The main assumption of standard economics is rationality. This means that economic agents maximize their utility (the word economists use for happiness). Therefore, standard economics assumes that people have a limitless memory and reasoning power and can make optimal decisions always. For instance, rationality implies that people can go to a supermarket with a predetermined budget and use it optimally to buy exactly the goods that will maximize their utility.
Although this assumption is extremely unreal, it has been maintained for decades, until behavioral economics started to study rationality boundaries and behavioral anomalies. But this is not the topic of this post.
Suppose for the rest of the post that we still believe that people are rational. Actually, all undergraduate economics students around the world never discuss the limits of rationality during their bachelor degrees. In addition, we are also taught that rationality implies selfishness, because if we are rational, then it is optimal to do what is best for ourselves and do not worry for others´ happiness.
But should this be a condition for rationality?
In my Master, I share classes with students from more than 30 nationalities and all of us were taught that rationality implies selfishness. Although I never thought about this before, it seems obvious now that there is nothing in rationality that necessarily implies selfishness. So, let´s start from the beginning, what are the conditions for rationality?
1- Preferences are complete: this condition requires that either A is preferred to B, B to A or they are indifferent. It cannot happen that a person does not know what he prefers between two options.
2- Preferences are transitive: this condition requires that if A is preferred to B and B to C, then A must be preferred to C.
3- Preferences are continuous: this condition simply requires that there are not jumps in people´s preferences. In other words, if A is preferred to B, options very close to A must also be preferred to B.
4- Preferences are independent of irrelevant alternatives: this condition requires that if A is preferred to B, a mixture of A and C must be preferred to a mixture of B and C (both with the same shares of C).
If these four axioms of rationality hold, then it is possible to confirm that a person has rational preferences, which means that they are consistent and that they will not change due to marketing tricks, for example.
But these axioms do not tell us anything about selfishness or altruism, right? consistency means that people are efficient in using their available resources to meet their goals, whatever those goals are. If a particular person preferences just considers his own happiness, then it is obvious that any spending in others will be suboptimal, but what happens if not?
Dear economists, stop saying that rationality implies selfishness because it is not true. A pure altruist individual, for example, will maximize his utility giving everything to others. If his choices are consistent, why should not been them considered rational?
Dear economists, altruism is rational.
