What can be explained by economics and what cannot be explained?

An economic man is often used in some economic theories to portray rational and self-interested humans that involve in economic activities. Many people use Kahneman’s book, “Thinking, Fast and Slow”,  to point out there is irrationality in human beings. In his book, Kahneman points out there are two systems of thought: one is fast and following instinct and emotion, the other is slow but logical. The fast system is considered to be the irrational system; however, it is so useful that it helped our human beings to survive in the wild, it is just not so helpful when we are making complicated decisions nowadays. Our human beings have lived for millions of years and we only have our civilisation for under ten thousand years, this means only for under ten thousand out of millions of years, we need more of the help from the second system than the help of the first system; therefore, it is sensible to say that the existence of the first system is good for our human beings and it is rational for our human beings to use the first system for most of our time (here, I mean our entire species). Therefore, this argument may not be true. Thinking about our species’ entire time, we might just be in a transferring period of transferring more work from the first system to the second system.

There is another argument that support the irrationality in human beings, which is loss aversion. However, if we are able to use the concept of marginal returns, maybe we can explain loss aversion. The concept of marginal returns suggests when we get more of one kind of goods, the marginal utility gained from one extra item becomes small from the last one. If the utility gained from get one particular item equals the utility lost from losing the same item (assuming we already have some of this type of goods), the marginal utility lost from subtracting one good is greater than the marginal utility gained from one good, since the concept of decreasing marginal utility tells when the amount increases, the good has a decreasing utility and when the amount decreases, the good has an increasing utility, the goods subtracted have a higher utility than the goods added. And this can explain loss aversion, which is an important concept in behaviour economics, which is considered to the subject of studying irrational behaviour in economic activities.