Consider the following:

Question

(i) A psychologist argues, "Economists assume that people behave rationally. However, people can and often do behave irrationally. I really think economists need to consider irrational behavior if their results are going to be valid." How should the economist respond?
(ii) A mathematician argues, "Economists assume that people optimize. Yet most people are incapable of doing the complex mathematics that are a matter of course in economic models. Doesn't this reduce the usefulness of economic models?" Respond to the mathematician.

Answer 1

(i) All scientists make simplifying assumptions, and often the difficulty is finding the right simplifying assumptions to make. For problems of production, consumption, and exchange, the rationality assumption has proven to be "the right simplifying assumption to make." Results that have followed from the rationality assumption are robust: most would be true in a world with no unexploited profit opportunities. In other words, people are rational enough, enough of the time, for economic models to make good predictions.
(ii) Economists use mathematics as a tool to model and analyze people's economic behavior. People need not know advanced mathematics in order to optimize: they need only be able to make marginal adjustments in response to market incentives. Laboratory experiments have shown that even rats and pigeons adjust their behavior in response to market incentives, so it is no surprise that people are able to do so.