Economic definition of ‘Rational’

Brad Matthews economics category

In economics, the word rational means something very different to what it means in every day use.

It does not make you smart to attack, denounce, deride or dismiss economics because it uses a different definition. It makes you economically ignorant.

Learn the term and use it properly or anyone familiar with basic economics will laugh at you.

The definition I outline below is rationality in the Austrian sense. Other schools use it in a similar sense, albeit watered-down and slightly closer to the common definition.

‘Rational’ in Economics

In economic terms, rational simply means purposeful behaviour. Behaviour with the aim of achieving some desired end. Thus all behaviour is, in the economic sense rational.

Consider this:

If I wanted to get to Melbourne, it would be rational in both the economic and common-use terms to board a plane and fly to Melbourne. It would be rational in the economic sense and irrational in the common-use term to launch myself off Centre-Point Tower and flap my arms like a bird. I’m still employing means to attain a desired end, it just has a very low chance of success. Making an erroneous, ill-informed or otherwise ‘bad’ decision does not render a choice ‘irrational’ in the economic sense. No purposeful behaviour can be (economically) irrational. Irrational behaviour is behaviour that is entirely responsive—behaviour that occurs without reason or will.

Don’t equate this definition with day-to-day use when someone does something silly. It does not mean someone behaving in a way that you disprove of. Austrian economics cannot be criticised for claiming all behaviour is rational when it ‘clearly isn’t’, because it’s using an altogether distinct definition of the word.

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