More rationality, and a million models

Here is an article on a conversation with Raquel Fernández that I found very interesting. The whole thing is worth reading, but I will quote at length this passage on rationality:

There is a beauty to the models in and of themselves. You assume, for example, that people are rational. I don’t think any really good economist thinks that people are perfectly rational, but, on the other hand, if you want to model people as not rational, all of a sudden it’s not clear what choice you should make. There are a million and one ways to be non-rational; there’s only one way to be rational within the confines of a model. Rationality means one thing: you’re maximizing your welfare subject to constraints. Now, if you say people don’t always maximize, and they’re beset by this and that, then all of a sudden you can have a million models. And that’s a little bit unsatisfactory too.

This is pretty close to my own view. My extra take is that any “irrational” behavior – and so anything that the “million models” generate – can be rationalized, either by revising what we assume that the decision-maker cares about, or by adding constraints on the decision-maker’s ability to choose: the question of rationality is a red herring.

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