David R. Henderson  

Of Diet Cokes and Brain-Focused Economics

Capitalism vs. Socialism: The ... 1973: Utopia or dystopia?...


Mullainathan believes he has found a choice bias that undercuts the standard economist's claim that people are rational. But has he? At first glance, his choice not to experiment doesn't make sense. But I think Mullainathan is more rational than he thinks he is. Why? Because the critically scarce resource, which he doesn't mention, is his brain. Our brains seek to optimize the allocation of their own internal resources, which are mainly neurons and energy. A full understanding of rationality should include economizing on using one's brain.
This is from Richard B. McKenzie "Of Diet Cokes and Brain-Focused Economics," the Econlib Feature Article for March.

I highly recommend it.

By the way, Sendhil Mullinaithan co-authored with Richard H. Thaler, winner of the most-recent Nobel Prize in economics, the article "Behavioral Economics" in The Concise Encyclopedia of Economics.

Comments and Sharing

COMMENTS (5 to date)
Jon Murphy writes:

That is just a particularly good article (which is not to say they aren't all good). A clear, concise price theoretic look at behavioral economics.

Philo writes:

OK, but then ‘rationality’ doesn’t mean what we thought it meant. Apparently crazy actions might, after all, be “rational” economizations on expending intellectual energy.

Philo writes:

Why is there just one comment on this post?

Richard McKenzie writes:


You are right in one regard: I seek in the book, and to a lesser extent in this article, to shift the focus of rational decision making to the brain's allocation of its own internal resources (prior to decisions on the allocation of external resources). That seemingly small shift in perception of the impact of scarcity changes much in assessing human decision making. It requires that decisions be assessed in bundles, or portfolios, as indicated in the article. It also changes perception of the impact of specialization, trade, competitive markets, and economic education -- topics covered only in the book.

Richard McKenzie

Philo writes:

@ Richard McKenzie:

Assessing decisions by their actual results would not work well; you might want to shift to evaluating “bundles or portfolios” of decisions. But a better option is to evaluate individual decisions by their expected results.


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