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Economists' Assumptions

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Donald J. Boudreaux writes,

What about the assumption of self-interest? It, too, is equally inoffensive. All that economists need to be true on this front is that each person generally cares more about himself, his loved ones, and his friends than he cares about strangers.

Economic theory does not require that each individual care exclusively about himself; it doesn't require that each individual have no concern for strangers. And it is certainly not an assumption that each person desires only maximum monetary wealth or material goodies.

For Discussion. Sometimes, economics is described as assuming that people optimize. Boudreaux seems to be arguing for a weaker version of self-interest. What practical difference is there between the two assumptions?

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CATEGORIES: Economic Philosophy

COMMENTS (3 to date)
Bruce Cleaver writes:

One related item I've always not seen satisfactorily addressed is that self-interest can be defined in many different ways, and usually in ways that contradict the simple-minded materialism of economists. There often is some function being optimized, it is just as often _not_ the gluttonous acquisition of goods and services at the cheapest prices that so often starts off the analysis. Charity, ease of the transaction, etc. play a significant part.

Lawrance George Lux writes:

Your purported weaker version of self-interest is actually the stronger version. Many Economists admit to this strength by continual referral to households in analysis, instead of the concept of the individual. Power in economic action comes from organizational structure. lgl

Bernard Yomtov writes:

Actually, it is incorrect to say that the underlying assumption is that individuals simply seek to maximize their personal financial well-being. As Boudreaux points out, the assumptions are that people have preferences that satisfy some simple conditions.

But these preferences can be lots of things. To take a simple example, consider an individual who chooses to go home at five rather than work overtime. Even though this behavior does not maximize financial well-being, there is nothing about it that defies any economic assumption.

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