Richard B. McKenzie, "Predictably Rational? In Search of Defenses for Rational Behavior in Economics"
Springer | 2009 | ISBN: 3642015859 | 308 pages | PDF | 1,1 MB



Mainstream economists everywhere exhibit an "irrational passion fordispassionate rationality." Behavioral economists, and long-time criticof mainstream economics suggests that people in mainstrean economicmodels "can think like Albert Einstein, store as much memory as IBM’sBig Blue, and exercise the will power of Mahatma Gandhi," with a viewthat economists’ view of homo sapiens is simply wrongheaded. Indeed,Thaler and other behavioral economists and psychology have documented avariety of ways in which real-world people fall far short of mainstreameconomists' idealized economic actor, perfectly rational homoeconomicus. Behavioral economist Daniel Ariely has concluded thatreal-world people not only exhibit an array of decision-makingfrailties and biases, they are "predictably irrational," a position nowshared by so many behavioral economists, psychologists, sociologists,and evolutionary biologists that a defense of the core rationalitypremise of modedrn economics is demanded.

In Predictably Rational? In Search of Defenses of Rational Behavior inEconomics, Richard McKenzie, a professor of economics and management atthe University of California, Irvine, takes up the challenge to defendmainstream economics’ core premise, but in unexpected ways. He firsttakes readers through a review of the intellectual history of themotivational premise undergirding economics from Adam Smith through toAlfred Marshall to Frank Knight, Ludwig von Mises, and Friedrich Hayekto Milton Friedman, George Stigler, and Gary becker. Professor McKenziefinds ample criticisms of the rationality premise within theintellectual history of the discipline. He also surveys the relevantliterature in evolutionary biology and neurobiology andneujroeconomics, which fortifies the behavioralists’ criticisms that"perfect rationality" is not tenable. Nonetheless, in spite of theevidence and arguments, Professor Mckenzie mounts defenses of continueduse of the rationality premise on counterintuitive grounds, not theleast of which is that the demonstrated "irrationalities" in humandecision makes all the more compelling the use of the perfectrationality premise in economics. Economists are themselves drawm fromthe human population. They must operate within their own limited andmistake-prone mental faculities. The premise of rationality is onemeans by which economists can gain insights about complex humaninteractions that might not exscape them if they assume people were notmore rational than economists know them to be. In addition, economists’perfect rationality premise is not only a means for deriving testablehypotheses, it is also a standard by which economists, and theirstudents, can derive heuristics that can lead to improved decisionmaking (or decision making that is better than might be expected ofreal-world people without instruction in the "economic way ofthinking"). Professor McKenzie draws conclusions that are at odds withstandard, mainstream economics, not the least of which is that marketsdo more to improve economic efficiency than conventional microeconomicssupposes. Markets not only allocate efficiently known resources amongknown wants. They also provide feedback mechanisms that the human brainneeds to operate more efficiently and that improve decision making, aswell as hone people’s wants and appreciation of resources. Markets canmake people more rational than they may be inclined to be.