Are People Selfish: An Economic Viewpoint
In neoclassical Economics it is believed that people are
utility maximizers and that they are rational. People make
decisions based on the information given to them and they make
the most rational decision. How often though are we really
rational? The fact that people do things that seems odd or out
of the norm contradicts this theory. For example, the
unfortunate attack that we have recently witnessed here in the
United States provides strong evidence that people aren't always
rational and don't always rely on rationale to make decisions.
Or was the decision they made rational to them? As wrong as it
was for them to do what they did, they believe that they are
maximizing their utility. (Whatever utility that may be). People
don't always maximize their utility.
Many believe that this irrational action taken by the terrorist
group is due to USA great system of capitalism and its
oppressing powers over the weak and feeble nations of the world,
but is USA really an oppressive nation? Do the decisions US make
really have that negative of an effect on the world? Some would
disagree mainly because they see all the positive that has come
out of a capitalist society such as the USA.
Neoclassical economics is based on the assumption that human
beings are absolutely rational in their economic choices.
Specifically, the assumption is that each person maximizes her
or his rewards-profits, incomes, or subjective benefits-in the
circumstance that she or he faces. This hypothesis serves a
double purpose in the study of the allocation of resources.
First, it narrows the range of possibilities somewhat.
Absolutely rational behavior is more predictable than irrational
behavior. Second, it provides a criterion for evaluation of the
effectiveness of an economic system. If the system leads to a
reduction in the rewards coming to some people, without
producing more than compensating rewards to others (costs
greater than benefits, broadly) then something is wrong.
Pollution, the overexploitation of fisheries, and inadequate
resources committed to research can all be examples of this.
In neoclassical economics, the rational individual faces a
specific system of institutions, including property rights,
money, and highly competitive markets. These are among the
"circumstances" that the person takes into account in maximizing
rewards. The implications of property rights, money, and ideally
competitive markets is that the individual needs not consider
her or his interactions with other individuals. She or he needs
consider only his or her own situation and the "conditions of
the market". But this leads to two problems. First, it limits
the range of the theory. Where-ever competition is restricted
(but there is no monopoly), or property rights are not fully
defined, consensus neoclassical economy theory is inapplicable,
and neoclassical economics has never produced a generally
acceptable extension of the theory to cover these cases.
Decisions taken outside the money economy were also problematic
for neoclassical economics.
Game theory was intended to confront just this problem: to
provide a theory of economic and strategic behavior when people
interact directly, rather than "through the market". Game theory
was intended to confront just this problem: to provide a theory
of economic and strategic behavior when people interact
directly, rather than "through the market." Game Theory assumes
(as do most economic models) that individuals are
self-maximizing- that irrespective of all else, they seek the
most for themselves. In a world in which the gap between the
materially rich and materially poor is growing ever wider, this
phenomenon is of great relevance to us all. In fact, it makes
sense to ask the question the other way round: "Why not use a
theory which predicts how people actually play"