Are people rational economic actors? Perhaps to a very rough first approximation, but not as a rule because the algorithms of rational choice don't describe how we actually make judgments and decisions. We are rarely irrational in a random, erratic sense. Rather, most of us manage to cope reasonably well most of the time, using a variety of “cold” cognitive processes (the psychophysics of perception, the associative nature of memory, our finite attention span) and “hot” cognitive processes (the effects of motivation and emotion) that can easily lead us astray in situations that are complex, or are simple but subtly different from the norm. As the chapters in this book attest, these psychological biases have potentially profound implications for economic theory and policy.
But what if various aggregate-level processes (group discussion, market transactions, the social diffusion of ideas)attenuate or compensate for these individual-level biases, as many critics contend (e.g., Kagel & Roth, 1995; Page & Shapiro, 1992)? If so, individual failures of rationality would tell us little about aggregate or collective rationality about mass markets, public opinion trends, voting behavior, social movements, fashion, crowd behavior, congressional decision making, jury verdicts, and so on. Even seemingly individual decisions of considerable import for example, presidential decisions are usually made after much consultation with advisors, committees, and increasingly, data from polls and focus groups.
Recent experiments by social psychologists and experimental economists have begun to examine whether interaction with others attenuates individual biases, sustains them, or amplifies them.