Economics without the Rationality Postulate: Why it is Needed and What it Could Look Like

Dr. Steve Szeghi, Professor of Economics, Wilmington College,  a paper presented at the joint conference.

Abstract

For thousands of years we had an economics that studied what was produced, by whom, and for whom, without the rationality postulate. It was also an economics that was grounded in ethics and moral considerations. We need once again an economics that is not limited in conception and burdened with such an unrealistic and tired assumption as constant and continuous rational behavior. This paper will describe the reasons why such an economics is needed.

Such an economics is needed in the interest of realism. It is also needed to move beyond the straight jacket of efficiency both in terms of how it is defined, and the tendency to ignore or downplay far more important considerations. Finally it is needed to move beyond the moral equivalency of all human actions. Ethics and spiritual values do matter for the sake of both personal happiness and the ability to be a community.

In addition to establishing the need for such an economics, this paper will lay out a sketch of what Economics will or could look like, once it moves beyond the rationality postulate.

This paper does not claim that we, as human beings, are incapable of rational calculation. Nor does this paper claim that human beings never engage in rational calculation. Human beings may well engage in rational calculation on some matters, some of the time. This paper merely claims that rational calculation is not what human beings engage in all of the time on all matters, with all things. The universality of the assumption of rationality is implied by Homo Economicus. The universality of the assumption is specifically what is at fault.