The Myth of the Rational Consumer
June 25th, 2007At the heart of modern economics, even apparently contrarian economics such as Freakonomics, is the idea the consumer is rational; that the consumer can be relied on to act in their own best interests. If that’s not true, much of economic theory comes tumbling down. In fact, economists are so incredibly convinced of this dictate that when they observe apparently irrational behavior, they expend volumes attempting to justify and rationalize it, and prove that consumers are indeed acting in their own best interests. Indeed, that’s what Freakonomics is largely about.
The fact is people often aren’t rational. While we sometimes are, we often act directly counter to our own interests for no good reason. We have sensory and reasoning apparatuses evolved to help us find food in the jungle and avoid being eaten by tigers. Our reasoning abilities, as impressive as they are, can be actively counterproductive when applied to the complex, food-plentiful, tiger-free environment we live in today. Bruce Schneier explains this very well in his recent article on Rare Risk and Overreactions. Here’s one relevant portion:
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