Do we eat too much at Christmas? (How rational self-interest conflicts with profit maximisation)
As we pass through a holiday period which is widely seen as marked by excessive consumerism, it is worth reflecting how such behaviour squares with the rational utlity maximising individual of economic theory. Either the model is incomplete and we lapse out of rationality during Christmas, or perhaps our consumption patterns are not so excessive afterall. The theoretical complement of utility maximisation is profit maximisation by firms (companies). They set prices or choose inputs that maximise their revenues and minimise their costs. As described so far, there is no scope in the model for an excess of consumerism. Firms are not interfering with human rationality, and indeed, the profit motive leads to competitive prices and and an efficient allocation of goods. However, the model assumes that an individual knows their utility function, that we know what makes us happy. As we know from painful personal experience, life is seldom so straightforward - even if we make a decision wit...