If you've sat for any amount of time in an economics 101 class, (or even if you haven't,) you probably know about the traditional neoclassical assumption of rationality. You also probably know it wrong.
One of the most famous tenets of modern economics is the mythical 'Homo Economicus' that is, the man that makes 100% rational decisions. This guy runs around all day chasing 'utility' like he has the Marauder's Map from Harry Potter and he can see where everyone and everything is, and he's got a supercomputer in his head to calculate the best route like a UPS truck.
Professors teach it as if they know this man doesn't really exist, and students take notes and tests knowing in the back of their minds that this person doesn't really exist. And they're right. This man doesn't exist, but this doesn't mean he's not 100% rational. In fact, not only does this person exist, it is every human being alive.
Rationality is often misconstrued. It doesn't mean everybody makes 'perfect'decisions all the time and they just max out their bank accounts. Rationality means people act according to what they value most, with the limited information that they have.This is the piece of Homo Economicus that is missing from the conventional wisdom. They assume that there exists 'perfect' decisions. There aren't. There are only decisions that people make because of what they subjectively value the most.
When people think about rationality there's an assumption of selfishness that people would sell their own mother just to make a quick buck. People don't do stuff like that very often, and because of that, there is an assumption that people have weird 'quirks' and they don't act completely rationally, but this isn't true at all. They just happen to value their mother more than money. The mistake here is assuming that we can somehow arbitrarily assign utility to different choices and that people should all make the same decisions in any given situation. When you add in the missing element of subjectivity, this favorite claim of IYI behavioral economists holds no water.
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