Markets Make Us More Rational

People, including economists, are imperfect decision makers because of their mental limitations. But this fact does not mean that markets fail. Indeed, markets do far more than induce improved allocation of resources, given wants and resources. Markets induce market participants to be more rational than they otherwise would be because they must pay a price for being irrational. Thus, markets allow--no, require--economists to assume that people are more rational than they are likely to be found to be in laboratory settings, absent meaningful information and incentives and absent market pressures.

via The Volokh Conspiracy ยป How Markets Make Us More Rational.