Ariely studies behavior to muddy the crystalline waters of economic theory.

Question:  What is rationality?

Dan Ariely: So I picked the standard economic definition of rationality, because once you start incorporating all kinds of things into rationality, it just becomes a meaningless concept.  So if you say people are rational; but yes, but I also care about your welfare; and let’s add that as another component of futility to the equation; every time you’re making up another part of futility, it means that you are kind of undermining a concept of rationality.  And you know I’m a behavioral economist, which means most of my work is showing that people are irrational.  But I love economics.  Economics is beautiful.  It’s a wonderful theory.  It’s a great perspective to have.  And I don’t want to eliminate that.  I think it has incredible amount of insights.  However what behavioral economics teaches us is that economics is not the whole story.  It’s not everything.  And when you come to do policies, or inventions, or to give recommendations to people on how they want to live their life, you want to take as complete picture as you want . . . as you can.  So you take the parts of economics that are accurate, and you want to feel as much as you can about that from how people actually behave.

Recorded on: Feb 19 2008