Selfishness and Rationality

Many people believe that selfishness is central to rational decision making but this is wrong by any meaningful definition of rationality.

Definitions matter in the real world. Managers can believe they commit a business sin by considering others but what does selfishness mean?

A totally selfish decision maker would not buy food for their children. Given this narrow definition of selfishness is absurd people sometimes include family in “self”. This does not help as there is no objective formula for weighing the needs of, for example, a daughter against a wife.

Furthermore is giving money to charity selfish if it makes me happy? If charity is defined as selfish everything is; we have lost any meaningful definition of selfishness.

So we either have an absurdly narrow or a vacuously wide definition of selfishness.

Despite selfishness being poorly defined most managers still think it is vital to economic rationality. Narrowly defining self-interest usually helps make the math in economic models easier but this isn’t a core principle. As economist Ken Binmore says in his book Rational Decisions: “…people think that rational agents must act out of self-interest because they maximize their own utility…But to make this claim is to fail to understand the theory of revealed preference“.

It will be a great day when managers rid themselves of the idea that selfish equals rational. There are worse things than selfishness, indeed sometimes selfishness works surprisingly well, but there is nothing uniquely rational about it. Rationality and selfishness are as related as rugby and origami. There may be a connection but no one has properly described it so far.

So when taking your next business decision maybe selfishness is right for you but don’t kid yourself that it is a higher form of thinking.

Read: Ken Binmore, Rational Decisions, 2009 Princeton University Press, pages 20-21.