I don’t know why I’ve been so obsessed with understanding economics of late because honestly, I don’t think my understanding is going to help anything.   But, I persist…

I took two basic economics classes in college - macro & micro economics.   I remember next to nothing about those classes except that they were my least favorite classes…. EVER!!   I detested my instructor who was an arrogant young, T.A. (not a Prof.).    Thinking it might help to have the basic information presented by an actual professor with decent credentials, I recently ordered a Great Courses class on Economics led by Professor Whaples at Wake Forest University to see if that might help my dismal view.   I finally started watching the first few lessons last night and realize that one of the problems with Economics I had in college is still problematic for me.

Here is my specific issue:  Whaples says that he and the vast majority of economists assume we are all rational utility maximizers:

People act in a consistent manner, with a reasonably well-defined notion of what they like and what their objectives are and with a reasonable understanding of how to attain those objectives.

But is this true??  Are we rational utility maximizers?

This was the assumed sociological model in the nineteenth century.  But sociology has long since moved beyond it and psychology has provided all sorts of studies that show we are not, in fact, rational utility maximizers.

Cognitive psychology has shown that we consistently deviate from the rational choice thanks to cognitive bias.   We think our personal experience captures the “truth”, but that’s not necessarily so!  It has been repeatedly shown that human beings are overly confident about their judgments, especially when individuals hold strong convictions.  Also, our conscious desires are very often at odds with our unconscious desires.   We tend to distort our perceptions to see what is we want to see and then make our choices based on our distorted  perception.  Perhaps our choices are reasonable based on culturally skewed perspectives, and maybe this is why the rational utility maximizer model seems to work so well.  But this still seems problematic to me, although I can’t quite put my finger on why.

Whaples says Economists recognize that there are factors that inhibit rational choice and that these are called  “market imperfections”.   Whaples hasn’t gone into this yet but I seem to remember being taught that the way to minimize market imperfection is to teach people how to be rational utility maximizers.   (Thus, the primary function of public education is to produce effective consumers and producers.)  So couldn’t we say that our current economic system is based on an inherent economic bias that people should be rational utility maximizers rther than upon a “truth” that people are rational utility maximizers?

My husband has an MBA so I’m always asking him economic questions and presented him with this one.  He jokingly replied, “You are being un-American!”   But I’m not trying to say we shouldn’t try to be rational utility maximizers.    Perhaps that is an important American duty.

It’s just a musing…  if classic economics understood the rational utility maximizer model as descriptive knowledge, what does it mean to Economics that the model is now primarily viewed as prescriptive knowledge from a social sciences point of view?

As I said, I’ve only just started the lessons.  Hopefully Whaples will go into some of this and help me understand how Economics has adapted to current models of human behavior because I can’t believe it would simply ignore them.