> But a lot of times they have incomplete, ignorant, or just plain crazy fact bases from which they operate.
Believing an action is a good idea or in your best interests when it actually isn't, or basing decisions on a warped perception of reality, is pretty much a textbook case of acting irrationally. Rational versus irrational is not about perception, it is about how well perception matches reality.
I guess what I was trying to describe is that people might act foolishly, but they don't know it's foolish. And most of the time we only know it's foolish in hindsight. At the time it might have been brilliant, but they went broke so it wasn't. If they'd made billions, it would have been genius.
So basically most people have "facts" that they believe to be true, and use them to make decisions that in light of those "facts" are smart. Few people disregard all facts and reasons and just do whatever, or do something counter to what their facts tell them.
What I'm describing might not be the economics definition of rationality, but it's closely tied to the colloquial definition and the idea that pops into my head when someone says "rational".
Often people have the information they need to make a rational decision, but they choose to discount, ignore, or misinterpret it. No decision based on this choice can meaningfully be called "rational" without stretching the definition of rationality to the useless.
This is quite different that making a rational decision based on incomplete or imperfect information.
Modeling human beings as rational actors, even in aggregate, is often a deeply flawed approximation for this reason.
More like: a sufficient number of independent agents (or aggregate populations behaving as an agent) behave irrationally often enough to make discrete predictions impossible.
Don't you think it's a little crazy to say that someone else can know what's in a persons' best interests by a more objective standard?
I feel like it's incredibly arrogant and belies a substantial lack of induction. You almost certainly believe that you know what's best for you. By induction we can conclude that everyone knows what's best for themselves, and that those who claim to know better are either charlatans or have a distinct lack of empathy.
No. It is not. This is just a flawed definition you have invented on the go.
Being rational means using reason, just that. But GIGO applies, your thinking process could be flawless but your assumptions could be wrong: https://en.wikipedia.org/wiki/Garbage_in,_garbage_out
The people at Rapa NUI were totally rational about destroying trees to build Moais, because their model of the word implied God wanted that.
If the God Rapa Nui people believed in actually existed and he wanted to destroy trees for satisfaction, then it makes total sense to destroy all the trees.
Prior to finding out that the NSA was wiretapping all the things, it might be considered irrational to expect them to intercept and store all of your information. Now that we know that, it would be irrational NOT to think that. The truth in both cases is the same: the NSA has been carbon copied on all of our packets for ages, the only difference is that now we know it's true (and not a "conspiracy theory").
The definitions and synonyms for rationality (found, e.g., with Google Define) are heavily clustered around reasoning, i.e. the ability to reach valid conclusions from your premises. Nowhere do I see mention that your information had to correspond to reality.
If I were to believe with great certainty that my wife is an alien breeding a cluster of biological weapons that will destroy all of humanity, and assuming that I want to prevent this from happening, reason would compel me to kill her. It would be a completely rational act.
People get this wrong because holding such beliefs is typical for crazy (= irrational) people. Because to _arrive_ at this belief, unless it was imposed on me through drugs, brain damage or brainwashing, would involve some major failures of reasoning at some _earlier_ point. I would have to e.g. believe that I was privy to information that the rest of the world didn't have, which is a pretty unreasonable thing to believe, given what every adult knows about how the world works.
Less radical example: At some point in history, it was considered common knowledge that the world is flat, and seafaring too far in any given direction runs the risk of falling off the edge. So sailors were afraid to sail too far. Was this fear irrational? Not at all! Based on the best human knowledge at the time, people had good reason to be afraid. That fear would be irrational for a well-informed person of our time, sure, but only because we meanwhile have access to better information.
Hypothetical: Maybe there's a meteor headed for Earth, due to destroy us all in a month. Let's say for now that this is reality - but we don't know it because NASA hasn't seen this meteor yet. If rationality were based on absolute reality, then the rational thing for us to do would be to build spaceships or blow our life savings on drugs and hookers. But that's silly, because we can only base the well-reasoned-ness of our actions on what we know. And for lack of omniscience, everyone's knowledge will always be imperfect, and with perfect reasoning (= rationality) our actions can only be as good as the information we have.
I'm unable to find any historical evidence this statement was ever true.
For example, pop culture thinks it was true in the Middle Ages, but it was not [1].
I am and was very aware that knowledge about the Earth's sphericity is more ancient than some people may think; so I intentionally made my statement sufficiently vague to avoid your kind of quibble.
Stocks aren't traded on some fundamental objective functions of accounting value and projected profits, they're traded purely on what people believe that other other people will be paying for the stock five milliseconds / five minutes / five days / five years from now. All at once, in a recursive mess. The professed theory is that some kind of objective truth underlies all this, and eventually generates some theory of value that all the speculators can latch on to - but that sort of investing is a tiny fraction of trading volume.
Yes, and sometimes they have different short term and long term goals, sometimes not all financial, that change their rational behavior.
Rationality, in the economic sense, involves (among other things) actors acting with accurate and complete information about all consequences of their market choices. Actors acting with "different fact-bases" are necessarily acting with inaccurate and/or incomplete information (because if it was both complete and accurate, it wouldn't differ between actors), and therefore, economically speaking, irrationally.
No, it assumes that agents use all available information optimally. Complete information is not a requirement.
No, it is defined to include perfect information; actors using all available information optimally within the limits of their cognitive ability and considering, also, the opportunity cost of devoting resources to informationa evaluation and decision-making is a weaker alternative ("bounded rationality") to pure rationality.
"Complete" and "perfect" information are not the same thing.
In games like poker, players have perfect information, but not complete information.
Perfect information, in the rational choice theory sense, is both complete in the sense that it covers all economic consequences that impact the experienced utilities of the decision maker positively or negatively out to an infinite time horizon, and free of errors over that entire scope, which is why I used "accurate and complete" as a less-formal equivalent of "perfect" upthread.
> In games like poker, players have perfect information, but not complete information.
In poker, players do not have perfect information in the rational choice theory sense (or the game theory sense, which is generally stated differently, but I think is actually equivalent.) Poker is, in fact, one of the canonical examples of a game featuring imperfect information.
This is impossible, because unless the information is also complete then the utility functions of opponents (and hence future payoffs) are unknown by the decision maker at the time of the decision.
>which is why I used "accurate and complete" as a less-formal equivalent of "perfect" upthread.
I suppose if you believe that the two are equivalent, there's not much point in arguing.
Well, yes, rational choice theory is based on premises which are known to be impossible, but which are analytically convenient and which produce models which are (at least, argued to be) useful approximations of real world behavior.
I think that statement is irrational. It still describes a plethora of behaviors.
I think they actually behave rationally, but all according to different fact-bases. People usually don't say "this is really dumb but I'll do it anyhow" most of the time, most of the time they really believe that they're doing something pretty rational.
But a lot of times they have incomplete, ignorant, or just plain crazy fact bases from which they operate.
Or in the case of China, they want to defend their currency peg. You might disagree with their decision to peg, but if you accept for a moment that this is their goal, then it's super rational.