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"