In light of recent items highlighting Philip Ball's challenge to some of the ways we mainstream economists approach our subject -- here, here, and here, for example -- I found this, from the Chicago Fed (sent to me by high-gear Chicago GSB XPer Ken Sutton), interesting:
A number of studies have pointed to various mistakes that consumers might make in their consumption-saving and financial decisions. We utilize a unique market experiment conducted by a large U.S. bank to assess how systematic and costly such mistakes are in practice. The bank offered consumers a choice between two credit card contracts, one with an annual fee but a lower interest rate and one with no annual fee but a higher interest rate. To minimize their total interest costs net of the fee, consumers expecting to borrow a sufficiently large amount should choose the contract with the fee, and vice-versa.
We find that on average consumers chose the contract that ex post minimized their net costs. A substantial fraction of consumers (about 40%) still chose the ex post sub-optimal contract, with some incurring hundreds of dollars of avoidable interest costs. Nonetheless, the probability of choosing the sub-optimal contract declines with the dollar magnitude of the potential error, and consumers with larger errors were more likely to subsequently switch to the optimal contract. Thus most of the errors appear not to have been very costly, with the exception that a small minority of consumers persists in holding substantially sub-optimal contracts without switching.
That conforms pretty well to my sense of things: A great deal of individual behavior appears to be perfectly rational; Most of that which does not appear so rational has small consequences for the individual decision maker (with the "irrationality" tending to disappear over time); There are always some people who persist in making apparently irrational, and costly, choices.
There remain, of course, plenty of behavioral anomalies out there to consider -- several of these are described in reasonably accessible, and publicly available, papers by Richard Thaler and co-authors. And it may not be the case that small deviations in individual rationality add up to small consequences for collective actions. But studies like this do help explain why most economists think their game is worth playing.