In economics, pursuing one’s self-interest means acting to gain what one needs and wants. Some people argue that this is the
Answers
Answer:
It was really a hard work to read through more than 100 posts. Many of them in this question page are very long and it took me a long time. Many strands of arguments are intertwined in a complex way. I want to confine myself in a very limited topic that is the state-of-the-art understanding of rationality and self-interest in economics and do not enter into the moral and ecological aspects of economics. This does not mean that I estimate these aspects of little importance. I am afraid my post will be excessively long. Forgive me if my argument is too abrupt. Some expressions may lack sufficient accuracy.
First of all, it is necessary to distinguish the market economy and the (mainstream) economics. Guy Jakeman (104th post) defends vehemently the market economy. Admittedly, market economy has many good points that cannot be expected in planned economy, but it does not mean that the actual economics we have is a good one. The economics we have is full of flaws and one cannot say it describes what are happening in the market economy.
Although there are many factors which lead into the actual state of economics, one concept is particularly responsible for the present state of mainstream economics. It is the concept of rationality, which is one of Israr's main concerns.
Rationality and self-interest are closely related in most of discussions, but as Charls A. S. Hall (21st post, referring to H. Gintis) and Francisco Javier Melendez Hernandez (80th post) suggested it, concept of rationality is now much wider than the concept of self-interest. Self-interest is a name given to the propensity of a man or woman who seeks the well-being of him- or herself without paying any consideration on the state of others. Self-interested person can be rational as well as irrational (I will give the definition of rationality soon). Other-regarding person can be rational as well as irrational.
As I will later argue that the rationality in economics is roughly equivalent to the maximization of a utility function. All depends on what arguments you include in the function. Normally we only employ variables that determine consumer's consumption. In this case, rationality means self-interest, or more precisely all behavior that maximizes the utility function describes self-interested one. However, it is possible to include in arguments such variables as the empathy or the state of others. Ivan Dario Hernandez (1st post) is trying to do this. Bowles in his Microeconomics(2004) is also doing this. Bowles calls this kind of utility functions social preference. When an agent acts in such a way to maximize this kind of utility function, the agent is other-regarding to some extent.
Rationality in economics (I do not defend this concept at all, as you will see later) is logical consistency. Let a person have many states A, B, Cand others that he or she can chose. Each state has its benefits and costs. The consistency stands for transitivity of binary relations of the preference:
If A is preferred to B and B is preferred to C, then A is preferred to C.
The rationality is given in a form of an axiom:
For any triplet of states A, B, and C, the transitive law holds for the preference.
If the set of all possible states (adjective "possible" is omitted here after) is finite, any rational preference can be expressed by a utility function uin such a way that
A is preferred to B if and only if u(A) > u(B).
If the set of all states is infinite and provided with a topology, then any rational preference can be expressed by a continuous utility function if the preference satisfies certain closedness conditions. (Equivalence between utility maximization and rational preference)
Now, if a person is rational (meaning that he or she has rational or consistent preference), is it obvious that he or she chooses the state whose utility is maximal? No, by all means no!.
Normally the economics assume this is true and some people (including Guy Jakeman in his 50th post) think this is as sure as what we can call it a postulate, upon which we can construct the whole theory of economics.
Rationality in economics is flawed in two aspects. It implies the following two propositions:
(1) It is always possible to build and keep consistent preference among possible states.
(2) It is always possible to find the solution (maximal solution) that gives the maximal value of the utility function u.
In order to show you how these two assumptions are flawed, let me cite the case of the game of chess. (1) signifies that you can estimate the game-value of any state in your turn. I will explain soon what the game-value is in an example. (2) signifies that which player will win the game is determined when the first mover is decided.