Are We Rational Actors?
Rational actors are individuals or entities that make decisions based on a logical and reasoned analysis of available information.
This concept is often used in economics and political science to describe the behavior of individuals, organizations, and even countries.
Rational Actors
The rational actor model assumes that individuals and organizations act in their own best interest, seeking to maximize their benefits while minimizing their costs. According to this model, individuals and organizations are rational because they make decisions based on a careful consideration of all available options and choose the one that will result in the greatest benefit.
In economics, rational actors are assumed to be motivated by self-interest and to make decisions based on a cost-benefit analysis. For example, when purchasing a product, a rational actor would consider the price, quality, and features of different options and choose the one that offers the greatest value for their money.
In political science, the rational actor model is used to explain how states and other actors behave in the international system. According to this model, states act in their own best interest and seek to maximize their power and security. For example, a state might engage in diplomacy or use military force to protect its national interests.
When people assume that individuals and organizations act in a rational manner, analysts can make predictions about how they are likely to behave and design policies and strategies accordingly.
While the rational actors model is most certainly useful, using it to make predictions and design policies is stretching it far beyond it’s practical use.
Rational Actors?
Anyone who has interacted with other people in society (that’s all of us) has come across a few examples of people not acting rationally.
A few real-world examples of times when people haven’t acted rationally
- Panic Buying During the Pandemic: During the early days of the COVID-19 pandemic, many people engaged in panic buying of toilet paper and other household essentials, despite the fact that there was no evidence of a shortage.
- The Tulip Mania: In the 17th century, the price of tulip bulbs in the Netherlands reached absurdly high levels, driven by a speculative bubble. At the height of the tulip mania, some tulip bulbs were selling for more than ten times the annual income of a skilled craftsman. Eventually, the bubble burst and the price of tulip bulbs crashed, leaving many investors with worthless bulbs.
- The Pet Rock: In the 1970s, a man named Gary Dahl made millions of dollars selling pet rocks, which were essentially just rocks in a cardboard box with breathing holes.
- The Dancing Plague of 1518: In the summer of 1518, a woman in Strasbourg, France began dancing uncontrollably in the streets. Within days, hundreds of other people had joined her, dancing for hours or even days at a time, until some collapsed from exhaustion or died. The cause of the dancing plague remains a mystery, but it is believed to have been a mass psychogenic illness.
I’m sure you can think of many more examples from your own life experience. (feel free to share with us here!)
These examples illustrate how people can act in ways that defy rational explanation, driven by fear, uncertainty, social pressure, or other non-rational factors.
Which means that when we use the rational actors model to make predictions those predictions will be predictably wrong.
When we use those wrong predictions to make policy decisions we will end up with troublesome and sometimes counterproductive policies.
The solution isn’t to throw out to rational actors model entirely but to temper it, to remember to account for other factors that influence human behaviors and to account for them too, (as much as is possible around the unpredictable humans.)
And probably most importantly, when dealing with said unpredictable humans, to factor in a margin of error for people acting irrationally. Because we know a decent chunk of them will.
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