Tag Archives: Behavioural Economics

…A look at Rationalism & Behavioural economics

(Part I)

Rationalism is the concept of innate ideas, reason, and deduction. Rationalism is characterized by the philosophical term “a priori”, which uses logic and reason to come to a conclusion before experience. One common assumption that economists make when making models is that people are predictable and rational. However, in the real world, people can be impulsive and short-sighted when making decisions. The study field that analyses humans’ rationalism is called behavioral economics. More generally, the branch focuses on the philosophical, social and emotional factors when making decisions as discussed by Adam Smith in “The theory of moral sentiments” in 1759. Although rationalism (or the absence of it) makes it harder to predict human behavior for economists, behavioral economics has gained popularity over the past few decades and it has been applied in fields such as public policy, political science, marketing, and finance.