The attempted overthrow of rationality as a core assumption of economics is not new. It has made bedfellows of economics and psychology for decades. There is more than one love child that owes its lineage to this consummation. Behavioural economics, psychoeconomics, neuroeconomics, cognitive economics and bioeconomics - all contend that their empirical findings refute the notion of rational decision making.
It seems that rationality is dead. We are helpless victims of systemic irrationality. But surely something is wrong with an analytical framework that ends with an oxymoron such as "systemic irrationality". Systemic biases do not exist in properly identified systems - suggesting that behavioural experiments may be neither tests of rationality nor tests of economics‘ assumption of rationality.
The discussion in this paper therefore adopts an alternative framework that is deductive in nature. Six very different starting points are applied. The first two approaches apply reason and wisdom to the subject, while the third approach applies ignorance to the observer. The remaining three approaches of irony, cynicism and tractability are applied to the implications of accepting or rejecting the assumption of rationality. No matter the starting point, each approach confirms the plausibility of assumed rationality.
These Occasional Papers are jointly published by ANZSOG and the (former) Victorian State Services Authority.
Ben-David, R. (2010). And yet it moves: The enduring relevance of rationality for economics and public policy. SSA/ANZSOG Occasional Paper, 9. Melbourne: ANZSOG.