Marketing Thought

Selfishness and Rationality

People often imply that selfishness is central to rational decision making. Yet this is wrong by any meaningful definition of rationality. Selfishness and rationality are not inextricably intertwined.

Defining Rationality

Definitions matter in the real world. Managers can believe they commit a business sin by considering others — they are being irrational by not being selfish. But what does selfishness mean?

A totally selfish decision maker would not buy food for their children. Given this narrow definition of selfishness is clearly absurd people sometimes include family in “self”. This does not really help give us a meaningful guide to decision making. There is no objective formula for weighing the needs of, for example, a daughter against a wife. It is hard to know what to define into selfishness.

Furthermore is giving money to charity selfish if it makes me happy? Define charity as selfish then everything becomes selfish. We have lost any meaningful definition of selfishness. We get to the same sort of argument a teenager would have when they have read their first book with big words and think they are now an intellectual.

Too Narrow Or Too Deep

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

Despite selfishness being poorly defined many managers still think it is vital to economic rationality. Still it isn’t even that. 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“.

Hoarding Toilet Paper May Be Selfish But It Isn’t Necessarily Rational

Selfishness And Rationality Are Not Inextricably Intertwined

Rationality is both poorly defined and not a useful guide for decision making.

It will be a great day when managers rid themselves of the idea that selfishness equals rationality. There are certainly worse things than selfishness. (Malice is not selfishness and is usually worse. Malice leads one to active work against people. Selfishness is lazier and less hositle other people).

I would also say that while it is’t admirable it is possible for selfishness to work pretty well at times in markets. Still, there is nothing uniquely rational about selifishness. 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.

For more on rationality see here.

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

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