Method to Their Madness: Dispelling the Myth of Economic Rationality as a Behavioral Ideal

Although not immediately apparent, the discipline of behavioral finance is rapidly adopting an implicit prescriptive agenda. Behavioralfinance does not merely describe financial market reality, it shapes it. Economic rationality is taken as the ideal toward to which individuals 'should' strive. In this paper I show that, as a behavioral ideal, economic rationality is unjustified both from a strictly economic perspective, and from a moral perspective. In short, there is nothing inherently "wrong" with economically irrational participants in the business environment. Indeed such participants will actually enhance the efficiency, and the ethicality, ofbusiness.