RATIONALITY

Masyhudi Muqorobin, PhD.

(PhD Program in Islamic Economics)
UIN SUNAN KALIJAGA
Yogyakarta
Introduction

 Economics is a study of rational (economic)

man, whose behavior arises from the scarcity
of means to achieve given ends (Lionel
Robbins)
 Rationality is the heart and fundamental
assumptions of neoclassical economics
Meanings and Definitions
 Every single person may have different perception
about rationality
 It may mean:
– Dispassionate (calm, rationale, no-emotional effect)
– Reasonable
– Logical
– Explicable (explainable, understandable, sensible)
– Purposeful
 Most econ literature: rationality = self interest,
quantifiable (in money), and done consistently, to
maximize profit/utility
Meanings and Definitions:
Agents are assumed to be rational in these senses:

 People know and are able to order their wants,

from most to least preferred, and to act
consistently .
 Both ends and means of an activity break with
tradition and are based on reasoning .Oskar
Lange: “methodological rationality”..
 Quantifying ends and means in monetary
units, leading to monetary calculation and
tendency to maximize the aim (profit and
utility);
Meanings and Definitions:
Agents are assumed to be rational in these senses:

 Capitalist mode of production: rationality = satisfaction

of the principle of greatest efficiency and economy of
means. No room for sentiment or for not-quantified
values in money.
 Individual rational behavior in pursuing self-interest will
lead to social welfare.
 A person’s choice are ‘rational’ if and only if these
choices can all be explained in terms of some
preference relation consistent with the revealed
preference definition , i.e. if all his choices can be
explained as the choices of most preferred alternatives
with respect to postulated preference relation
Egoistic Rationality
J Bentham:
Nature has placed mankind under the
governance of two sovereign masters: pain and
pleasure. It is for them alone to point out what
we ought to do, as well as to determine what
we shall do. … They govern us in all we do, in
all we say, in all we think…. The principle of
utility recognizes this subjection, and assumes
it for the foundation of its (social theory).
Historical Sketch

 Mercantilist policies vs religious taught (Catholicism)

 17th-century production and trade expansion
 From philosophy of mercantilism to Economic
liberalism
 Adam Smith: “It is not the benevolence of the
butcher, the brewer, or the baker that we expect our
dinner, but from their regard to their own self-
interest.”
New Development of Rationality

 Humanity-bounded rationality vs egoistic

rationality
 Altruism vs egoism
 Social considerations vs individualistic