For classical economics to work, the underlying assumptions must all be valid:
1) A large number or buyers and sellers
2) Information must be symmetrical (i.e. The two economic agents in a transaction have exactly the same information about the good or service taking place in the transaction)
3) Transaction costs are zero
4) All economics agents act rationally in their own self-interest
Of course, this is not how the world operates and economists are aware of this. Monopolies and cartels create powerful incentives for sellers to become price takers, buyers experiencing asymmetric information will pay for their ignorance (e.g. purchasers of insurance policies), transaction costs are almost never zero, and economic agents sometimes act irrationally.
While the first three assumptions have real world exceptions, the fourth does not. Steven Landsburg explains in his book More Sex is Safer Sex that he starts from the presumption that "when people eat sundaes, smoke cigarettes, and drive instead of biking, they're rationally (thought not necessarily consciously) weighing the costs against benefits and making the best choices they can. The riddle is: how can it be rational to try to restrain yourself from making rational choices?" He goes on to explain that by demonstrating self-restraint, one sends off a positive signal to potential mates and thus self-discipline is an evolutionary mechanism for attracting better fish in the sea. If we assume that all transactions and decisions are rational, the question then becomes: How can we create incentives for people engaging in seemingly irrational behavior (e.g., self-mutilation, homicide, suicide bombings) to desist?
I believe encouraging societies to live by the philosophies of naturalism, capitalism, and democracy. In a society where the rights of individuals' are protected against the wishes of the majority, where the supernatural is dismissed, and where individuals' are free to indulge in or avoid as much risk as they desire; only then will a society exist where violence and conflict are minimized. I hope to see that dream realized.
