Why do we fail to act in our own best interests?

Ideas & Philosophy · Published 8 October 2026 Swipe more like this →

In short: Classical economics assumes we are rational actors with perfect self-control. But in reality, we are driven by emotion and impulsivity. Behavioral economics explores the gap between what we should do and what we actually do, revealing why humans often ignore their own long-term goals.

In neoclassical economics, models are built on the assumption that consumers are rational actors. Such frameworks imply that individuals hold clear priorities and execute rational, egoistic choices driven by those inclinations. Under this framework, any errors made by individuals are seen as random mistakes that eventually cancel each other out in the long run. These models assume that individuals possess well-defined preferences. Consequently, any deviations are viewed as mere random errors.

Behavioral economics challenges this by combining elements of economics and psychology to study how people behave in the real world. This field is grounded in empirical observations showing that people do not always make the optimal decision, even when they possess the necessary information and tools. For instance, people often delay beneficial activities like exercising or investing in 401ks, despite knowing the long-term advantages. Gamblers often risk more money after winning or losing, even when the odds remain unchanged. This occurs regardless of any perceived winning streaks.

This discipline, significantly shaped by the work of Nobel laureate Richard Thaler of the University of Chicago, examines the consequences of these human tendencies. It views people as beings influenced by their environments, emotions, and circumstances, rather than machines with perfect self-control. By identifying these patterns, researchers have developed principles that allow governments and businesses to create 'nudges'—policy frameworks designed to encourage specific choices. Thaler's research helps explain why people avoid necessary financial or health-related actions. These insights allow for the creation of specific policy frameworks.

This shift in perspective moves away from treating humans as purely rational agents. Instead, it acknowledges that we are subject to impulsivity and can be swayed by external factors, leading to behaviors that deviate from the mathematical ideals of traditional economic theory.

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