The essence of economic rationality

"Economics presupposes that one is rational," the student learns in the first lesson of economics. Few, including teachers, can imagine the fundamental influence of understanding rationality on the further development of a student's thinking.

Does the mainstream economy describe God's actions?
Does the mainstream economy describe God's actions?

There are basically two ways of understanding human rationality. Unfortunately, contemporary mainstream economics, whether "pro-rational" or "anti-rational" (behavioral) theorists, usually understands rationality in a way I can't agree with. If we bring their understanding of rationality into effect, we will find that “the mainstream economy denies itself"And criticism of behavioral economists is justified.

Objective rationality

Mainstream economics quite often understands rationality objectively. What does it mean?

Although in the introductory lessons of many textbooks we read something about subjective perception and preferences, this "subjectively" is still ignored. The only thing that is taken into account is that rationality is said to be "effective goal achievement."

It can therefore be assessed from the perspective of a third party: if the goal was achieved at low (lowest) cost, the negotiations were effective. If the goal was achieved at high cost or was not achieved, the negotiations were not effective. The first was correct, that is, rational. The second was wrong, irrational.

On all such an understanding of rationality is built almost all criticism of economic rational and de facto the whole of behavioral economics. However, this understanding of rationality has many major flaws.

I know that I know nothing

According to the objective understanding of rationality, rationality is verified retrospectively - has the goal been achieved? The action was rational. Has the goal not been achieved? The action was irrational.

So if rationality can be assessed objectively, we come to a simple question: what action is absolutely rational?

The answer is: it is the most effective action. What action is most effective? It is a negotiation with zero costs and XNUMX% profit. Mobile perpetuum.

If rationality is only verified retrospectively, was Gutenberg rational when he invented letterpress and not even a laser printer? However, a laser printer is a much more efficient machine, isn't it?

What about us? Why do we use laser printers today when they are certainly less efficient than similar machines that will be used in a hundred years? We are irrational? And what about those people in a hundred years - won't they have the knowledge of those who will live in another hundred years? And so on.

The simple thing is here: after the battle, every general is. Rationality cannot be verified retrospectively, in other words, the "correctness" or "incorrectness" of a certain action tells us nothing about rationality. We never know 100% in advance what is right and what is wrong.

Expectations

The problem with all "objective rationality" is that one acts as expected. He acts and expects something from his actions. He expects benefit - to some extent in some way of meeting needs.

Human needs are different. They also arise from previous events, from the past, but at the same time from knowledge, from information and from the way of evaluating this information. All this - as we will certainly agree - is individual.

One certainly does not know one's future. The fact that we set a goal certainly does not guarantee us that we will achieve that goal. One never has all the knowledge he needs to achieve his goal - he does not have the knowledge to reduce the cost of acting because they do knowledge may not yet exist (example of Gutenberg) or does not have knowledge that he did not acquire through the knowledge of others (wiki: opportunity cost).

In other words, An art historian has a great deal of knowledge about art history also due to the fact that he is not a military historian and does not have such detailed information about the history of the military or because he is not a mathematician. At one time he could be in one place - and knowledge is fragmented, individual, dependent on the individual, place and time.

If the current mainstream economy assumes that "man is rational" by effectively achieving his goals, where costs are as low as possible and returns as high as possible, he says that rational man is one with 100% information that evaluates 100%. "Rationally" (ie equally "objectively effective) and thus achieves its goals 100%.

Simply put, today's mainstream economy describes the actions of non-existent creatures achieving impossible goals under any impossible conditions. The current mainstream economy describes the actions of gods, not humans.

Subjective rationality

As has already been said, human needs are subjective, as is the desire to fulfill them, as well as the knowledge one has to fulfill them, as well as the way in which that knowledge and information is evaluated, as well as the "effort" to obtain that information. Everything is individual - it's just a question of costs and benefits. Costs and revenues that must be understood subjectively!

One and the same thing can be a burden for one person, but not for another. One person perceives the same fact, the other does not. One thing is a farm for some, but not for others.

The economy can't say much about these subjective things - maybe it can't say anything at all. A thing, thought, or process is a good or service to some people because it benefits them.  We can't say more, respectively, this field is a place for psychology. The economy is value neutral - to condition rationality by any values ​​is a value judgment and has nothing to do with economics and neutral (any) science.

Therefore, if all of the above is subjective, a mere matter of individual values, we cannot take some specific features of the given subjective areas as a condition of rationality - it would again be a subjective value judgment.

The magic of goals

What, then, is that rationality? The answer to this question is simpler than it may seem at first glance: it is an effort to achieve goals. Rationality is expectation and decision making. And that's all!

"Goals" are understood transcendently here - any "goal" is a goal. I must admit that in this part I feel limited by the language 🙂

If an individual decides that he does not want to achieve anything and wants to be dragged by the flow of events, it is also a goal. At first glance, this may seem like a tautology: "Not setting goals is also setting goals" - however, it is only a misinterpretation, not a tautology. It would be correct: "not setting subjective goals is also objectively setting a goal." The goal we want to achieve. What rational action!

If everyone is trying to achieve some goals, we will come to the conclusion that everyone is really rational. This concept of rationality respects human reality, it is not about describing deities, but of people. People who make mistakes and do not achieve their goals.

Human act!

The whole "subjective concept of rationality" is de facto a different interpretation or part of the concept human behavior. Rationality is a state, a property. Human action is an ongoing process. Economics describes human action, rationality is not a condition for the validity of economic theories - it is part of action as such. It is not a "condition of action," it is a "property of action." Talking about irrational behavior is like talking about a "red Ferrari in blue."

Thus, there is no "irrational action" in economics. An economist cannot claim that his theory presupposes "rational" or "irrational" individuals. The only possible assumption of any general economic theory is presumption of human action. If an economist presupposes "rational individuals" or describes in his theory when an individual is "rational" and when he is not, it is nothing more than a special theory based on the value court. It can be an elephant on clay feet.

Ideology of rationality

The whole concept of "objective rationality" very simply leads to the tendencies of "rational management of society", social constructivism, on which statistists of all directions build - whether it is socialist central management or monarchists.

It is enough to choose the wise, the smart, the scientists and the elites to rule and dictate to us. After all, they are knowledgeable, they are experts who know better than we do what is good. An objective understanding of rationality clearly leads to these ideas.

After all, the most famous constructivist, the ideologue of "objective rationality", is Plato.

0 comments

  1. Human action is always rational in the sense that it pursues a purpose and includes (but not always) a rational choice of means. This does not mean at all that the concept of rationality is identical with the concept of action. One can be rational only in one's mind without doing anything and therefore acting. Nor does it mean that the superfluous concept is irrational, which can refer to an area of ​​reality that is elusive to reason (it cannot be further reduced and analyzed, as Mises writes).
    The question is whether "rational" is the most appropriate term in relation to action. The term "free" would probably not include that rational choice of means. Perhaps the term "intentional" action would be most appropriate, but I quite understand the use of the word "rational" at the time Mises wrote it. In any case, it is a dispute over words, not about the undoubted (and in my opinion unquestionable) meaning of the whole concept.
    Socialism as a concept is therefore not irrational, but completely rational and also rationally questionable and therefore erroneous. However, this does not mean that someone cannot pursue their goals (= act) by supporting an already refuted ideology.

  2. I would like to give you a short quote from the libinst forum, which got everyone to their knees 5 years ago:

    "In my opinion, it is wrong to redefine the concept of rationality so that it is identical with the concept of action (any action is rational, and if it is not rational, it is not action, but reflex). Then it is pointless to introduce or use the concept of rationality at all, it is redundant. However, in common sense, rationality and action are something else (there is irrational action).
    Otherwise, I asked what was going on at the beginning of this thread, and no one answered me, so if you want to go back to it, I'll be happy. In my opinion, this is just cutting the branches under me, because I don't know how he wants to argue against socialism, if not so that it is irrational - I appreciate the lighting from someone who is more familiar with the mission… "

  3. kill joy:

    Mises in Human Action says that human action is always rational, in the sense that one uses reason to achieve a goal. Ie. he chooses the means that he thinks will lead him best to the goal. Even if it turns out later that a person has chosen the means completely unsuitable to achieve his goal. Ie. rationality does not equal efficiency. These are completely two different categories. Rationality = the use of reason. For example, you have now chosen a goal, namely to refute Mises. You acted rationally in the sense that you chose a goal and the means that you thought would lead you to that goal. So your actions were rational, although they were not effective (in my opinion - you did not convince anyone, and if you read a few lines you would understand what Mises actually meant).

  4. re: call me mr. kill joy
    Well, you listed and you probably missed the merito of the article in the meantime
    the important thing is that man is free and a priori neither his actions nor his desires can be predicted… it quite coincides with the Christian view of freedom of human will, which is regulated under the influence of (internal and external) circumstances, but not enslaved (and acts so from the outside about the "black box")

    it would also be worth mentioning that in a viable economy, objective rationality does not really matter (economics solves the modus operandi, "what is above is from the devil")

    as a "arrest of the tip" of constructivism and socialism, it must be richly enough (and if not, then such an individual perhaps even deserves that socialism).

  5. how did mises write it?

    Human action is necessarily rational action.

    and this is immediately followed by the sentence:

    The term "rational action" is pleonasm and as such must be rejected.

    acting rationally is not pleonasm (accumulation of words), but the term rational acting is yes. so who denies himself? who rejects himself?

    in the introduction to the book it is written that on what you built it:

    "… The individual tries to reach a materially better position than he is currently in by his actions."

    to the address of Gutenberg's letterpress.

    you also have a problem with value barrels. you do not want them to carry them over you, but you do carry them out. I will repeat what I have already written under one of your articles. Human action is based mainly on knowledge, ability, both physical and mental, from knowledge. So if at time t0 I can prove on a practical level that your path to the goal is expensive, inefficient and lengthy, or even more accurately on the spot I can do the same activity, faster, cheaper and less expensive, so I definitely act more rational than you and from my not subjective but objective opinion, therefore, you acted irrationally. if you did it like me, we could have been sitting with a beer for an hour 🙂

  6. I wouldn't say it better 😉 Really funny article, it has the right smirk

  7. Not really at his level 🙂 At least because I only re-interpret (including Hayek), I do not invent.

    And I may be wrong about who knows.

  8. It's the best article you've ever written. First, I haven't laughed that long, and second, I'd say you'll get to FAHayek's level. Appropriate and it will take everyone's breath away from an economist !!!! 🙂 Of course it is my value judgment against this article, other people may see it differently. 😀

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