Rational behaviour is the act of decision making that entails an individual settling on a choice that will grant him/her optimum utility (Mckenzie, 2010 p55). In economics, it is assumed that all parties involved in the buying process will make decisions that maximize their utility. Therefore, while a seller makes a decision to sell a product at a price that will grant him/her optimum profits, a buyer makes a choice to purchase products at prices which will maximize their utility, allowing them to buy many goods with their limited disposable income (Copeland, 2000 p6).
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However, the concept of rational behavior is controversial, since it does not always entail obtaining the highest benefits in terms of money or material possessions. Under certain circumstances, the satisfaction obtained from emotional satisfaction can outweigh the material or monetary benefits obtained (Herbert, 1979 p344). Therefore, the definition of rational behaviour under the theory of behavioural economics is complex.
Under normal circumstances, economic resources are always scarce. Therefore, the concept of rational behaviour involves making the right decision to allocate the scarce resources among many needs (Mckenzie, 2010 p60). However, this rationality does not apply in all economic circumstances. There are other irrational factors that influence preferences and priorities, making it difficult to achieve economic rational behavior (Copeland, 2000 p11).
For example, it would be rational if an employee engaged in a contract for production and supply of goods and services with a contractor, other than employing his/her own employees. This is because; the employer is assured of supply in a contract, as opposed to employing workers who may not be enthusiastic (Vriend, 1996 p265). While working with employees who are not committed, an employer will have most of his/her precious time wasted, yet he/she has to pay for it (Herbert, 1979 p359).
However, in the real world situation, there are many employers working with employees as compared to those working with contractors. This indicates lack of economic rational behaviour. Therefore, rational behaviour is not applicable under all economic situations, since it is interrupted by irrational choices, which give a higher satisfaction to individuals. However, the concept of economics is informed by the principle of self-interest (Copeland, 2000 p28).
Therefore, even though rational behaviour would dictate that an employer use the services of a contractor for the supply of goods and services, the irrational decision to use employees is informed by the principle of self-interest. It could be in the best interest of the employer to use employees, since they are cheap to hire and easier to authorize and control, compared to independent contractors (Mckenzie, 2010 p72). Therefore, under such a situation, the irrational behaviour of hiring employees takes preference over the use of independent contractors, due to an employer’s self-interest.
Thus, the concept of rational behaviour has been scanty in the world of economics. This is because; it has been outdone by other irrational concepts such as preference and opportunity. The two aspects of irrationality have dominated over rational behaviour since the economic costs of time and disutility associated with them are low (Copeland, 2000 p25). For example, with a limited amount of money, it would be rational for an individual to purchase products at cheaper prices.
This is because buying at cheaper prices will increase the amount of commodities the individual can purchase (Herbert, 1979 p365). However, other factors involved such as the time it would take to search for cheaper products in the market, as well as the inconveniences of moving up and down the whole market, pushes an individual to opt for the expensive but readily available products (Vriend, 1996 p281). In such a case, irrationality concepts take preference over the rational behaviour.
Copeland, B.J 2000, ‘Narrow versus wide mechanism: Including a re-examination of Turing’s views on the mind-machine’, The Journal of Philosophy, vol. 97 no.1, pp. 5-32.
Herbert, A. S 1979, ‘Rational decision-making in business organizations’, Economic Sciences, pp. 343-371.
Mckenzie, R. B 2010, Predictably rational? In search of defenses for rational behavior in economics, pp. 54-80.
Vriend, J. N 1996, ‘Rational behavior and economic theory’, Journal of economic behavior and organization, vol. 29, pp. 263-285.