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  • Print publication year: 2016
  • Online publication date: May 2018

2 - Principles of rational behavior in society and business

from Book I - The market economy, overview and application

Summary

We are not ready to suspect any person of being defective in selfishness.

Adam Smith

The combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach.

Gary S. Becker

Our purpose in this chapter is to lay out in clear (if not stark) terms exactly how economists think about people's decision making and behavior. We fully recognize that the economic way of thinking is not the only way people think about business and life more generally (through methods used in the hard sciences, psychology, the arts, etc.). Most people operate on several different intellectual plains, probably often more or less simultaneously. At other times they shift from intellectual plain to intellectual plain and remain there for a time with concentrated focus on given disciplinary methods of thinking. Here, we ask you to shift to the microeconomic intellectual plain and to remain there for at least the remainder of the course. However, be forewarned, with enough work on the economics plain, we expect many students will come to recognize the benefits of remaining there, or shifting back to the economics plain more often than you might now expect. We have frequently told our students that “economics is as much a ‘discipline’ as it is a disease. Once you catch it, it can be terminal, pervading with ease much of your thinking.” At the same time, we understand many students will want to resist the economic way of thinking every step of the way – until they have come to see the full method of thinking and have experienced its varied applicability to so many dimensions of behavior.

We focus on the core founding assumptions in microeconomics, for two reasons:

  • • First, this is a course in economics – not psychology or literature. We need to use your time and textbook space at our disposal economically, which means we need to stay focused on one disciplinary approach.
  • • Second, we might wish we could fully integrate thinking methods and findings of other disciplines, but that is a tough order, primarily because economists have encountered difficulty doing that without undermining analytical progress through loss of precision, if not confusion, on students’ parts.
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