Rationality Is The Basic Assumption For Many Economics Theory

Situations where self interest and public interest work against each other are known as “commons problems.” In the market model the chief source of conflict is individual’s perceived welfare vs. another’s perceived welfare. In the polis model the chief source of conflict is self interest vs. public interest, or “how to have both private benefits and collective benefits.” Stone notes “most actions in the market model do not have social consequences” but in the polis, commons problems “are everything.” It is rare in the polis that the costs and benefits of an action are entirely self-contained, affect only one or two individuals, or are limited to direct and immediate effects. Actions in the polis have unanticipated consequences, side effects, long-term effects, and effect many people. Stone states, “one major dilemma in the polis is how to get people to give weight to these broader consequences in their private calculus of choices, especially in an era when the dominant culture celebrates private consumption and personal gain.” That is a

Critical Questions 1. If benevolence requires the overcoming of self-interest, then why should our obligations to others be proportionate to the benefits we receive from others? This is a good question. My best guess is that the benevolence would supersede the proportionate nature of social class.

In many instances, people will not have the motivation or incentive to benefit a charity unless they get something out of it. Most people believe this to be a selfish act. Why can't someone do something nice for the community and not expect anything in return? Offering incentives for charitable acts is a easy way to bribe people, but sends a morally wrong and selfish message.

Economics is the social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems. All economists agree on one thing, the economy is large and it is unpredictable. However, throughout the years economists have developed some simple but widely applicable principles that are useful when trying to understand decisions that are made by everyday people to the workings of highly complex markets. There are Seven Core Principles of Economics. These principles are: Scarcity Principle, Cost-Benefit Principle, Principle of Unequal Costs, Principle of Comparative Advantage, Principle of Increasing Opportunity Cost, Equilibrium Principle, and

“It has been said something as small as the flutter of a butterfly’s wing can ultimately cause a typhoon halfway around the world.” ~ Chaos Theory

The first principle in individual decision-making is facing a trade-off. In order for individuals to accomplish their goals or to obtain something they desire, there is usually something that must be given up or traded to accomplish that. In Chapter 1 Principles of Economics, efficiency vs. equity is discussed which helps further explain this principle. Society is always desiring to

Economists have often modelled human decision makers as completely rational. According to this model, rational people know their own preferences, gather and accurately process all relevant information, and then make rational choices that advance their own interests. However, Herbert Simon won a Nobel Prize in economics by pointing out that people are rational, but only boundedly so in that they seldom gather all available information, they often do not accurately process the information

In the first Dictator game, John List gave some participants the option to give half, nothing, or at least some amount of money to the other participants. If the other participants did not accept what they were given, both would go empty handed. Most of the participants that were given money, either gave half of their money or at least a small amount to the participants that did not receive anything. Because participants were giving money, the game portrayed the participants as altruistic. However, in the second Dictator game, List gave everyone money and told each participant that they could either give some of their money or take money away from the other participants. In this game, most of the participants took money away from the other

In this paper I will pose three arguments that this example is faulty because it is oversimplified. I will argue that it overlooks important moral concerns, specifically reward. I will argue that it makes a faulty assumption

For example, when a good is scarce, the prices goes up, so consumers try to avoid buying and therefore conserving the resource. Then, the suppliers want to find more of the source as to get a better profit. The reasons behind their actions are selfish, yet they benefit all of society. Smith identified that the pursuit of profit and the power of self-interest would increase motivation and result in more advances in technology. His model of capitalism was on the basis of freedom and selfishness as a motivator for society. It was also on the basis that the economy would go through recessions and expansions but fix itself. Recessions are periods in the economy in which unemployment goes up, while profits and spending goes down; a slowdown of the economy. An expansion is essentially the exact opposite. The classical model of economics states that the economy will continue to go through these fluctuations over time and will fix itself with no help, thus not needing a government to give influence.

Singer (1972) is convinced that affluent societies should give away within the limits that do not slow down their economic and social growth. Here, the concept of marginal utility comes into play.

the allocation should be based on the underlying economics of the situation rather than the motives of individuals.

To answer this question it would be better primarily to look upon at the human nature. If we assume that people are egoistic and they only pay attention to their own utility, then we can affirm

The ‘invisible hand’ would have such an effect if every individual acts in order to maximise their own prosperity, the prosperity of the community will, in turn, be maximised and become more efficient. “This effect is very well exemplified in modern day terms by using a supermarket queuing system as an example. Each customer getting in line selfishly chooses to maximize his own interest, that is to check out in the shortest time, regardless of the other customers. Their utility maximizing choice is to get in queue in the shortest line; this means that eventually customers queue up in lines all of the same length. Therefore even without the slightest direction and by following only their selfishness, the lines are all of the same length, which is clearly the most efficient disposition.” This theory has been crucial in the development of economic thought in that it is a statement which reflected society in Smiths day, and is still so widely applicable in modern day society.

Inequality and inefficiency are universal issues plaguing society that countless economists have attempted to understand and address. Distinguished economists such as John Rawls, Amartya Sen, Robert Nozick, and Milton Friedman have developed their own theories of to achieve distributive justice, or a fair allocation of resources for all members of society. In Rawls’ justice as fairness and Sen’s capability theory, the economists come closest to achieving plans of distributive justice that retain the output-promoting effects of compensating differentials and recognizing the costs of Okun’s leaky bucket, but a plan that retains Rawls’ social contract and Sen’s capability focus would come closest to achieving justice.