In Defense of the Rationality Assumption

It has become commonplace for economists to assert that human beings are not fully economically rational. Many psychologists and behavioral economists now maintain that economic agents do not reason very well, that these agents often do not know what is good for them and that they behave in odd, non-reasoning, inconsistent ways. Paradoxes and inconsistencies supposedly surface in economic behavior, making agents appear to be unpredictable, but interesting and wonderfully “complex.” In this paper, however, it is argued that economic agents are, in fact, quite rational, are predictable under strict ceteris paribus assumptions, and are much simpler and uninteresting than psychologists and behavioral economists might have us believe. In support of the contention of rationality, Tversky’s classic behavioral experiment of irrelevant alternatives is performed again but results are obtained in disagreement