economic rationality

economic rationality, conceptions of rationality used in economic theory. Although there is no single notion of rationality appealed to by all economic theories, there is a core conception that forms the basis of much economic theorizing. That view, termed the neoclassical conception of economic rationality, takes rationality to consist primarily of the maximization of subjective utility—that is, the maximization of one’s own personal desires. Although it is sometimes assumed that subjective utility is equivalent to self-interest (concern for getting one’s own wants and needs met exclusive of the effects on others), these are not identical, because the notion of subjective utility allows that one might have preferences that are not purely motivated by self-interest.

(Read Steven Pinker’s Britannica entry on rationality.)

The neoclassical conception of economic rationality has been subjected to different criticisms, some of which are ethical in nature. For example, some critics contend that in failing to provide any ethical criterion for the selection of basic goals or ends, economic rationality fails to discriminate between legitimate and illegitimate pursuits on the part of individuals. Without such criteria, some economists consider the theory incomplete but not necessarily false. Other critics note that economists often view economic rationality as a normative concept (that is, it can be applied to a wide variety of people and situations), and economically rational people would thus be required to maximize their individual interests or utility, which could lead them to violate the interests and rights of others. . However, not all economists support that view. Some defenders of the neoclassical conception argue that the drive to maximize one’s individual interests often leads to cooperation with others and, through the “invisible hand” (the idea that self-interested acts drive social welfare) of the market, to the ultimate common good of all.