* market: system for trading assets between willing participants
* economics: modeling the behavior of markets assuming rational behavior of participants
The definition of markets has nothing to do with rationality.
Rational: subject acts according to their own utility function
Freely acting is equivalent to rationally acting, which is precisely where markets can exist.
E: Downmod without leaving a comment. Classic HN.
Freely acting != rational acting. People often take actions on bad information, or on bad analysis of good information.
But there must be some universal optimial for a given utility function, right? Like: choosing to buy a BMW when your utility function is a looking for a cheap car is just simply irrational or a mistake.
Here's a good one: All of my high school teachers (and my parents) encouraged me to study biochemistry in college. They assured me there'd be a good career for me afterwards. But they were kinda wrong, and I had executed my utility function (what's a major that will give me interesting and good work) on bad input. I acted rationally, but would you say that my decision was a rational one?
To say whether something was a rational decision requires evaluating the subject's utility function at the time of the decision. This is something only the subject can do. Trying to judge something after the fact is very difficult.
What good input could you have used when you made the decision (or while you continued to execute it)?
Making mistakes in reasoning and/or lacking information that would allow for making a decision at a higher perceived utility does not make one irrational.
An irrational decision is one where an action determined to have the most utility is not taken.