Coping with Self-Destructive Behavior

Abstract

The standard economics known as neoclassical economics assumes that humans are quite rational subjects who always act consistently, like a machine, when solving an optimization problem. Therefore, in neoclassical economics, there are no such things as self-control problems, inconsistent behaviors, or regrettable behaviors. If there is a problem, it occurs only in cases where the choices are distorted due to incomplete information or some kind of transaction constraints or in cases (such as those involving pollution) where someone’s choice bypasses the market and directly influences others (in what is called an externality). As long as there is no such problem, our choices should be rational, either privately or socially, so that efficient resource allocation would be attained through the price mechanism of the market.