Wrong assumptions in free market theory


It’s 4 o clock in the morning, for some reason I have the urge to run around for while. I don’t really know why, maybe it’s because my sleep rhythm is kind of weird right now, maybe some other reason. So I go outside to run for a while and I see “oh no it’s raining… oh well I’ll just do a small lap and go home quickly.” While running I continue thinking about economics for a while (because that’s a topic I’ve been thinking, quite a lot about for a while now) when I think “hum the way you think about it right now, that would make a pretty good blog post.”

So last semester I did a course on economics for physicists by physicists, and the first thing they basicly told me in that course was. Economic theory is kind of bad right now, their main argument for this was that the economic models used by mainstream economists right now just don’t match reality, which is something you kind of want to (unless you try to describe some imaginary world). This is good argument against mainstream economic models. But after some thought I think I have a better one (okay it might not be better but it is a lot easier to prove than proving that model A does not fit data set B, and a lot more fun too).
Because besides the model not following reality, the assumptions with which the models are made in mainstream economics are also wrong. First of all what are it’s assumptions? That humanity is infinitely rational and infinitely selfish. That are two assumptions that ,although they produce mathematically easy to predict behaviour, just don’t represent how humans really are.

First of all we aren’t infinitely rational. Since sometimes we are just emotional when we buy stuff, most of the time we just don’t look at all the options available to us, and sometimes stuff just goes over our heads.

Second of all we aren’t infinitely selfish, ok this one is a little more defensible since you can even explain kindness through selfishness a lot of the time, but in those cases it is rarely the most important motivation (if it already is one at all) but safe to say this one is false too since infinitely selfish means that all the decisions of everyone would need to be selfish, but if you want to know more I would suggest googling ethical selfishness or finding a good introductory book to ethics.
I’ll try to do an similar breakdown of wrong assumptions in communistic theory next time (to even it out, since I just bashed free market pretty badly, since free market is the thing mainstream economics tries to explain and finds stable solutions for)

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