The End Of Rationality

Every economics student I know, be they former students of mine, current colleagues, professional economists or acquaintances I’ve made through the course of my work as one, has been bombarded by the body of economic theory that is collectively referred to as Neoclassical Economics. In fact, most of what I taught at the graduate school level can be directly attributable to this school of economic thought. At it’s center, the most basic premise of this mainstream approach is that man is a rational being. A person who consumes more is better off than some other person who consumes less. That being said, sheer logic would dictate that a person who earns more income ends up happier than a person who earns less.

Interestingly, a new school of thought has appeared to challenge this particular conclusion. In an online article, Tom Green writes about a group of economists who are not satisfied with the answers marginal analysis has provided:

What is different is that these economists are revisiting old assumptions and asking new questions. They’re not taking the neoclassical model of rational economic man for truth. They have been willing to learn from their colleagues in psychology. They have given up on the old assumption that the more you consume, the better off you are; instead, they are actually looking at the question empirically. Most importantly, they are bravely asking, “What factors make people happy?” It’s another sign of the coming revolution in economics.

While I haven’t really had the time to go through the literature, and I seriously doubt I have the time to keep abreast of these things, it’s pretty exciting that the very foundations of modern economic theory (and this is not hyperbole) are being tested. An interesting sample group I can think of would be the families of our country’s overseas workers. At what point, in terms of family income, would they consider themselves happier with their family earning less but intact compared to earning more while being apart?

On a lighter side, I do disagree with the author when he states that for a person who earns $10,000 annually, further income does little to increase happiness. I can think of so many things that can make me so much happier with twice that amount. On the other hand, nothing like an experiment to prove my point. I’ll tell you if that statement is accurate… once I get to that point.