them with the highest amount of personal utility. We can then more easily predict how the others will behave. And human being generally prefers certainty. One would thus want OTHERS (or even himself or herself) to be rational.
Why do I regret? First, more and more I realise that human being is hardly rational. The assumption in Economics that people are rational fails more often than not in real life. I recently note down a few examples:
Why people spend so much money on funeral?
Why would people have kids?
Why would people celebrate new year / birthday?
Why people would pay USD1,000 for a plastic bag?
Why would people still smoke after near-death experience caused by heart attack?
Why do people fall in love?
After all, why do economics have to assume rationality? Because we are not! At best, one can only say that ‘human being is irrational but trying to be rational’
Second, worshipping rationality means denying feeling. But when we really think about it, our feeling about things is inevitable. In fact, one can argue that feeling is our ultimate pursuit. For example, think of our most hardworking colleague – why does he / she work so hard? He would say because he needs to pay for the mortgage. Why mortgage? Because of the need to find a place to live. Why? Because he needs to keep him / his family warm and well-fed.
Further, if we want to understand ourselves better, we cannot ignore our feeling. Feeling is an important source of data for self-awareness. For example, different people would have different feelings when they look at the same painting. On the first level, such difference already is already an element of who I am. After all, who I am is in a way defined by how I am different from the others. On a deeper level, exploring why one would have certain feeling will reveal his / her assumptions and beliefs.
This is getting closer to why I am talking about irrationality and feeling in this blog…. which is about coaching / learning / development. I will continue in the next post on how working with and on feeling will contribute to coaching / learning / development.
(There are different definitions on the word ‘feeling’, and various arguments on how it is different from the term ‘emotion’ or ‘sensation’. I refer ‘feeling’ as one’s own inner subjective, often irrational, experience. It is sometimes more physical and observable e.g. tight stomach, headache, cold sweat. dizziness. Sometimes, it is less so e.g. annoyance, anger, excitement.)