{"id":5070,"date":"2016-07-20T21:05:54","date_gmt":"2016-07-20T21:05:54","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/microeconomics\/?post_type=chapter&p=5070"},"modified":"2016-07-20T21:05:54","modified_gmt":"2016-07-20T21:05:54","slug":"reading-rationality-and-self-interest","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/chapter\/reading-rationality-and-self-interest\/","title":{"raw":"Reading: Rationality and Self-Interest","rendered":"Reading: Rationality and Self-Interest"},"content":{"raw":"\"Photo<\/a>\n\nIf you say that someone is behaving \"rationally,\" you probably mean that he or she is acting in a thoughtful, clear-headed way (as opposed to\u00a0irrationally<\/em>,\u00a0which suggests that someone\u00a0is acting emotionally or illogically). In the context of economics, the term rationality<\/em>\u00a0has a very specific\u00a0meaning. It refers to an assumption that economists make about how people behave\u2014remember that this is the starting point of all economics\u2014in the face of scarcity<\/em>. There simply aren't enough resources to satisfy all needs and wants. Charlie has only $10, he's hungry, and he needs to get to work. What will he do? An economist predicts that\u00a0Charlie will behave in a predictable, rational manner, balancing costs against benefits to arrive at an action that maximizes his personal happiness or utility: As a result, he will choose a certain number of burgers and a certain number of bus tickets.\n\nEconomists assume that people will make choices in their own self-interest. They will choose those things that provide the greatest personal benefit, and they'll avoid or forego those that aren't as personally valuable and compelling.\u00a0That's what we mean by the assumption of rationality<\/strong>.\n\nDo economists really\u00a0believe that we only think of ourselves and don't ever try to benefit others? Not at all. The assumption that individuals are purely self-interested doesn't imply\u00a0that individuals are greedy and selfish.\u00a0People clearly derive\u00a0satisfaction from helping others, so \"self-interest\" can also include pursuing things that benefit other people. The assumption of rationality\u2014also called the theory of rational behavior<\/strong>\u2014is primarily a simplification that economists make in order to create a useful model of human decision-making.\n\n\u00a0\n\n\u00a0","rendered":"

\"Photo<\/a><\/p>\n

If you say that someone is behaving “rationally,” you probably mean that he or she is acting in a thoughtful, clear-headed way (as opposed to\u00a0irrationally<\/em>,\u00a0which suggests that someone\u00a0is acting emotionally or illogically). In the context of economics, the term rationality<\/em>\u00a0has a very specific\u00a0meaning. It refers to an assumption that economists make about how people behave\u2014remember that this is the starting point of all economics\u2014in the face of scarcity<\/em>. There simply aren’t enough resources to satisfy all needs and wants. Charlie has only $10, he’s hungry, and he needs to get to work. What will he do? An economist predicts that\u00a0Charlie will behave in a predictable, rational manner, balancing costs against benefits to arrive at an action that maximizes his personal happiness or utility: As a result, he will choose a certain number of burgers and a certain number of bus tickets.<\/p>\n

Economists assume that people will make choices in their own self-interest. They will choose those things that provide the greatest personal benefit, and they’ll avoid or forego those that aren’t as personally valuable and compelling.\u00a0That’s what we mean by the assumption of rationality<\/strong>.<\/p>\n

Do economists really\u00a0believe that we only think of ourselves and don’t ever try to benefit others? Not at all. The assumption that individuals are purely self-interested doesn’t imply\u00a0that individuals are greedy and selfish.\u00a0People clearly derive\u00a0satisfaction from helping others, so “self-interest” can also include pursuing things that benefit other people. The assumption of rationality\u2014also called the theory of rational behavior<\/strong>\u2014is primarily a simplification that economists make in order to create a useful model of human decision-making.<\/p>\n

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Candela Citations<\/h3>\n\t\t\t\t\t
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