In this blog post, we examine why society as a whole operates inefficiently even when individuals make rational choices, and consider ways to address this issue.
Can individual rationality and societal rationality coexist? This question has long been a major point of debate not only in economics but also in philosophy, political science, and various other disciplines. Classical economics, in particular, argues that if each individual acts rationally, society as a whole will achieve rational outcomes. Here, ‘rationality’ means choosing the option that maximizes utility among various possible alternatives, referring to economic rationality. From this perspective, it is believed that if individuals act in strict accordance with their own interests, all resources will be distributed efficiently, and the overall benefit to society will also be maximized.
However, reality is not as simple as theory. Economic rationality means that individuals make the choice most beneficial to themselves, but whether the aggregate of these choices always leads to the benefit of society as a whole is another matter. In practice, individuals’ rational choices often fail to directly translate into social rationality. The ‘Prisoner’s Dilemma’ theory is a classic illustration of this phenomenon. It describes a situation where two suspects, unable to communicate with each other, each make what they personally deem the most rational choice, ultimately leading to an unfavorable outcome for both. In other words, choices made solely for personal gain can produce socially irrational results.
Such examples are easily found in our society. Consider environmental issues, for instance. Many people casually litter or waste resources, believing the pollution they cause is negligible. However, these individual actions collectively create the massive problem of environmental destruction. While each person may consider their own behavior rational, it results in severe irrationality for society as a whole. Another example is traffic congestion. Even if every driver behaves rationally according to traffic conditions, an overall increase in the number of vehicles leads to a sharp rise in road congestion. This ultimately causes inconvenience for all drivers, making it a prime example where individual rational actions lead to socially irrational outcomes.
Some economists counter this by citing examples of cooperation. Cooperation refers to individuals collaborating despite conflicting interests, even accepting some personal loss. They argue that people cooperate because it is a rational choice to maximize individual benefits in the long run. For instance, consider relationships with neighbors in daily life; people often tolerate minor inconveniences to maintain good relations. This can be interpreted as rational behavior aimed at securing greater long-term benefits. Such examples of cooperation seem to support the classical economic perspective to some extent.
However, this argument alone cannot conclusively assert that individual rational choices always lead to socially positive outcomes. Various problems in our society demonstrate that a deep gap still exists between individual rationality and societal rationality. So, what is needed to bridge this gap?
The most crucial step is elevating individuals’ moral sensibilities. This means cultivating an attitude that goes beyond merely pursuing personal gain to consider the interests of others and society as a whole. Furthermore, society needs to improve its communication processes. If communication enables mutual understanding of each other’s positions and thoughts, and fosters consensus, the likelihood increases that individual rationality will lead to social rationality. Moreover, it is crucial to establish institutional mechanisms at the policy level that guide individual rational choices toward social rationality. This approach can steer us toward a direction where the interests of individuals and society harmonize.
In conclusion, while individual rationality and societal rationality cannot necessarily coexist perfectly, the gap between them can be narrowed through appropriate education, social systems, and communication. This goes beyond simple economic theory; it is an essential element for the sustainable development of society as a whole.
