The Label “Rational” Is Being Used Illogically

The label “rational” is being used illogically. Economists (even the better behavioural kind) often misapply it, ignoring Shakespeare’s wisdom (he understood human nature better) and our evolved relational rationality.

1. Consider the Ultimatum Game: a Proposer is given money and must offer a Responder some. The Responder can accept—each gets the relevant amount—or reject—neither keeps any. Economists usually predict acceptance of any offer (“rationally” it’s a gain). But low offers are typically rejected (“irrationally”).

2. Are there good reasons to reject certain transactional gains? Yes, to punish those who treat us unfairly (by prevailing rules/norms). Such relational “logic” has been productive for so long it’s become instinctive (Kahneman’s “fast-thinking”).

3. “Rational” often labels self-maximising market-style thinking that models life as a stream of transactions with interchangeable others. But that’s a terrible description of human life.

4. The mechanics of our survival is deeply relational. Ignoring how our actions affect others, or how they’re seen, or their long-term effects, is maladaptive. Since all our world’s a social stage, evolution equipped us with relational rationality.

5. Prioritizing reputation and fairness—both critical for unavoidable cooperation—over transactional gain, has likely shaped our survival for 10,000 generations. Human self-interest has always had relational and reputational constraints (counterbalancing self-only-ness). Per Shakespeare: “Who steals my purse steals trash; ’tis…nothing…But he that filches from me my good name…makes me poor indeed.”

6. Basically all our key traits, including rationality, evolved relationally. Until long after cities arose it couldn’t have been otherwise. Individualism was invented only ~ 15 generations ago. And most cultures are still sociocentric.

7. Behavioral economics hasn’t cured this, its “cognitive biases” have two sources of error, the observed behavior and the “econo-rational” ideal benchmark. That benchmark is often unnaturally transactional.

8. Worse, transactional self-maximizing can create self-undermining outcomes (e.g. Prisoner’s Dilemmas, Tragedy of Freedom In The Commons, Common Pool Problems).

Can damaging what you depend on be rightly labelled “rational”? Not logically. Not survivably.

Illustration by Julia Suits, The New Yorker Cartoonist & author of The Extraordinary Catalog of Peculiar Inventions.