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Rethinking Economic Theory: The Evolutionary Roots Of Irrationality

Economics, Psychology, principles, rationality

Standard economic theory assumes that humans behave rationally and are able to objectively calculate the value (or cost) of the different choices they are presented with. In fact, we pride ourselves on our rationality. Different from the animals, we humans have the unique capacity for logical thought and rational decision making. Or do we?

According to behavioral economist Dan Ariely, we should be less proud of ourselves. In his entertaining book Predictably Irrational, Ariely describes case studies of everyday irrational human behavior. His simple but clever scientific experiments often require nothing more than a box of chocolates. Subtle differences in the way these chocolates are offered to people can result in surprisingly irrational behaviors. Moreover, these irrational behaviors fly square in the face of what conventional economic theory, based on rationality, would predict.

Research into behavioral economics has shown, for example, that our assessment of what something is worth to us can be directly, and predictably, influenced. This is the illusion of the free lunch, something humans are known to fall for even when economic theory would clearly suggest we select a more valuable option at a small cost.

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