My Econ Homework

Not sure why I am posting this (perhaps it is because I hate to expende the energy to write something and then only have one person read it)... Enjoy!

Do you think the assumption of the rational maximizer is appropriate for explaining individual decision making?

I do not think that the assumption of the rational maximizer fully explains the decisions that one makes. I do, however, think that the rational maximizer is effective at generally explaining how most people make decisions most of the time.

After reading the Sandara Blakeslee article, “Hijacking the Brain Circuits with a Nickel Slot Machine,” it is obvious that there are forces at work within people’s sub-conscious that often drive one’s every day decisions. The article posits that many of the decisions people make everyday are done without being fully aware that a decision is being made.

Newtonian physics does a splendid job predicting how most objects will behave in our universe most of the time, but this model doesn’t work for all situations. Then, Einstein’s Theory of General Relativity came along and provided a model that described our universe with a greater level of detail and specificity. (Even this model is incomplete, however, and required that newer and more specific models to be created). This movement from one model to the other makes for an interesting comparison to the rational maximizer argument above.

General Relativity used the Newtonian model as a springboard into general relativity – Newtonian physics, although not as precise as general relativity, works most of the time to describe most situations. Just as the rational maximizer model is effective at explaining how most people make decisions most of the time.

The same thing may be said about the rational maximizer argument. Although people may make most of their decisions on a subconscious level, we as humans create a consciousness based upon these decisions. Although the rational maximizer model is useful in describing how most people behave most of the time, the subconscious decision making process is needed to fill in some of the gaps or contradictions inherent within a rational maximization model. Drug and gambling addiction confound the rational model but the subconscious model is better able to incorporate it.

I can think of many examples of where decisions I have made that didn’t involve rationally deciding how I should act. A simple example would be paying for a soda pop at the cafeteria; let’s say I already have about a quarter pound of change in my pocket, but when the cashier tells me it’s $1.29, I hand her two dollar bills. If I would have reasoned it out I would have reached into my pocket and provided the cashier with the exact change. Instead, I have increased the tonnage in my pocket and forced my belt to do double duty to avoid public embarrassment.

Perhaps a better example would be socially drinking to excess. A friend is hosting a party; I know I have a busy day the following day, and tell myself that I will have just a few beers and let my pregnant wife drive home. One beer leads to another, however, and before I know it, it’s 5 A.M., I’m laying face down on a cold basement floor, my wife is steaming mad (rightfully so), and I ruin the entire next day because I can hardly get up out of bed without the world crashing in on me. It is hard to see the rationale in my actions that evening.