Rationality revisited

14 08 2008

By Economicsfairy

Just a quick question: How do they define “rationality” in economics again? Wasn’t it, very simply, a decision-making process based on what you perceive is better or best for yourself, according to your preferences? I’m not sure, maybe there are already models to incorporate altruistic behaviour, to be able to show that one could do something for someone else (which might be a “sacrifice”), but still behave “rational”.

If not, then the whole concept is a bit flawed, due to a very narrow worldview and also, to limitations on information as far as the long-run time horizon is concerned. Of course, a very “rational” action today (going to work by car because it is more convenient than the bus) can have very bad effects for me and others in the future (including the environment etc. etc.) So is it still rational to take the car?

But it doesn’t always have to be the environment. The game theory model “prisoner’s dilemma” shows that sometimes in a given situation, two players could both be better off by cooperating, but because they don’t trust each other (and behave according to “individual rationality” which would make each alone even better off, but both together worse), they end up in the worst possible situation. This is what happens in our societies at all levels, all the time. People defect because they think the others will do the same and so we end up worse off, altogether. But we are rational.

I think that the whole idea of being rational if you do something only according to how much it benefits yourself in the short-term, without realizing the detrimental effects on yourself in the long-run, other people or the environment, suffers (like many other ideas in world history) from the assumption that we are all separate individuals, separate entities who have to fight for themselves (against others) and are basically alone in this “cruel world”.

There are spiritual people who claim that the opposite is true: that we are not at all separated, neither from others nor from the Divine. They say this would just be a great illusion we all suffer from. So if we regarded the world like as if we were all one, wouldn’t our behavior change, little by little? Wouldn’t it become clearer that whatever good or bad we do to others would come back to us at some point?

And wouldn’t it be fun to think of “rationality” like that? Rational behaviour as a kind of behaviour that doesn’t distinguish too much between people anymore, but that tries to take into account the well-being of as many beings as possible?

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