Economics without the Rationality Postulate: Why it is Needed and What it Could Look Like

Economics without the Rationality Postulate: Why it is Needed and What it Could Look Like

For thousands of years we had an economics that studied what was produced, by whom, and for whom, without the rationality postulate. It was also an economics that was grounded in ethics and moral considerations.We need once again an economics that is not limited in conception and burdened with such an unrealistic and tired assumption as constant and continuous rational behavior.

This paper will describe the reasons why such an economics is needed. Such an economics is needed in the interest of realism. It is also needed to move beyond the straight jacket of efficiency both in terms of how it is defined, and the tendency to ignore or downplay far more important considerations. Finally it is needed to move beyond the moral equivalency of all human actions. Ethics and spiritual values do matter for the sake of both personal happiness and the ability to be a community. In addition to establishing the need for such an economics, this paper will lay out a sketch of what Economics will or could look like, once it moves beyond the rationality postulate. This paper does not claim that we, as human beings, are incapable of rational calculation. Nor does this paper claim that human beings never engage in rational calculation.

Human beings may well engage in rational calculation on some matters, some of the time.
This paper merely claims that rational calculation is not what
human beings engage in all of the time on all matters, with all things. The universality of the assumption of rationality is implied by Homo Economicus. The universality of the assumption is specifically what is at fault.


What is Real and what is Not.
Yes, the world is in desperate need of a new economics that goes beyond the tired and unrealistic assumption of rational calculation also known as Homo Economicus or Rational Man.
It is needed for the following reasons. First rational calculation is quite simply not what we
human beings do at least not for much if not most of the time. The assumption of rationality is quite unrealistic even dangerously delusional. Who do we imagine ourselves to be, or what are we imagining about human nature when we make such an assumption?
It is quite heroic grandiose in breadth and arrogant in depth. Through the assumption of rationality we attach undue importance to every human want and whim. We enshrine human decisions in an importance they do not deserve. Given the assumption of rationality many come to the not necessarily logical conclusion that want fulfillment is synonymous with happiness and may even take the next step and associate want fulfillment with wellbeing.

Human Beings are subject to powerful emotions, passions, and impulses. We act on impulse much if not most of the time, and then after the fact easily rationalize whatwe have done or felt. There is nothing rational or objective or constant about how we perceive benefits and costs. Our perceptions are made to fit the impulses of the moment. Many of our impulses are based upon habits, customs, and past decisions, while others derive from transitory sensations. Far from rational decision making, we instead merely rationalize. We talk ourselves into viewing our decisions as rational. We act on impulse and every kind of passion but our perceptions stand ready for alteration and tailoring in an ex post rationalization. We are more complex than being driven by Pleasure and Pain.

Jeremy Bentham postulated that Mankind was governed by Two Masters, Pleasure and Pain, and that we seek the first and avoid the later. But we as human beings are far more complex than what Bentham’s analysis portends. We are at our essence an array of conflicting passions and impulses, some fleeting, some ever present. Oftentimes we are even aware of conflicting passions and impulses as we hold them all in our minds and hearts simultaneously. Some of our passions and impulses form the basis of goodness and ground our ethics and spirituality, while others reflect more primal urges, but all encompass our humanity and are key aspects of identity.

A few examples of some of the powerful emotions and impulses that govern us will suffice to show that human beings are far more complex than what Bentham’s formula depicts. Among the many passions and impulses are love, duty, loyalty, a hunger and thirst for justice (between people or even for the earth), they may be motivated by a righteous anger, and also darker passions such as fear, mistrust, superstition, phobias, prejudice, as well as hope and fantasy and delusion.

When we pulsate with strong emotion, we can frequently and easily act on those emotions, without much thought or reason. Any reason or thought is colored with the emotion. Other emotions such as fear may paralyze actions or freeze decisions. When we feel a strong impulse such as falling in love we quite easily and frequently perceive more benefits and lower costs in acting accordingly, than what fit the reality of the situation. When we pulsate with fear or suspicion, we quite easily and frequently perceive fewer benefits and higher costs than what are reasonable for the situation.

People have a way to perceive their costs and benefits that is far from rational, or logical, or accurate. Given people’s perceived costs and benefits they may well act rationally, but there is nothing rational or accurate about how perceptions are formed. Perceptions are based upon impulse, upon social conditioning, upon habit, upon fear and superstition, and sometimes upon hope and love. Individual’s likely make their perceptions conform to their emotions so that they can fool themselves into thinking their choices are rational, when they are far from it.

Individuals oftentimes perceive the benefits of a particular action as being greater than the costs of that action, when such is not the case. They are driven by impulse or passion and such impulses color perception. In so doing, individuals try to justify or rationalize their emotions, fear, aspirations, and passions, but how can we call this rational decision

Perception is in such a case is a type of willful ignorance. Being a slave to one’s emotions or wants or desires, is hardly freedom, and is hardly rational, but that is freedom for the economist who takes wants and desires as a given. True freedom, true rational decision making would involve the freedom to say no to ones desires and wants, to be able to reflect upon them, to critically evaluate them. It is also important to note that particularly in the times we live with very subtle and sophisticated, and even subliminal forms of advertising and propaganda in commercials and mass media that the wants and desires of individuals are subject to continuous manipulation. The wants of individuals are not really their own.

Consumer Sovereignty and the Rationality Postulate

Consumer Sovereignty and claims by economists that markets under certain ideal conditions are efficient rest on the idea that want fulfillment truly enhances wellbeing, which in turn relies on the twin notions that individuals know what they want, and that individuals make choices and that the choices made are rational.

Highlighting the Issues with Consumer Sovereignty and the Rationality Postulate:

1, Much, perhaps most, of what people want is not the result of any sort of enlightened choice but rather stems from habit, upbringing, and cultural attitudes. In addition WANTS are also created, nurtured, and maintained by Advertisers and Propagandists. Wants can be chosen. Wants can be altered, but are more often than not merely given. Serving such wants is not freedom but rather slavery and not consistent with true wellbeing or happiness.

2, Wants are ever increasingly adroitly and subtly manipulated by others such as advertisers and propagandists, ever more sophisticated and subtle, even subliminal and coming at people not only in commercials but also in the body of TV shows, books, and magazines in email and computer popups. How is a slavish devotion to one’s desires, bred by others, true freedom?

3, Often, whether or not wants are given or self selected, they remain unknown or ill defined. Many people do not know what they really want, or their preferences are frequently inconsistent or oftentimes whimsical or fleeting. How can either the desire to serve wants or their fulfillment be considered to be either rational or welfare enhancing?

4, Even if people knew what they want, and their wants were the result of a deliberative process and at some point chosen, the whole idea that want fulfillment truly enhances the wellbeing of individuals runs contrary to ancient wisdom and philosophical traditions which counsel denial and doing without. We have only to think of the wisdom of the Buddha, of Jesus of Nazareth, of Rumi, of Francis of Assisi, or the countless examples of indigenous spirituality, all of which counsel against avarice and greed, materialist acquisition or even the desire to fulfill wants.

5, Human Being are, in fact, social beings whose wants and preferences are shaped by their culture, their societies, their relationships. Human beings are motivated by duty, loyalty, and love far more than the atomistic calculation theorized in economics. Even if the utility function is broadened to include all manner of ethical, social, and spiritual values, it makes the center of an individual’s universe the individual who still does what she does to maximize her utility. It is incredibly narrow and rather twisted on an ethical plane.

Economics Without The Rationality Postulate Part 2
Economics Without The Rationality Postulate Part 3