People Change Their Minds. That Doesn’t Make Them Irrational.
According to a relatively new field of economics called behavioral economics (BE), emotions play an important role in an individual’s decision-making process. On this the Nobel laureate Vernon Smith writes,
People like to believe that good decision making is a consequence of the use of reason, and that any influence that the emotions might have is antithetical to good decisions. What is not appreciated by Mises and others who similarly rely on the primacy of reason in the theory of choice is the constructive role that the emotions play in human action.1
For example, if consumers become more optimistic regarding the future, then this is going to send an important message to businesses regarding investment decisions. According to BE followers, whether consumers are generally patient or impatient determines whether or not they are inclined to spend or save today. Behavioral economists emphasize the importance of personality. An emphatic person is regarded as more likely to make altruistic choices. Impulsive people are more likely to be impatient and not so good at saving up for their retirement. Venturesome people are more likely to take risks—they will be more likely to gamble.2
But can individuals ascertain the facts of reality by means of emotions? According to Ayn Rand, emotions are not the tools of cognition.
An emotion as such tells you nothing about reality, beyond the fact that something makes you feel something. Without a ruthlessly honest commitment to introspection—to the conceptual identification of your inner states—you will not discover what you feel, what arouses the feeling, and whether your feeling is an appropriate response to the facts of reality, or a mistaken response, or a vicious illusion produced by years of self-deception.3
Various goods that support and enhance a man’s life are discovered by reason. Once individuals have established that a particular tool is likely to enhance their life and well-being, individuals have to figure out how to produce it. The figuring out is done by means of reason and not by means of emotions. By means of reason man can establish the relationship between things and their suitability to support man’s life. Reason therefore is the man’s means of survival.
Through various experiments the practitioners of BE have concluded that people do not always behave rationally. What the BE practitioners have discovered has nothing to do with whether people are rational or not, however. It has to do with the flawed premise of popular economics that people’s preferences are constant, the proposition that people are like machines that never change their minds. Obviously, people do change their minds, so it is not surprising that the BE practitioners have discovered that real people’s behavior systematically deviates from that of the human machine as depicted by the mainstream economics.4
Despite the criticism of mainstream economics, BE retains the constant valuation scale of individuals in its analysis. By introducing emotions, BE supposedly makes the human robot of mainstream economics more humane. Nevertheless, because of the constant valuation scale, it remains a human robot.
Observe that psychology is an important element in behavioral and experimental economics on the ground that human action and psychology are supposedly interrelated disciplines. However, there is a di
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