Religion and Economics: Can Islamic Banking Be Considered Rational?
IBEHAVIORAL ECONOMICS – EMOTIONS IN ECONOMIC DECISIONS
Religion and Economics
Can Islamic Banking be considered Rational?
Emma Cornelis Corvinus University Budapest 12 May 2010
- Introduction -
Classical economists ascribe complete rationality to the behavior of human beings. But do the things people do in life really make sense? According to the conventional ways of predicting human behavior and human choices, one would handle out of perfect self-interest and perfect rationality and one would in addition possess perfect information and stable preferences. Looking at people from this so-called perspective of the Homo Economicus, many aspects of personal decision making processes remain unexplained.
Specific sets of actions that are at first sight hardly explainable by rational choice theory, are those related to religion. Yet for ages the whole world has and for many people their daily lives have revolved around religion. In America, 90 percent of the adults claim to have a religion, 60 percent is member of a religious institution (e.g. a church or synagogue) and 40 percent attends religious services on a regular basis (Iannaccone, 1992). Due to the globalization a mixture of different cultures and related religions can be found in most big cities, for instance throughout Europe.
In the streets expressions of many different religions can be observed; Christians might wear a necklace with a cross, Muslim women can be recognized from their kerchiefs, Orthodox Jews wear side curls and yarmulkes. If these actors are rational as proposed by conventional economists, what is exactly the utility they receive from following a religion? In addition, many aspects of religion are a matter of belief rather than that it is proven. A pertinent illustration of a conviction without verified information is the belief in heaven and hell after death. Why would religious, yet rational, people make a choice based on imperfect
information?
Edgeworth (1881) was
Religion and Economics
Can Islamic Banking be considered Rational?
Emma Cornelis Corvinus University Budapest 12 May 2010
- Introduction -
Classical economists ascribe complete rationality to the behavior of human beings. But do the things people do in life really make sense? According to the conventional ways of predicting human behavior and human choices, one would handle out of perfect self-interest and perfect rationality and one would in addition possess perfect information and stable preferences. Looking at people from this so-called perspective of the Homo Economicus, many aspects of personal decision making processes remain unexplained.
Specific sets of actions that are at first sight hardly explainable by rational choice theory, are those related to religion. Yet for ages the whole world has and for many people their daily lives have revolved around religion. In America, 90 percent of the adults claim to have a religion, 60 percent is member of a religious institution (e.g. a church or synagogue) and 40 percent attends religious services on a regular basis (Iannaccone, 1992). Due to the globalization a mixture of different cultures and related religions can be found in most big cities, for instance throughout Europe.
In the streets expressions of many different religions can be observed; Christians might wear a necklace with a cross, Muslim women can be recognized from their kerchiefs, Orthodox Jews wear side curls and yarmulkes. If these actors are rational as proposed by conventional economists, what is exactly the utility they receive from following a religion? In addition, many aspects of religion are a matter of belief rather than that it is proven. A pertinent illustration of a conviction without verified information is the belief in heaven and hell after death. Why would religious, yet rational, people make a choice based on imperfect
information?
Edgeworth (1881) was
References: Barro, R.J., McCleary, R.M. (2003), “Religion and economic growth across countries”, American Sociological Review, Vol. 68, No.5, pp. 760-781. Gafoor, A.L.M. (1995)”Islamic Banking”, Chapter 4 in Gafoor, A.L.M. “Interest-free Commercial Banking Gerrard, P., Cunningham, J.B., (1997) “Islamic banking: a study in Singapore”, Bradford, Vol Iannaccone, L.R. (1992) “Sacrifice and Stigma: Reducing Free-riding in Cults, Communes and other Collectives”. Iqbal, M., Molyneux, P. (2005) “Thirty Years of Islamic Banking: History, Performance an Prospects”, Palgrave Macmillan, London, pp.190. Stark, R., Iannaccone, L.R., Finke R. (1996) “Religion, Science, and Rationality”, The American Economic Review, Vol. 86, No. 2.