By Holly A. Bell

I woke up New Year’s Day with a Champagne headache. Not because I drank too much, but because I toasted the New Year at midnight with a glass of champagne with the rest of my friends and neighbors. Champagne gives me a headache. I know this. I drank it anyway. Not exactly a rational choice, but that’s the problem with rational choices, they’re often more complicated than economists would lead us to believe.

Most economic models are based on the assumption of rational choice. Economists assume individuals are rational actors who always make choices that maximize their well-being. We are expected to remove all emotions and concern for others and be purely self-interested. The decisions we make should minimize our costs and maximize our benefits. While I agree these elements are present when we make decisions, it does oversimplify the decision-making process. Two problems with the theory are that it doesn’t consider why individuals make decisions or how an individual’s best interests (at any given time) are determined.

A Rational Choice?

I spent a portion of New Year’s Day watching the Green Bay Packers play the Detroit Lions. As a Packers fan I was disappointed to hear that Aaron Rogers, Clay Mathews, and other key players weren’t going to play. However, I understood why they made the decision, they wanted to keep them healthy going into the playoffs. It seemed pretty rational to me. Not all the pre-game commentators agreed, nor did several of my friends. As the team has a bye-week during the first week of the playoffs, some thought it was a bad idea to “rest” the players too long. Others believe they should have played everyone to improve their chances of going undefeated in the division. Unfortunately, one of the best indicators of whether decisions meet the “best interest” criterion is hindsight. If they win the Super Bowl it looks like a brilliant decision, if they lose, someone will point to resting the players as a contributing factor. Best interest is difficult to determine at the time of the decision.

Another problem with rational choice theory is the lack of consideration about why individuals make the decisions they do. Without this understanding, decisions are difficult to predict. Economists assume the primary motivation is pure self-interest, but you can probably think of a time when you, or someone you know, sacrificed their own well-being for the well-being of someone else. A husband who gives his wife his coat on a chilly evening, a soldier who throws himself on a grenade, or a parent who skips a meal to make sure his or her children are fed. Self-interest is not our only motivation.

What’s Rational To You?

Relationships, concern about how others will react to our decisions, and cultural influences all play into our decision-making. For example, I think starting a 401(k) and saving for retirement is a rational economic decision. However, someone who lives in a culture in which retired parents are expected to live with their adult children might not agree. For these parents, the rational decision might be to spend all their money on their children to make sure they are successful and financially prepared to care for their aging parents. There is no standard for rationality; it is individually determined. This is why it is difficult and inappropriate for governments to establish policies that force people to engage in certain activities. For example, recycle, buy health insurance, purchase hybrid vehicles, or limit profits, but that’s another post entirely.

Relationships, cultural expectations about New Year’s celebrations, and concern for how others would view my refusal to have champagne all played into my decision to drink it. I didn’t include these considerations consciously and in hindsight it was not a decision in my best interest. Even though we don’t always make the most self-interested decisions, we do learn from them and hopefully make better decisions the next time. Consequences are excellent motivators.

keep it rational out there.

Photo courtesy of Rosen Georgiev