The Delusion of Rationality

Kerry [1], good point that Elinor Ostrom, the first woman to win the Nobel Prize for economics (read Ruth Marcus’ insightful column [2] about women “firsts”) was not trained as an economist but a political scientist. She joins the ranks of Nobel economic laureates whose backgrounds are in different disciplines. An economics blog post [3] discusses how the field is being upended by people who don’t believe markets (and humans) always behave rationally, which means economic activity cannot be plotted and predicted with mathematical precision. These new economists, such as Ostrom, are teasing apart how and why humans actually act, because it turns out humans are not simply machines for self-maximizing behavior. The question I always had for economists who believed we were is: Have you ever interacted with any other humans besides economists? Yale’s Robert Shiller says [4] that the encroachment of other disciplines has been good for economics, because the prevailing belief in efficient, self-regulating markets “has derailed our thinking.” That the experts can get it completely wrong is good to keep in mind whenever we hear from those who think they can model the world and predict the future.