“There is a great difference between studying how people actually behave and positing how they should behave. When we wish to know how and why people behave as they do, we turn to behavioral economics, anthropology, sociology, political science, neurobiology, business studies and evolutionary theory. We discover that evolutionary roots, cultural heritages, hierarchical structures, and personal histories all influence our behavior: we are socially constructed beings, within the limits of our evolutionary heritage. There is a large body of evidence which shows that we do not consistently order preferences, we are poor judges of probabilities, we do not address risk in a “rational” manner, we regularly commit a wide variety of reasoning errors, and we generally base our behavior on habits and rules of thumb. In the end, we are not “noble in reason, not infinite in faculty.” On the contrary, we are “rather weak in apprehension…[and subject to] forces we largely fail to comprehend”. And as any advertiser could tell us, our preferences are easily manipulated, our responses quite predictable.
Despite all of this evidence, neoclassical economics stubbornly insists on portraying individuals as egoistic calculating machines, noble in reason, infinite in faculty, and largely immune to outside influences. The introduction of risk, uncertainty and information costs changes the constraints faced but not the basic model of behavior. I will call this the doctrine of “hyper-rationality” so as to distinguish it from a more general notion of “rationality”, which refers to the belief or principle that actions or opinions should be based on reason. The point here is to avoid the neoclassical habit of portraying hyper-rationality as perfect and actual behavior as imperfect. It is a topsy-turvy world indeed when all that is real is deemed irrational.
The question is not whether economic incentives matter, but rather how they matter.”
Anwar Shaikh (2016), Capitalism – Competition, Conflict, Crises, Oxford University Press, p.78-9.