On the first day of economics, students are taught that human desires are infinite but that resources are scarce. Given such scarcity, when people and firms act rationally by selecting optimal choices given all alternatives, goods, peoples and ideas are efficiently distributed.
Rational economic agents are driven by objectives. A basketball team wants to score more points than its opposition. A college student wants to receive the highest grade point average as possible. A dieter wants to maximize the amount of weight loss, and so on. The fruits of economic or sociological modeling lie in agents acting with self-interests to maximize a specified goal. That way, measurements are consistent and we can observe and make predictions of systems.
People don’t act accordingly, however. Oftentimes, we make “irrational” decisions which fail to maximize our utility. College students are vulnerable to spending time on Facebook and Snapchat hours before a paper’s deadline. Dieters may choose to have “just one more slice” of birthday cake or pizza.
Are these tall-tale students and dieters acting irrationally? Superficially that is the case, but looked at closely, their motivations and notion of rationality are highly complex and nuanced.
First, rationality is impossible to define because utility is subjective and oftentimes impossible to quantify. For example, what it means to be a rational college student rests on the individual himself. One might prefer the highest GPA possible while another will accept lower grades to study a subject he is passionate for. A company may sacrifice revenues to maximize market share, since their profit-seeking objective is the customer base, not earnings.
Cultural norms too play a substantial role in shaping utility. Whereas many Americans seek large salaries and luxuries, utility maximization for many Japanese individuals is distinct. They are dependent less on material goods and income, and more efficient and minimalist in lifestyle. For a country which produces and demands fewer goods, it follows that Japan’s level of output decreases. And while Japan has been dealing with high debt and stagnation for a decade, this implies neither an irrational economy nor a low standard of living. Much of the country’s well-being, which comes from information and technologies, are not reflected in GDP.
Second, in the course of human evolution, our survival has largely been inconsistent with rationality. To survive, humans have become social creatures which resulted in our tribal mindsets and biased inclinations. For example, rooted in our brains is “hyperbolic discounting,” or in other words: procrastination. Humans discount -- or put-off -- non-essential tasks (like sex or surviving) to conserve energy against predators. In the modern world, procrastination is perceived as irrational behavior since we forfeit maximum benefit in the future for the pleasure of now. However, recent literature has indicated that to offset scarce information about the future, rational agents will in fact rely on hyperbolic discounting.
Therefore, the student who finishes his term paper minutes before its deadline or the dieter who puts off exercising for the following day are within the realm of rationality -- albeit foolishly.
Third, the idea of rationality becomes problematic when used as a descriptor for groups of people. As humans, we divide ourselves into ingroups and outgroups. Ingroups like to think of themselves as smart, rational beings, whereas the outgroups (everyone else) are deemed fools. This is often observed in stock-trading where most investors consider themselves ‘smart’ and believe that they can beat the market -- unlike the millions of other traders. But it is these ingroup investors who are just as vulnerable to as their outgroup counterparts to imperfections in human reasoning, or worse, speculation.
In society, this frame of mind has lead to unnecessary incarcerations and widespread discrimination. For years, drug addicts have been considered an irrational outgroup of society. So to protect themselves, the rational non-users incarcerate the irrational user. Drug addicts were ostracized and deprived of much needed treatments, which created a horrific cycle of drug usage. The same holds true for oppressed minority groups throughout history, who were labeled irrational and became victims apartheid-like norms.
Rationality is in the eye of the beholder. To define what makes a behavior rational is akin to transporting water with a pillowcase: it is futile and impossible. This essay does not argue that rationality be removed from the lexicon of human sciences, rather it articulates its widespread implications and challenges. It should be used only as a mathematical construct to simplify an infinitely-complex world, not to understand reality. Decision making and behavior models simplify natural phenomenon, the same way emojis simplify emotions: we recognize what is conveyed but it is not a full picture.
