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The irrationality of the ‘rationality’ assumption

Historically, the term ‘rationality’ has been ascribed various meanings within the sphere of economics.  Typically, rationality has been expressed in terms of the idea that consumers attempt to maximise utility by arriving at an optimal decision in light of a complete set of information relating to the market in which they operate.

That is, the rational person of neoclassical economics opts for the decision that is subjectively best for that person in terms of a given utility function.[1] Consequently, neoclassical reasoning relies heavily on artificial factual assumptions such as perfect information, rather than accepting the reality of limited information and cognitive capacity in making any given decision.[2]

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The economics of charity: should beggars be choosers?

In microeconomic theory, consumers and producers make up two halves of a productive economy. In such a model, even traditionally marginalised groups can be categorised as consumers or producers, or both.

Specifically, the homeless, who typically have very limited economic productivity and hence income flow, should be thought of as consumers with their own preferences and utilities. This perspective is essential for communities and NGOs when determining financial strategies to minimise homelessness. Using basic consumer theory, I will compare the results of cash and in-kind transfers given to the homeless.

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Real Estate

The secret pact forged in Xiaogang

Prior to 1978 in China, communal farmland was assigned to individuals to work for the government. Farmers gave anything that they produced from their land to the government, which then distributed the crops out to the people. Agricultural land was less productive in 1978 than it had been in 1949, when the communists took over. This was because the farmers did not have any incentive to produce more than the minimum; any extra work would result in the same food rations from the government.

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