In my experience, the rational actor model is generally more like a “model” or an “approximation” or sometimes an “emergent behavior” than an “assumption,” and people who want us to criticize it as an “assumption” or “dogma” or “faith” or some such thing are seldom being objective.
(If you think this criticism is merely uninformed or based on a deep misunderstanding, then perhaps it would be rational to turn the phrase “the rationality assumption of neoclassical economics” in your opening paragraph into a hyperlink to some neoclassical authority you are engaging.)
There are various individual cases where it is quite justifiable to beat up neoclassical economists for trying to push rationality too far, either against the clear evidence in simple situations or beyond the messy evidence in complicated situations. As an example of the latter, my casual impression is that the running argument at Falkenblog against the Capital Asset Pricing Model could well be a valid and strong empirical critique. But there are also various individual cases where neoclassical economists can justifiably fire back with “[obvious rational reactions to] incentives matter [and are too often underappreciated]!” E.g., simple clean natural experiments like surprisingly large perverse consequences of a few thousand dollar tax incentive for babies born after a sharp cutoff date, or strong suggestive evidence in large messy cases like responses to price controls, high marginal tax rates, or various EU-style labor market policies.)
And it seems me that w.r.t. our rationality when we hold a discussion here about rationality in the real psychohistorical world, the elephant in the room is how commonly people’s lively intellectual interest in pursuing the perverse consequences of some shiny new behavioral phenomenon in the real world turns out to be in fact an enthusiasm for privileging their preference for governmental institutions by judging market institutions (and evidence for them, and theoretical arguments for them, and observed utility of outcome from them) by a qualitatively harsher standard. The real world is dominated by mixed economies, so the implications of individual irrationality for existing governmental institutions (like democracy and hierarchical technocratic regulatory agencies) have at least as much practical importance as the implications for some idealized model of pure free markets. And neoclassical economists have some fairly good reasons (both theoretical and empirical) to expect key actors in market institutions to display more of some relevant kinds of rationality than (e.g.) random undergrads display in psych experiments, while AFAICS political scientists seldom have comparably good reasons to expect it in institutions in general.
I commend this post for picking a telling example of behavioral anomalies which show a strong impact in the real world (as opposed to, e.g., in bored undergraduates working off a psych class requirement by being lab rats). But I see nothing essentially market-specific about this anomaly. Thus, it is obvious why it is interesting regarding self-help w.r.t. ugh fields, and it is not obvious why when considering its application to the broader world, we should focus on its importance for economics-writ-very-small as opposed to its importance for existing mixed economies. And as above, unless you link to someone significant who actually makes your “rationality assumption” so broadly that this experiment would falsify it, I don’t think you’ve actually engaged your enemy, merely a weak caricature.
In my experience, the rational actor model is generally more like a “model” or an “approximation” or sometimes an “emergent behavior” than an “assumption,” and people who want us to criticize it as an “assumption” or “dogma” or “faith” or some such thing are seldom being objective.
(If you think this criticism is merely uninformed or based on a deep misunderstanding, then perhaps it would be rational to turn the phrase “the rationality assumption of neoclassical economics” in your opening paragraph into a hyperlink to some neoclassical authority you are engaging.)
There are various individual cases where it is quite justifiable to beat up neoclassical economists for trying to push rationality too far, either against the clear evidence in simple situations or beyond the messy evidence in complicated situations. As an example of the latter, my casual impression is that the running argument at Falkenblog against the Capital Asset Pricing Model could well be a valid and strong empirical critique. But there are also various individual cases where neoclassical economists can justifiably fire back with “[obvious rational reactions to] incentives matter [and are too often underappreciated]!” E.g., simple clean natural experiments like surprisingly large perverse consequences of a few thousand dollar tax incentive for babies born after a sharp cutoff date, or strong suggestive evidence in large messy cases like responses to price controls, high marginal tax rates, or various EU-style labor market policies.)
And it seems me that w.r.t. our rationality when we hold a discussion here about rationality in the real psychohistorical world, the elephant in the room is how commonly people’s lively intellectual interest in pursuing the perverse consequences of some shiny new behavioral phenomenon in the real world turns out to be in fact an enthusiasm for privileging their preference for governmental institutions by judging market institutions (and evidence for them, and theoretical arguments for them, and observed utility of outcome from them) by a qualitatively harsher standard. The real world is dominated by mixed economies, so the implications of individual irrationality for existing governmental institutions (like democracy and hierarchical technocratic regulatory agencies) have at least as much practical importance as the implications for some idealized model of pure free markets. And neoclassical economists have some fairly good reasons (both theoretical and empirical) to expect key actors in market institutions to display more of some relevant kinds of rationality than (e.g.) random undergrads display in psych experiments, while AFAICS political scientists seldom have comparably good reasons to expect it in institutions in general.
I commend this post for picking a telling example of behavioral anomalies which show a strong impact in the real world (as opposed to, e.g., in bored undergraduates working off a psych class requirement by being lab rats). But I see nothing essentially market-specific about this anomaly. Thus, it is obvious why it is interesting regarding self-help w.r.t. ugh fields, and it is not obvious why when considering its application to the broader world, we should focus on its importance for economics-writ-very-small as opposed to its importance for existing mixed economies. And as above, unless you link to someone significant who actually makes your “rationality assumption” so broadly that this experiment would falsify it, I don’t think you’ve actually engaged your enemy, merely a weak caricature.
Just checked my well used copy of Mankiiw. Rational actor model applies more generally than to successful investors.