A Critique of Rational Choice from the Viewpoint of Competing Approaches: Behavioral and Experimental Economics and Brain Sciences

Abstract

The starting point of economic analyses undoubtedly is homo economicus, whose fundamental characteristic is rationality. In recent decades, the notion of rationality has been the subject of debates in social sciences, particularly economics. Conventional economists often employ the assumption of rationality in the sense that economic agents are aware of all potential consequences and capable of logical and consistent choices that maximize utility. However, critics of economic rationality argue that these agents sometimes exhibit irrational behaviors and are not always aware of all the possible consequences of their choices. Many of the behavioral economists and psychologists maintain that economic agents do not reason very well, that these agents often do not know what is good for them and that they behave in odd, non-reasoning, inconsistent ways, because of their limited mental capabilities and environmental conditions. In this article, with a comparative approach, the rational choice theory and criticisms of behavioral economics to it are analyzed. Moreover, new findings of brain function and experimental economics are examined to a deeper understanding of economic rationality and assessment its compliance with human behavior and mental abilities. The results show that although it can be acknowledged that people with regards to their limitations and capabilities of the brain do not follow perfect rationality in all everyday decisions and choices, the existence of pervasive irrational behavior can’t be recognized in all aspects of human life and people probably act more rational than what behavioral economics assumes.

Keywords

• homo economicus
• rationality
• rational choice theory
• behavioral economics
• brain science
• experimental economics