Are People Rational

Everyday people make decisions that affect themselves and other parties. This essay will discuss if people are rational and if people are reasonable. In particular will be focusing on whether people are rational in the economist’s sense, and, reasonable in the lawyer’s sense and whatever the outcome, does it matter? It is an important matter as peoples actions have effects, externalities on others, on third parties and it is significant to understand why people act the way they do and comprehend how this behavior is useful for lawyers and economists in their professions.

In order to begin discussing whether people are rational a clear definition is needed. Being rational is classified as being consistent with or based on or using reason, rational behavior is a process of rational inference and rational thought. (Simon 1986). Rationality is the state of having good sense and sound judgment. It is the quality of being consistent with or based on logic (Gibbons 1992). As a term, it is related to the idea of reason. Economists usually assume that people are rational.

Rational people systematically and purposely do the best they can to achieve their objective, given the available opportunities (Sugden 1991). The Rational choice theory, also known as rational action theory, is a framework for understanding and often formally modeling social and economic behavior. Gibbons (1992) describes it as the dominant theoretical paradigm in microeconomics. He continues to explain that it is also “central to modern political science and is used by scholars in other disciplines such as sociology and philosophy. The ‘rationality’ described by rational choice theory is different from the everyday and most philosophical uses of rationality. ‘Rationality’ means in colloquial language ‘sane’ or ‘in a thoughtful clear headed manner’. In Rational Choice Theory, ‘rationality’ simply means that a person reasons before taking an action. Within economics, a person balances costs against benefits before taking any action, be it purchasing a good, lighting up a cigarette or murdering a person. In rational choice theory all decisions, mad or sane, are arrived at by a ‘rational’ process of weighing costs against benefits.

Assuming humans make decisions in a rational process implies that their behavior can be modeled and thus, predictions can be made about future actions (Cooter 1998). Economists are interested in the allocation of resources, in the nature and causes of the wealth of nations or perhaps something else (Solow 1956). All of those things depend on the actions and decisions of human beings. Economists therefore have to make some assumptions about human beings, about how human beings act and how human beings decide how to act. Economists assume that human beings are highly rational and self-interested.

This assumption is especially characteristic of neoclassical economists. Some non-neoclassical economists do also accept it, but some do not (Mankiw 2008)Mankiw (2008) explains that neoclassical economists usually assume that people are rational, in other words, that human beings make the choices that give them the best possible advantage, given the circumstances they face. Circumstances include the prices of resources, goods and services, limited income, limited technology for transforming resources into goods and services, and taxes, regulations, and similar objective limitations on the choices they may make.

Most theories within economics assume people are rational; one example is the most basic theory within economics; the supply and demand theory. The theory behind the supply and demand model is contingent on the idea that in a free market economy, the amount of an item that the producer supplies and the amount that the customer demands both depend on the item’s market price. According to the law of supply, supply and price are proportional, the higher an item’s price, the more will be supplied by the producer.

According to the law of demand, demand is inversely proportional to price, so the higher an item’s price, the less demand there will be among customers. Hence, both supply and demand vary according to the price game theory. The Game theory is also an economic theory that assumes people are rational. It is the study of the ways in which strategic interactions among rational players produce outcomes with respect to the preferences or utilities of those players and in doing so assumes people behave and think rationally and selfishly (Gibbons 1992).

The problem with the argument that people are rational is that humans, in an economics view do not always act rationally and are not always rational and thus the free market needs regulation. If people were always rational then there would be no need for market regulation. For example underage drinking is quite rife, under-eighteens do not always act rationally and sometimes want to purchase and drink alcohol. The government has stepped in and made it illegal to sell alcohol to anyone under the age of eighteen, therefore regulating the market.

Some people, when acting irrationally, create negative externalities. One common approach to adjust for externalities is to tax those who create negative externalities. This is sometimes known as “making the polluter pay” (Elster 1998). Introducing a tax increases the private cost of consumption or production and ought to reduce demand and output for the good that is creating the externality. This is an example of the government intervening in the market as if the person creating the negative externalities was entirely rational they wouldn’t have created them in the first place.

The intervention forces them to act rationally. Furthermore, there are more and more pressing constraints on people’s mental abilities to cope with vast amounts of information on a daily basis because of the ever increasing flow of information in modern complex and sophisticated societies leaving people to, at times, not always act rationally because of the overload of information. Occasionally it is the opposite problem, sometimes people do not always have enough information, or the right information to make an informed rational decision.

Within economics, this is where market regulation comes into play and forces people to act as rationally as possible, even if it is not in the individuals best interest, the government may have a societies interest as a whole in mind. Nevertheless, people do generally act in rational ways and it is helpful within economics to assume people are rational in order to make assumptions and theories within economics. The term rational comes from the Latin word ratio. Reasonable also comes from the same Latin word although today has a slightly different meaning. Just as economists assume people are rational, lawyers assume people are reasonable.

In order to even start discussing whether people are reasonable a clear definition is needed. Being reasonable is classified as showing reason or sound judgment, making a sensible choice or being a sensible person (Allen 2005). It is also described as being fair, just and free from favoritism, self-interest, bias, deception and conforming with established standards or rule (Zedner 2004). Simester (2005) implies the reasonable person as a legal fiction of the common law representing an objective standard against which any individual’s conduct can be measured.

It is used to determine if a breach of the standard of care has occurred, provided a duty of care can be proven. A reasonable person is a phrase frequently used in tort and criminal law to denote a hypothetical person in society who exercises average care, skill, and judgment in conduct and who serves as a comparative standard for determining liability (Zedner 2004). The question, “How would a reasonable person act under the circumstances” performs a critical role in legal reasoning in areas such as negligence and contract law.

The decision whether an accused is guilty of a given offense will involve the application of an objective test in which the conduct of the accused is compared to that of a reasonable person under similar circumstances (Norrie 2001). In most cases, persons with greater than average skills, or with special duties to society, are held to a higher standard of care. For example, a physician who aids a person in distress is held to a higher standard of care than is an ordinary person. The reasonable person standard holds: each person owes a duty to behave as a reasonable person would under the same or similar circumstances.

Herring (2006) elucidates that while the specific circumstances of each case will require varying kinds of conduct and degrees of care, the reasonable person standard undergoes no variation itself. This standard performs a crucial role in determining negligence. A person has acted negligently if he or she has departed from the conduct expected of a reasonably prudent person acting under the same or similar circumstances (Norrie 2001). The hypothetical reasonable person provides an objective by which the conduct of others is judged. Allen (2005) emphasizes the term “reasonable doubt” meaning a doubt based upon reason and common sense.

It is a doubt for which a reason can be given, arising from a fair and rational consideration of the evidence or lack of evidence. It means such a doubt as would cause a person of ordinary prudence to pause or hesitate when called upon to act in the most important affairs of life (Simester 2005). A reasonable doubt is not a doubt which is based on mere guesswork or speculation. A doubt which arises merely from sympathy or from fear to return a verdict of guilt is not a reasonable doubt. A reasonable doubt is not a doubt such as may be used to escape the responsibility of a decision.

The reasonable person is not the average person, this is not a democratic measure. Allen (2005) illustrates that to predict the appropriate sense of responsibility and other standards of the reasonable man, “what is reasonable” has to be appropriate to the issue. What the “average person” thinks or might do is irrelevant to a case concerning medicine, for example. But the reasonable person is appropriately informed, capable, aware of the law, and fair-minded. Such a person might do something extraordinary under certain circumstances, but whatever that person does or thinks is always reasonable.

For example, in cases where professional opinions may be necessary the doctrine of the reasonable professional has developed. Thus if a doctor misdiagnoses a patient, the question is not, was that diagnosis wrong, but rather, would a professional acting under the same circumstances, with the knowledge available to the field at the time of the diagnosis, have concluded that the given diagnosis was reasonable? Questions about the knowledge of a professional in a particular discipline in a particular environment are relevant here, is the reasonable professional an expert or a general practitioner in this area?

Of course as with any legal concept these lines of reasoning may be applied differently in differing jurisdictions (Herring 2006). The word ‘reasonable’ in law means fair, proper or moderate having regard for the circumstances. It is most frequently used as a word fixing a standard of assessment. Use of the word imports an objective test to the noun with which it is used (Kerr 1976). In the context of the Law of Negligence, a reasonable person is a hypothetical person used as a legal standard to determine whether the claimant has breached their duty of care to the defendant in the particular case, by failing to take reasonable care.

The use of the word ‘reasonable’ introduces concepts of ordinarily expected degrees of intelligence, knowledge, attentiveness and judgment. Lewit (1981) explains that such a person will act with proper but not excessive precautions, sensibly, and does things without serious delay, in the circumstances. In this way, notions and standards of behavior and responsibility correspond with those generally obtained by ordinary people. An example can be seen in the case of DPP v Caplin 1978.

The facts of the case state that the defendant a 15 year old boy was buggered and then mocked about it. He lost control and hit out with a chapatti pan, killing his assailant. The trial judge directed the jury that the reasonable man was an adult, not a person of the defendant’s age. The legal principle was that the house of lords rejected this approach, stating that the reasonable man should have the same power of self control as a person of the same age and sex as the defendant plus he should have the characteristics of the accused that affect the gravity of the provocation.

The gravity approach was originally stated in Camplin as a measure to ensure the objective test operated fairly. Without relevant characteristics, the response of the accused to the provocation would seem disproportionate to the reasonable man. For example, he would only understand the provocative impact of the victim’s taunts if he had just been forcibly buggered. Following this, the reasonable man has the characteristics of the accused that relate to the provocation, even if this gives him inherently unreasonable characteristics; the reasonable glue-sniffer.

Problems arose with cases involving factors such as mental illness or alcoholism which did not affect the gravity of the provocation but which rendered the defendant more susceptible to loss of self-control. This led to a broadening of the law in Smith (Morgan) and the inception of the propensity approach to attributed characteristics (Finch 2009). Another example using the objective test of the reasonable man can be seen in R v smith 2001. The facts of the case state that the defendant stabbed the victim during an argument. He claimed that depression had eroded his powers of self-control making him prone to violence.

Under the traditional position, this could not be attributed to the reasonable man as it was not the subject of the provocation. The legal principle was that the House of Lords held that the reasonable man should be given whatever characteristics the jury felt were relevant to determine the reasonableness of the defendant’s reaction. The majority rejected the approach that considered only characteristics relevant to the gravity of the provocation in favour of an approach, which considered whether the defendant had exercised the level of self-control that could reasonably be expected of him in the circumstances.

The ruling was seen as settling the question of relevant characteristics but it was heavily criticized for virtually negating the objectivity of the test by attributing all the characteristics of the defendant to the reasonable man (Finch 2009). A third example can be seen in the case of Attorney-general for Jersey v Holley 2005. The facts of the case state the defendant was an alcoholic who killed his girlfriend with an axe whilst intoxicated. The privy, by a majority of six to three, held that Smith (Morgan) was wrongly decided.

The legal principle was that the Privy Council restated the requirement that only characteristics relevant to the gravity of the provocation could be attributed to the reasonable man. In determining the standard of self-control, the only relevant characteristics were age and sex (Finch 2009). The connection between law, organisation, and economics is very close. Economics is the study of what, how, and for whom. Standard textbooks in economics define the field as the study of resource allocation in the presence of scarcity. Laws affect resource allocation and help to determine what, how, and for whom.

For example, a law that finds trucking companies liable for accidental harm will create incentives for more careful driving by truckers. A well-ordered society will tend to choose laws that promote economic efficiency. Laws create a public ordering; that is, they organize society in a certain way. Private entities are also organized in a certain way. For example, in corporations, stockholders supply capital and managers of the firm make day-to-day decisions. Economics provides the key to understanding why firms and society are organized in particular ways.

Almost all of economics assumes rational behavior by individuals in their roles as consumers, workers, or business owners. Rationality typically focuses on how individuals respond to prices. Rational consumers have downward-sloping demand curves and rational business owners have upward-sloping supply curves. Much of the legal system also assumes that individuals respond rationally to prices. If individuals are rational, then, other things being equal, larger fines for speeding will reduce the number of speeders. Suppose that individuals were irrational in this regard.

Then the legal system would reduce fines for speeding to reduce the number of speeders. Assuming people are rational in an economic sense, and reasonable in a lawyer’s sense is a tool, a concept for the purposes of reasoning. There is no assumption that people are actually completely rational or reasonable all of the time. A person is rational if and only if they have preferences as to events and circumstances, if their preferences are complete and are consistent and if they act so as to achieve the most preferred outcome from among those available to them.

So they reach a decision by a process of reasoning, looking to the consequences of alternative acts and acts in pursuance of their preferences. Therefore it is virtually impossible for a person to be rational and reasonable all of the time. However, it doesn’t matter if people are reasonable or rational all of the time, it is just useful for economists to assume people are rational in order to develop theories, as well as being a useful tool in law to assume people are reasonable to use as a comparison.

If people aren’t rational this is where the government will intervene and regulates the market in order to help to decrease negative externalities upon third parties. If people are not reasonable in the case of law, compared to that of a ‘reasonable’ person, they will be prosecuted in a suitable way. If people are reasonable or rational all of the time the world may be a better place, if they are not, most of the time the government will step in and correct the failure. Certain circumstances and situations may force even the most reasonable or rational person to act unreasonable or irrationally.

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