What is Rational Economic Thinking?

This week, let's take a look at Rational Economic Thinking, a foundational concept in understanding economics and how economists interpret human behavior.

To truly dive into the study of economics, you need to build the mindset of an economist. That means training yourself to see the world through the lens of rationality.

Economists start with an important assumption: humans—both as consumers and producers—will think and act in a rational way. Now, before you stop me, yes, we know that humans aren’t always rational.

I’ve made some questionable purchases myself!

 But here’s the key: while individual actions might sometimes seem irrational, when we zoom out to large groups, patterns emerge that are surprisingly predictable. That’s where the idea of rational economic thinking comes into play.


What Is Rational Economic Thinking?

At its core, rational economic thinking assumes two things:

  1. Consumers will seek to maximize their utility.
     Utility is just a fancy economics term for happiness or satisfaction. Economists assume that, as consumers, we’ll always try to get the most pleasure or benefit out of what we buy—ideally for the lowest price possible. It’s why you might shop around for the best deal on a new phone or why you wait for sales on clothes. The goal is to stretch your dollar and maximize what you get in return.
  2. Producers will seek to maximize their profits.
     If you’re on the other side of the equation—as a producer or business owner—the assumption is that you’ll always aim to maximize your profits. Whether it’s setting the highest price consumers will still pay or cutting production costs, profit is the name of the game.


Together, these assumptions allow economists to predict behavior, analyze markets, and calculate market equilibrium—that perfect balance where supply meets demand.


Real Life vs. Economic Assumptions

Here’s the catch: these assumptions don’t always hold true in real life. Let’s take a moment to acknowledge our quirks:

  • Consumers don’t always act rationally.
     Have you ever bought something on a whim? Maybe a gadget you didn’t need, just because it was shiny and new? Or maybe you paid a little more because it was convenient, or you were in a hurry. Not exactly maximizing utility, right?
  • Producers don’t always focus solely on profit.
     Look at companies like Patagonia. They could cut costs or raise prices to boost their profits, but instead, they invest in environmental sustainability, social causes, and community well-being. They’re balancing profit with purpose.


But in economics, these outliers don’t break the model. Economists use these assumptions as tools to create a framework—a way to simplify the complexities of human behavior and analyze the big picture.


Rational Choices: The Information Factor

Rational economic thinking also relies on the idea that people make the best choices they can based on the information they have at the time.

It’s not about being perfect or all-knowing; it’s about doing your best with what you’ve got.

If a producer misjudges market demand, or if a consumer misses out on a better deal, it’s not irrational—it’s just the result of incomplete information.


Why This Matters

As you study economics, you’re essentially learning a new way of thinking.

Concepts like rational economic thinking form the foundation of the economic models we’ll explore.

These models help explain why markets function the way they do, how prices are set, and why certain outcomes—like shortages or surpluses—occur.

So, as you continue to study economics, keep this structure in your mind: 

Consumers maximize utility. 

Producers maximize profit.

That's it.