The Nobel Prize winner says economics should move beyond the limits of 'rational self-interest.'..
Paul Krugman: I think the biggest challenge is that the method that has worked so well for economics is probably close to its limits. Economics has gotten a tremendous amount of mileage about . . . by saying what would a rational, self-interested person do? That has been the core. And for very many things, that has been a very productive way. You learn an enormous amount, and it serves as the basis not just for abstract theories, but for actual empirical analysis of behavior and of policy. But in a way we’ve sort of done what you can do with that, and more and more the key issues in economics are . . . involve the limits of rationality; involve the places where people don’t have the ability to assess all of the data they have where people are . . . don’t make rational choices.