Essay Sample on The Philosophy of Rationality in Economics

INTRODUCTION

In the philosophy of economics, rationality is the utmost debatable topic. It is the fundamental assumption in all microeconomic theories. Consumer behavior can be rational or irrational. So can decisions, preferences, beliefs, expectations, decision procedures, and knowledge. In rational behavior, we make decisions and act in ways that best achieve our needs. In this way, rational behavior is goal-oriented. Rationality is a central concept in branches of philosophy such as action theory, ethics, and philosophy of mind, and studies of rationality frequently cross the boundaries between economics and philosophy. Just as one can assess the rationality of individual choices, one can examine how social options are and ought to be related to the preferences and judgments of individuals. Rationality in action is always a matter of an agent consciously reasoning in time, under presuppositions of freedom, about what to do now or in the future. In the case of theoretical reason, it is a matter of what to accept, conclude, or believe; in practical reason, it is a matter of what actions to perform. There is a sense in which all reasoning is beneficial because it all issues in doing something. (Searle, 2001: 90) 

Economics is a positive science that helps policymakers choose means to accomplish their ends, though it does not bear on the choice of lots itself. Most economists believe there is a reasonably clear distinction between facts and values, between what is and ought to be. The extent to which economics bears on and may be influenced by normative concerns raises questions about its relationship to value inquiry.

Origin of Rationality

For fifty years, the rational choice theory has been the dominant approach in economics. In the late 19th century, ideas of logical economic choice were starting to develop explicitly. There is a disparity in the 20th century; they thought maximizing effort and presented rationality as maintaining a consistent ranking of alternatives. Without a grounding in an ultimate goal, the concept of rationality is confined to the constant scale of alternative approaches, the consistent derivation of this ranking from judgments of likely outcomes, and the consistency of beliefs used in this derivation. Thus, 'rationality' as characterized by rational choice theory is far narrower and may often oppose colloquial or philosophical concepts of rationality. In such circumstances, 'rationality' generally relates to objective evaluations, the judicious weighing of long-term vs. short-term outcomes, and insights into seemingly fundamental moral principles. In rational choice theory, nothing of this sort was addressed. It merely claims that a sensible individual takes acts in harmony with her opinions and evaluations. Consequently, a person deemed 'rational' may believe that the moon is made of green cheese, prefer to waste her life, plot to do widespread devastation.

The three points in which neoclassical economics differs from other social science in rationality are (A) in its postulating global consistency of behavior (b)in its postulating global consistency of behavior (c) in its postulating "one world" that behavior is objectively rational concerning its total environment, including both present and future environment as the actor moves through time.   

Rationality is often interpreted as a theory of how people ought to form their preferences. Accordingly, people who violate rational choice theory in their actual deliberations or behavior might still be subject to a normative standard of importance.   

CONCEPT OF RATIONALITY IN ECONOMICS

Rationality has a very peculiar definition in economics since the "rationality" term itself can be portrayed in many ways. In simple language, "rational" manner means to act consistently and instrumentally to achieve some well-defined end, and "IRRATIONAL" behavior is behavior that appears to be inherently self-defeating or pointless. The idea of "rationality' also implies an excellent inclination to real-world, something which has justification towards their action and everyone understands.

However, economists have a very narrow and specific definition of the term "rationality." An economist's rational decision-maker utilizes, that is, follows not just simply any movement that promotes a goal but the direction where the makers can have utmost goal satisfaction. Furthermore, the goals the economist's rational decision-maker pursues are to be reducible to the direct consumption of material goods and services.

This is a crucial topic in the language of rationality since claiming that the interactions of completely rational people result in a socially illogical end does not assist in justifying the paradoxes of modern society. However, that is the conclusion of one way through the logical maze of rational-actor theory. Sen identifies (following Kenneth Arrow's discussion) that a society of individuals with different preferences cannot have a consistent preference ordering that respects the individuals' choices but does not degenerate into any one of them. To use Hegelian terminology, the idea of reason symbolizes the one-sided interactions of modern capitalist society. The weight of rational-actor theory is the claim that "naturally" formed individuals confronted with existential disputes over finite resources will rationally impose on themselves the institutional structures of contemporary capitalist society or something akin to them. However, this perspective ignores how modern capitalist society and its social ties shape the "rational," calculating individual. The well-known shortcomings of rational-actor theory, such as its static nature, logical antinomies, susceptibility to endless regress arguments, and failure to establish a progressive concrete research program, may all be linked back to this starting point.