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The New Yavapai Economy: Economic theories of behavior

The 21st century has brought forth increasing complexity in terms of economics and decision making. Variables involved today are broader, inclusive of various impacts on the community as whole rather than limited to impacts on the individual. From socioeconomic impacts of livable wage jobs to environmental impacts of development, even buying local impacts not only the consumer but also the economy at large.

The theory of economic rational man has been largely understood through the decades as a behavioral model which describes man's ultimate motive as self-interest, and has been applied throughout capitalism to predict how man will respond to changes in the price and quantity of goods as well as fluctuations in interest rates and inflation.

Neo-liberal capitalist economic theory is based on the assumptions of rational choice, a theory that gained momentum in the 1970s and '80s to explain consumer and political behavior. Rational choice assumes individual self-interest is the fundamental motivation for behavior, thus all social activities can be traced back to actions of rational calculation through this "exchange-based" form of explanation.

This theory creates a model of individual choice that places agency on the individual and assumes that an actor making a decision will make a complete preference ordering of the available alternatives, has complete information about the relevant data to make the decision, and will maximize personal benefits minus personal costs above all other values. Although this theory has provided insight into human behavior resulting in analysis that can explain the "cause and effect" of economic development policy, it does not include how society, institutions, structures, and history shape human choices and behavior.

Authors of communitarian theory, including some former rational choice theorists, argue that local, democratic decision-making processes can refute the rational choice assumption that man cannot solve their social dilemmas due to prioritizing individual benefits. In fact, private and public use values can be successfully mediated by community members themselves under particular conditions of governance that are typically polycentric. Communitarian theory attempts to understand communal and social solidarity rather than theorizing about the relationship between the individual and economic choices. The foundation of this theory is that value stems from the community and the individual and finds meaning in life through membership of a political community, hence decisions involving public goods and common pool resources can indeed involve interest in the common good rather than interest solely in individual benefit.

A primary assumption of all these theories of economic behavior is information. It is assumed that the consumer has all the information necessary to make informed decisions. Next week we'll explore the different models for consumer choice and investment that have evolved in the new millennium, lending a hand to the individual looking to make informed decisions about consumer purchasing.

**The Yavapai College Regional Economic Development Center provides analysis and services that facilitate economic development throughout Yavapai County and build wealth in our local communities.

Alexandria M. Wright is director of the Yavapai College Regional Economic Development Center.

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