Need an Economics tutor?
Hire an Economics specialist to help you online.
Honest service. Affordable rates.
Contact us today about Economics tuition.
You are Incapable of Making Rational Choices | Find Out Why
Nobel Prize winners, Myron Scholes and Robert Merton, were awarded for their contribution to the field of Economics in 1997. Their theories were founded on the idea that humans could make rational choices, and therefore they would know how to best their time, their budgets and their spending choices. Does this sound insane to you? Which human being do you know who is capable of doing those things?
After winning their Nobel Prize, they tried applying their theories to the real world. So, what do you think happened. Of course, it completely failed. Their personal companies went bankrupt twice in just over 10 years.
What can we learn from this, then? We have learned that human beings are not completely rational, and we suffer hugely from a lack of information. In short, we lack the intelligence to make good choices.
How can one make a good choice? One must be well informed, taking every possible detail into consideration. If you were to decide how to invest your hard-earned money, you would need to take into account every possible situation, every potential dilemma that could affect your return on investment. Only then can you make rational decisions. People are too subject to personal biases, and we often operate on ‘gut feeling’ rather than taking a step back and running through the scenarios. Did you ever buy a pack of chocolate in the supermarket on impulse? Would you consider that a rational choice?
The other part of the problem is that information is hard to come by. It’s made easier today as we essentially have personal libraries in our pocket. However, you still need to know what it is you’re looking for, and you need to be able to distinguish between credible sources of information and complete lies. Fake news anyone?
The truth, is that (in the moment) we do make rational choices: at least, we THINK we do! We do what we think is best for us right there and then, but we lack the capacity to consider the dynamic effects of our poor choices.
So, how can we change, or at least, how can we improve?
To help us make better decisions, the government needs to do their bit to help us make the right choices. There are at least a few options:
1. Take the bad choices away – this can be implemented via bans, for example
2. Discourage bad choices – this can be implemented via taxation or similar policies
3. Help us make the better choices – this can be implemented using nudge theory – a type of positive reinforcement that makes us want to do the right thing ourselves
Training society is a bit like training a dog then?
Ultimately, which choice is most appropriate is up to each country. Some governments prefer imposing heavy fines and penalties for wrong behaviour. Some governments prefer trying to encourage their citizens to do the right things?
Personally, I have little faith in trusting millions of human beings to all do the right thing. I find it difficult to believe we are always able to ‘nudge’ people into better decisions. Some people do need to be shoved rather than nudged, in a manner of speaking. Take the current situation with coronavirus as a proof of point – why is it people have had to be forced to stay in lockdown when the solution to the problem is quite logical. Even once instructed to stay in lockdown, there are still many people out there knowingly breaking the rules.
In summary, positive reinforcement works, but it takes a long, long time for people to evolve. My opinion is that it’s best to implement all of the above in the appropriate manner and at the appropriate time.
Want to pass your Economics exams?
Hire a specialist economics tutor today. At mrbanks.co.uk, we supply online Economics tuition to support you through your exams.
Online tuition provides so many benefits.
Save money. Save time. Improve your grades.
Want to try before you buy? Contact us to book a trial lesson. You can see if online Economics tuition is right for you.
Contact us today and book a trial lesson with an online Economics tutor.