You're Irrational and It's OK
Channel: New Economic Thinking
Date: 16/02/2022

Should the government regulate personal behavior, or are the irrational choices of people actually reasonable?

Behavioral economics has identified a myriad of cognitive biases that show that people do not behave rationally and make errors in their decisions. This has been used to justify policies and regulations, e.g., on junk food, to nudge people into behaving rationally. 

Professor Mario Rizzo @newyorkuniversity rejects this approach as too narrow and argues for a more inclusive definition of rationality. An important part of human decision-making process is information-gathering, experimenting with different choices, discovering one’s preferences over time, learning from one’s mistakes, thereby helping to better structure one’s environment and adopting strategies for self-control.  Decisions which seem erroneous or irrational to researchers actually have a useful purpose in human decision-making and are more effective than external correction.