Forget about marginal utility
July 30th, 2009 | Published in Economics idea
If rationality in the real world is used to avoid obvious mistakes, there is no reason to think that the marginal utilities of our choices are close. Hard to identify problems could lead us to make choices that don’t help us much or even hurt us. Other times, we just goof.
- People took up smoking in the past thinking it was a mostly harmless habit. We now know smoking causes cancer and other health problems. Oops.
- We continue to burn fossil fuels at a ferocious rate because we can’t quite believe the predictions about global warming. Doh.
- A pedestrian gets killed crossing a road because she didn’t see the car coming. Splat.
The outcomes of our choices vary dramatically. Sometimes it is because a problem is complex. Other times we just make silly mistakes. The consequences can be costly.
