![]() ![]() ![]() Does reason rule human nature in our über-modern, globalized age? Many of us assume that it does. Sure enough, reality set in, and the bubble burst four years later. Alan Greenspan, the former chairman of the Federal Reserve, coined the term "irrational exuberance" in 1996 to explain the inexplicable: why investors continued pouring their money into IT companies that couldn't possibly be worth what their inflated stock prices indicated. While the popping sound of 2008 was louder than usual, it was by no means the first bubble to burst. Sometimes, it seemed, people did not behave in a rational manner, even when their own direct interests were at stake. Those who believed in rational choice theory, and in naturally self-regulating markets, were left befuddled and disillusioned by widespread irrationality. In 2008, the economic crisis shattered these comfortable assumptions. At both the individual and group levels, people behaved rationally by making decisions that would benefit them the most.īut occasionally, the real world imposes on conventional wisdom and academic theory. Many people didn't make rational decisions, of course, but they were the failed exceptions who proved the rule. ![]() ![]() For decades, social scientists based their work on "rational choice theory." Based partly on observations of culture and partly on evolutionary theory, rationalists argued that people generally made logical decisions about their choices in life in order to maximize their chances of positive outcomes. ![]()
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