I'm not trying to insult you, but I wanted to get your attention and start you thinking. I know you believe that you are rational, and in the sense that you aren't irrational, you are. However, when an economist postulates rational actors in an economy, he or she actually means something more. They mean that you have perfect knowledge about the market, that there is no asymmetry of information between you and whomever you are dealing with. They also mean that you plan your actions according to those which will provide you with the most good.
And that's so patently false in the real world in which we live and act economically that I can say that you aren't a rational actor! We all act economically with partial information, we sometimes (Oftentimes?) make economic decisions on a whim, not really considering whether the outcome will be good or bad. We also don't all act alike, and we often are willing to withhold information (or lie!) during a transaction if we think it will give us an advantage.
Given that rational (knowing, utility maximizing) actors provide a major underpinning of neoclassical economics (the kind that holds sway in our policy makers - Larry Summers, Ben Bernanke, Alan Greenspan (an extreme case)), one has to wonder if the predictions made are as bad as the axiom (oh, wait! We don't have to wonder: The evidence is in, and the predictions don't mean squat - one can clearly see that they don't know what's going to happen next in the economy!)
What about the Free Market Economy? Again, a fuzzy definition would be that it is unregulated, with free trade across boundaries and within. But, again, economists mean something much more restrictive: Not only that trade is unregulated, but that any of the aforementioned rational actors can buy or sell at any time without effecting the market!
But, that only works if the actors are small: During 2008, when the financial industry started melting down, we saw how the actions of the major banks (Lehman, Bear Sterns, AIG) to liquidate their positions in hopes of raising capital to cover their margin calls caused the market to fall further, which required more selling, which led to more selling, until some (notably Lehman and Bear Sterns) could no longer change their positions, and were forced into bankruptcy or a bailout (I shouldn't say 'forced', since I really think it was optional to save them...)
We've never seen a 'free' market - so economists have absolutely no data that would indicate that a free market could exist, or that it would be optimum. Again, however, this tenet provides one of the underpinnings of neoclassical economics.
Think about it: In physics, theorems hold sway as long as they provide useful predictions about events, and when an event or experiment occurs that contradicts theory, scientists search for a better theorem that can explain (predict) the event - and the theorems are built to support the empirical evidence. Additionally, axioms are never adopted unless they have been solidly proven (and if they are ever dis-proven, they cast their dependent theorems into doubt!).
But in economics, we have an entire class of 'predictive' theorems built on at least two very shaky (false?) axioms - with our policy leaders using those economic models to determine our national economic and monetary policy. Any wonder they didn't predict the potential downside to the actions of the major banks and investment houses as they grew ever larger trading Credit Default Swaps and Collateralized Debt Obligations, a majority based upon the subprime lending market?
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