Monday, September 9, 2013

Rationality in Markets Is Cognitively Unnatural

Via Scientific American and interesting to say the least

Prioritizing fairness and reputation—both needed for the cooperation we depend on— over immediate gain, has likely been key to our survival for 10,000 generations. It still is. Definitions of self-interested rationality that exclude this truth, risk becoming self-undermining. Isn’t that truly irrational? Human self-interest has always had social constraints. Reputations, such as an exploiter or being exploitable, matter. As Othello says “Who steals my purse steals trash; ’tis…nothing…But he that filches from me my good name…makes me poor indeed”

Behavioral economics hasn’t cured this; it’s still too transactional. Cognitive biases contain a bias towards classical economics. They have two sources of potential error, the observed behavior and the supposedly rational ideal it deviates from. Using classical economics ideals, inherits their “cognitively unnatural” features.

More here

No comments:

Post a Comment