Selfishness, Greed and Capitalism

Economists believe people are perfectly rationalsome people, at least – these biases are systematic andpredictable. We are, they say, predictably irrational (Ariely2009). We are prone to irrational biases such as the gambler’sfallacy 2 and the lightning-never-strikes-twice fallacy.We suffer from loss aversion 3 and are susceptible to themadness of crowds. We allow ourselves to be influencedby others, especially when they tell us what we want tohear (confirmation bias). We are liable to expect currenttrends to continue and to forget previous losses (the newparadigm fallacy). We tend to put an exaggerated valueon the present compared with the future (hyperbolic discounting)and even those of us who reject superstition areliable to chase financial losses, or be caught up in marketbubbles, or act impulsively due to anger, love or pity. Itcan be argued that much ‘irrational’ behaviour is actuallydue to a lack of information rather than a deficit of logic –people tend to over-estimate the odds of being murderedor dying in a plane crash, for example (Posner 1998: 1573)– but there are enough examples of self-defeating irrationalityto make us doubt rational choice theory in its mostrigid form.These are all interesting and potentially useful observations,but mainstream economists have never claimed thatpeople are infallible. Supporters of rational choice theory,such as Gary Becker and Richard Posner, do not believethat models which assume a large degree of rationality are2 The belief that the outcome of a random event, such as a coin toss,is affected by previous outcomes of the same event.3 Preferring to avoid a loss rather than make a gain.27