Thick Rationality

Economists got rationality half right. The rest is history.

Photo by Mathew Schwartz on Unsplash

Rational choice. There is probably no idea that is more fundamental to modern economics as this assumption and therefore, few ideas have been more scrutinised than the simple assumption that people behave rationally.

It first started off in The Age of Enlightenment, where Adam Smith (1723–1790) argued that rational self-interest made the world go round. This idea was clearly stated in the following passage of The Wealth of Nations (1776):

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.

Here arguing that because citizens act out of their self-interest, we have a society were people are led to supply what other people want. By this same mechanism, prices are driven down and we all may enjoy the vast wealth that has been created since The Industrial Revolution.

This idea laid the analytical framework for a homo economicus: a term describing that we act out of our narrow self-interest instead of altruistic or religious motives. It’s important to understand that this does not mean that society then destroys itself due to…