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Rational Prudence

Rational Prudence

By Priyanka Dey

Edited by Namitha Sadanand, Associate Editor, The Indian Economist

In the past five years of studying Economics, one elementary question has evolved which is embedded into the fundamentals of the social sciences. Before every major philosophy, we assume the simplest yet most questionable assumption, rationality as defined by Edgeworth- “The first principle of Economics is that every agent is actuated only by self-interest.”[1] Does this mean he presumed a society which lacks altruist agents in an economy? As well as an absence of distributive disintegrations? I am not indicating that Francis Ysidro Edgeworth, a philosopher and political economist, lacked a rational eye to society. It is from a detailed study of his work that one gets a clear objective of rationality assumption. According to Edgeworth, we must not relate rationality alone to individuals; the larger stage where individuals carry out decision making, the environment, is supposed to be rational. He asked the rhetorical question: “Could we seriously suppose that these moral considerations were relevant to war and trade?”. It is definitely not a standalone assumption; it works with several other parts of the puzzle in place.

It borrows from egoism and utilitarianism, the foundation of economic agents, both being contradictory until influenced exogenously by factors like religion or culture.  “It is better to be a human being dissatisfied than a pig satisfied”, the famous words of Socrates,describe the utilitarian motive of welfare. But how much it is applicable in the present scenario is described better from the intrusion of externalities.

An endeavour at a sale will help analyse this:

Four girls were standing in a long queue on a weekend sale .There were exclusive garments on sale so naturally, a choice game was underway. A specific branded top was scarce in a particular size required by all four, so scarcity brought egoism over and above altruism. Only the first consumer had the particular commodity which the other three also desired. The fourth girl, however, could not sport it due to exogenous forces (for example, religious constraints). If none would have the opportunity to consume the commodity, no one would have been either better off or worse off. But as one was better off, the others felt regret and disappointment, thus worse off. This is a negative externality. However, the fourth girl was not as disappointed as the others, as her choice was guarded formerly.

The significance is that we do not find utilitarian perspective in microscopic scenarios. The micro foundation questions the macro formulation of the utilitarian concept. But every agent was anxious about their own welfare, thus rationality is evidently real. About the general welfare situation, it is uncertain due to the absence of knowledge concerning the magnitudes of their happiness or disappointment.

The conception of egoism also helps in shaping a consistent choice preference. An agent’s choice is reflected “rational” if and only if the selections can all be explicated in expressions of preference relation, consistent with the revealed preference explanation; or to be precise, if all his choices can be explained as selecting the “most preferred” choices with reverence to a postulated preference relation. A lot of discrete studies can be found regarding behavioural patterns, but limitation to a formal set of choice is absurdity.

To answer this dichotomy let us consider randomness as a consistent behaviour. Thus rationality holds, as a painter would draw a curved line and claim it is a straight line. Samuelsson suggests requirement of “ideal observational conditions” for the implications of the approach to be “refuted or verified.” The third and last argument will be an invisible force, time. As we consider time preferences, we add another dimension to preferences. What I think I will prefer tomorrow may not be preferred actually tomorrow. The game of time preference includes expectations in the picture.


a. Rationality in decision and policy makeing : implications for stratigic environmental assesment by Lone Kornov and Wil A.H. Thissen

b. Vision of Rationality From Demons to Bounded Rationality by Gigerenzer, G., Todd

c. The theory of decision making by W Edwards

d. The Argumentative India and Rational Fools by Amartya Sen.

[1] Mathematical Psychics: An Essay on the Application of Mathematics to the Moral Sciences (London, i88i), p. 16.

Priyanka is passionate for love , economics , dance, fashion and living life . She builds her life in hope of inspirations. For her bringing change is the cause of our existence and every step that one takes changes assumptions for the superstructure . It gives her pleasure in deconstructing anything and everything . Accordung to her we all know what we actually want and eventually achieve that and the rest that comes in the path is just knowledge creation.

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