Economists use the concept of the "economic man", who is a rational seeker of maximum utility.
An exchange with a reader here about real estate prices reminds me of some other articles that challenge this. One was an article in the NYTimes about medical savings accounts. The idea is that of economic man--allow a person to tax shelter money to be used for medical expenses. People will use their money more wisely than if their medical expenses are covered by insurance. It's win/win: better health at a lower cost. The problem is, speaking as someone who each year for the last 30+ has had the chance to change insurance plans, people don't necessarily maximize utility. I just keep renewing my plan; it's much easier than spending the time to compare plans each year. (In that sense, I am maximizing utility.)
Similarly, Henry Blodgett in Slate looked at the investment strategy of Ben Bernanke, Greenspan's replacement as head of the Federal Reserve. Turns out he's not a rational economic man either, at least by academic standards.
The problem is, not that people aren't rational, but people are more multiudinous (see Walt Whitman) than economics, or the law, or other disciplines admit.
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