Friday, August 5, 2011

assume a can opener

N. Gregory Mankiw on why economists might stick to the rational actor assumption even in the face of behavioral economics findings showing that individuals are systematically irrational (pg. 497, Principles 4e):
[E]conomists are themselves are not rational maximizers. Like most people, they are overconfident, and they are reluctant to change their minds. Their choice among alternative theories of human behavior may exhibit excessive inertia. Moreover, economists may be content with a theory that is not perfect but is good enough. The model of rational man may be a the theory of choice for a satisficing social scientist.
And here, to dunk your head in the water, is Jim Crotty on The Realism of Assumptions Does Matter (start at around 4:40 for the relevant discussion):

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