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Example research essay topic: Rational Behavior Invisible Hand - 1,839 words

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... es are an example. The assumption that the individual is in some sense supreme in the marketplace axiomatically leads to the conclusion that reliance on individual self-interest is the only requirement of the economic (and indeed the political) system. 17 But a free market assumes that people have equal access to information about what is taking place and that they are all ufficiently self-reliant to exist without buying or selling. This reflects a utopian situation, found only in some small communities (in which group cohesion is a central element of community structure). It has long been known by anthropologists, sociologists, and psychologists that in most societies, group behavior is markedly different from that of individuals.

Long-term goals of families and communities take into account factors that seldom enter into the decision making of isolated individuals, and this is nowhere more important than in the context of relationships with the environment. 18 From the systems perspective, the view of economist Lester Throw is helpful "Societies are not merely statistical aggregations of individuals engaged in voluntary exchange but something much more subtle and complicated. A group or a community cannot be understood if the unit of analysis is the individual taken by himself. A society is clearly something greater than the sum of its parts despite what the price-auction model would maintain. " 19 Conventional economics is mainly built on simplistic and outmoded concepts drawn from nineteenth-century behavioral psychology. When economists talk about "economic man"-Homo oeconomicus-they make assumptions about rational behavior, human needs, goals, and values that have been largely demolished by workers in the social sciences. 20 The demolition occurred mainly in sociology and adult education, by empirical testing (using the Popperian criterion of falsifiability) 21 and by use of more modem ideas of behavior, such as humanistic psychology 22 and the human potential movements. 23 The idea that the individual is the central (and sole) unit of decision making in society is rejected by many cultures. Indeed, the idea is in many respects deeply offensive, and it goes against centuries of their history. For settlers of (usually) European cultures to impose that ideology on people is yet another example of the long history of insensitivity and brutality that has characterized colonization.

The idea also must be recognized as relatively new in human history, gaining its main strength from political theories of the seventeenth and eighteenth centuries in Britain and Europe. To many Europeans, the more cooperative social structures of the past may now be too far distant to be clearly remembered, but such is not the case in most other cultures. The dominance of European-based cultures enabled the ideology of individualism to be spread far and wide, but the historical fact of its acceptance does not prove it is "right"; the reality is that its supporting political, economic, and military structures were more powerful than The phenomenal successes of advertising, the vast amounts of money spent on it, and the involvement of psychologists supply evidence that up to a point, it is quite possible (and certainly very lucrative) to change people's preferences. 24 The methods used owe more to psychological manipulation than to any inherent law of human nature in that planning is extended to the consumer to ensure that he or she will "want" what is produced. According to Karl Popper, the rationality principle means that "having constructed our model, our situation, we assume no more than that the actors act within the terms of the model, or that they 'work out' what was implicit in the situation. " Popper makes it clear that the rationality principle "has little or nothing to do with the empirical or psychological assertion that [people] always, or in the main, or in most cases, act rationally. " 25 In other words, the rationality principle applies to the a priori domain of development of models.

It has nothing to do with the empirical domain of observed human behavior. Popper goes on: "Rationality as a personal attitude is the attitude of readiness to correct one's beliefs. " In its intellectually most highly developed form it is the readiness to discuss one's beliefs critically, and to correct them in the light of critical discussions with other people. 26 I am a rationalist. By a rationalist I mean a [person] who wishes to understand the world, and to learn by arguing with others. (Note that I do not say a rationalist holds the mistaken theory that [people] are wholly or mainly rational. 27 The difference between the two meanings is vitally important, but they are commonly confused. In the general sense, rationality is an a priori concept, but when the word is applied carelessly to the empirical world, the result is the expectation of rational behavior (i. e. , actions performed according to a model of behavior) rather than acknowledgment of the richly human, creative, intellectual behavior of a rational person, who takes a critical attitude to his or her beliefs.

From careful consideration of the emphasized sentence in the latter quotation from Popper, I am led inescapably to the conclusion that a rationalist should never believe in rational behavior! To do so is to accept a model as a standard for behavior rather than to observe critically the empirical reality of actual behavior. The two meanings are inherently in conflict, and Popper exposes the point very effectively: a belief in rational behavior is in itself irrational! At the empirical level, the underlying assumptions of rational behavior are largely untested and probably untestable. Despite this, many economics textbooks still promote the model of rational Homo oeconomicus. That many economists recognize its inadequacies but continue to teach (and preach) the concepts gives me cause for concern about the scientific basis of political economic theories. (The economist Mark Black suggests that some economists play tennis with the net down! ) 28 The imposition (e.

g. , through fiscal policies) of the requirement that people act in conformity with a model of behavior in order to gain access to some privileges of citizenship (employment, education, health care, welfare, etc. ) is inherently authoritarian and violent. It induces-and often forces- people into individualistic behavior against their natural instincts. Nor does the rational behavior model give adequate attention to changes in value over time, that is, to intergenerational equity. Deeply human ideas, such as leaving resources for one's grandchildren or planning allocation by need rather than greed, have no clear place in its calculus; that sort of behavior is labeled as irrational. (Proponents of economic rationality commonly apply this label to those who disagree with them, especially to those who value the environment highly. ) In this context, it is worth noting that in law, there is the concept of the reasonable person, who (in contrast to the rational person) is: "a person who is not only protective of his / her own rights, but also has a fair regard for the welfare of others. " 29 The reasonable person is concerned with justice and fairness with equity rather than efficiency.

Justice and fairness are absent in much of conventional economics, yet they are central to most people's ideas about how society should be run. Humanistic economics is all about replacing the model of the rational person with that of the reasonable person. It is a central belief of those of the mainstream market liberal political-economic viewpoint that freedom of the individual is the most important characteristic of a society. For these people, freedom is entirely an economic construct. Freedom exists in the unfettered market and ceases to exist if market processes are hedged about by regulation. 33 Freedom thus has a meaning akin to choice, the availability of alternatives in a marketplace. For most people in society, freedom has entirely different meanings, few of them capable of codification.

Freedom from hunger and want? Freedom of speech and of association? Freedom from arbitrary constraints? Freedom to be creative and artistic? These are not the same as freedom of choice. Free-marketers hold to a negative freedom. "Freedom from... " What is important is freedom from restrictions that prevent them from getting on with whatever they want to do (mainly the accumulation of wealth).

Positive freedom, on the other hand, is the more creative "freedom to... , " such as the freedom to live within a context that encourages the pursuit of things spiritual and creative. The assiduous promotion of ideas of negative freedom, especially in the market liberal context beloved of Treasury officials and business roundtables, is yet another step in the attempt to mold Homo sapiens into Homo oeconomicus-"the human as consumer"-the manipulated market cipher who will always behave as markets require. "Freedom" in this con. text has many characteristics of a myth. It also involves the hijacking of a word with an old and honorable meaning into a new and dishonorable service.

Adam Smith's doctrine of the invisible hand that guides each individual who acts in his or her self interest to promote the interests of the society in which he or she lives is strongly supported by many people today. 49 Followers of the doctrine forget, however, that the society within which Smith developed his theories was very different from today's. In Smith's time, there were strong social and community constraints on individual behavior, derived from shared morals, religion, custom, and education. 50 These are not present to the same extent today, and indeed there are strong forces opposing them. In Smith's time, however, these social mores were so pervasive and so obvious that he would have felt it unnecessary to include them in his argument. 51 Two hundred years ago, for example, there was no question but that God was an all-powerful Being with the ability to affect the lives of each and every individual. It was a society in which self-interest included the responsibility before God to answer for life's actions and transgressions on the Day of Judgment. To change Smith's argument into a license for limitless self-gratification distorts his writings beyond recognition.

The invisible hand must be acknowledged as a partial truth-in other words, a myth. Some form of invisible-hand model is probably valid to describe some of what happens in a village marketplace of the type Smith described. But the belief that the sum total of market actions, each derived from individual self-interest (in practice massively influenced by advertising and distorted by externalities), in some way adds up to a guarantee of the best interests of society as a whole stretches the imagination to the breaking point. Group identity, collective responsibility, and respect for common property are also known to be critically important cultural components of any stable society. Important areas of human social activity (concern about the distant future; respect for land, resources, and environment; spirituality; etc. ) have little to do with independent individual preferences. 52 Markets must always be held accountable to the greater social interest, something that may be forgotten by those caught up in the excitement of economic reform. 53 The greater environmental interest is no less important. Bibliography:


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Research essay sample on Rational Behavior Invisible Hand

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