When comparing both economics and psychology, it is true that both of the social sciences look at the behaviour of individuals and how they react to situations where they are faced to make a decision. However the way both of the two go about it is very different to a small extent. Economics defines rationality as consistent choices made by people to maximise their self interest and utility. It also assumes that people are able to make choices whilst processing all the information without hindering other operations that our brain does. Whereas psychology focuses on “learnt behaviours” that are unique to the individual when trying to be rational by making so called rational choices. The psychology perception of rationality (or the lack of it)
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This is highlighted by a quote by Edgeworth (1881 p.16), “the first principle of Economics is that every agent is actuated only by self-interest”. This shows that the theory of self interest and utility maximisation is central to being rational to economists.. However we have to question this notion of individuals always depending on the utility function, if we were to take this assumption literally, we would find out that the economic definition of rationality is not completely true. For example, the first assumption of utility maximisation is that a person cannot be manipulated, with the person only picking on the basis of maximising …show more content…
He argued that people did not have perfect information (economics argue people do have access to perfect information), therefore they did not look to pursue self interest. Furthermore, even if they did have all the information, “their minds would be unable to process it properly.” He called this “cognitive limits” (Economist, 2009). Simon went on to say that rather than picking the optimum choice, the individual would pick one that would be satisfactory and was just good enough for that individual. An example of satisficing that Simon used was a questionnaire (Economist, 2009), where a person would give acceptable answers, therefore satisficing, which would then distort the research data. This goes against everything that classical economists presume of rationality (that everyone will want to be maximising their
This is highlighted by a quote by Edgeworth (1881 p.16), “the first principle of Economics is that every agent is actuated only by self-interest”. This shows that the theory of self interest and utility maximisation is central to being rational to economists.. However we have to question this notion of individuals always depending on the utility function, if we were to take this assumption literally, we would find out that the economic definition of rationality is not completely true. For example, the first assumption of utility maximisation is that a person cannot be manipulated, with the person only picking on the basis of maximising …show more content…
He argued that people did not have perfect information (economics argue people do have access to perfect information), therefore they did not look to pursue self interest. Furthermore, even if they did have all the information, “their minds would be unable to process it properly.” He called this “cognitive limits” (Economist, 2009). Simon went on to say that rather than picking the optimum choice, the individual would pick one that would be satisfactory and was just good enough for that individual. An example of satisficing that Simon used was a questionnaire (Economist, 2009), where a person would give acceptable answers, therefore satisficing, which would then distort the research data. This goes against everything that classical economists presume of rationality (that everyone will want to be maximising their