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The Diversity of Rational Choice Theory: A Review Note

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Abstract

In this paper, I review the literature on rational choice theory (RCT) to scrutinize a number of criticisms that philosophers have voiced against its usefulness in economics. The paper has three goals: first, I argue that the debates about RCT have been characterized by disunity and confusion about the object under scrutiny, which calls into question the effectiveness of those criticisms. Second, I argue that RCT is not a single and unified choice theory—let alone an empirical theory of human behavior—as some critics seem to suppose. Rather, there are several variants of RCT used in economics. Third, I propose that we think of RCT as a set of distinct research strategies to appreciate its diversity. This account implies that the effectiveness of any criticism depends on the variant of RCT we are considering.

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Notes

  1. This idea is inspired by Philip Kitcher’s discussion of Richard Lewontin’s positions in the debate about genetic determinism (Kitcher 2000).

  2. For an overview of respective debates of ACTs, see Anand et al. (2009).

  3. There are various books on the different variants of ACTs in economics and philosophy. For comprehensive expositions, see Anand et al. 2009) and Gilboa (2010).

  4. Presumably nobody would deny that RCT cannot be literally true in all respects. As any theoretical approach, it is grounded in specific abstractions and idealizations. However, criticism often rests upon the idea that RCT offers a literally true description of the psychological mechanism behind behavior and what is either abstracted away or has been idealized as not causally relevant are the environmental factors.

  5. There are other and more fundamental difficulties hiding behind these problems discussed in the philosophy of action, philosophy of mind, and epistemology that cannot concern us here.

  6. Pettit (1991) takes the relation between various versions of RCT and folk psychology to be an explication relation, whereby the explicandum is the folk psychological concepts and the explicatum is the various mathematical formulations of those concepts in RCT, a view he takes from David Lewis.

  7. Hausman (1995, p. 96) argues against Satz and Ferejohn by claiming that “Rational-choice explanations are psychological explanations”.

  8. On the relationship between decision theory and folk psychology, see Pettit (1991).

  9. For a detailed discussion of the transitivity assumption, its role and implications as a common property of ordering relations, and its connection to weak orders as one class of binary relations, see Fishburn (1979).

  10. Note that various labels, such as comparability, connectedness, and connectivity, which all denote the same axiom and are here called completeness, can be found in the literature (see Hausman 1992, p. 15).

  11. Note that this is the description of a strict, not a weak preference relation.

  12. It is not important for our purposes to present different kinds of possible interpretations that a binary relation in mathematics can have. What matters is that the use of a relation does not commit one to any specific interpretation and that the economist’s interpretation of a relation as a type of preference relation or preference-or–indifference relation (Fishburn 1979, 164) is only one among many possible interpretations that a formal–mathematical structure can have.

  13. For a discussion of different accounts of preferences in economics, see Hausman (2011).

  14. Hargreaves-Heap et al. (1992, p. 3) and Elster (1989) are examples of equating the notion of desire from philosophy of action with the concept of a preference in RCT.

  15. The interpretation and conceptualization of ‘utility’ is one of the most important and most forcefully debated issues in the history of the discipline of economics. The concept has gone through various fundamental transitions since Bentham and the Marginalists (see, e.g., Ross 1999).

  16. For some recent contributions to the debate, see, e.g., Angner (2018), Dietrich and List (2016b) Hands (2013), Hausman (2012), and Okasha (2016).

  17. Debates about the way in which economists have conceptualized human behavior have been plagued by confusion and disagreement at least since the work of J.S. Mill. Mill’s homo oeconomicus was accused of striving only for pecuniary self-interest.Mill himself was very clear that his account did not explain human behavior but instead would help economists understand a highly complex subject, the clear that his account did not explain human behavior but instead would help economists understand a highly complex subject, the market. For him, “Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because [it allows for reasoning from first principles about highly complex social phenomena, this] is the mode in which science must necessarily proceed” (Mill 1874 [1844], V. 38). Mill’s position is exemplary for many economists defending RCT. In the first half of the twentieth century, Fritz Machlup remarked that, while some criticisms of economic man had to be addressed carefully, it was remarkable that “some of the strictures and denunciations […] can probably be best explained as the result of misunderstandings—due to ignorance or incompetence” (1978, p. 286). Lionel Robbins saw, ironically, a virtue therein, as economic man would probably not have become such a “universal bogey” if critics had known what they were talking about (1935 [1932], p. 97).

  18. Morgan (2006) offers an introduction into the diversity of what she calls the ‘economic man’ throughout the history of economics, which is revealed by looking at instances of economic modelling and how those modelling contexts reveal how economists thought about their conceptualizations of the human agent and the role it played in those contexts.

  19. See the editors’ introduction in Frisch (2009 [1933], p. xxv).

  20. This section draws upon Herfeld (2019).

  21. As I take methodological rationalism to encompass also the earlier traditions of political economy, this doctrine should not be confused with a rationalist approach in the traditional sense of the term. It is committed to approaching human behaviour most broadly through reference to human reason, which was understood much broader in early traditions, such as the Scottish Enlightenment (e.g., Dow et al. 1997).

  22. The doctrine of methodological rationalism has not been extensively addressed in the literature. For exceptions see Anderson (2000) and Lee (2009).

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Acknowledgements

I thank Paul Dudenhefer for his edits and three anonymous referees for providing very helpful feedback on the paper.

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    Catherine Herfeld

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Herfeld, C. The Diversity of Rational Choice Theory: A Review Note. Topoi 39, 329–347 (2020). https://doi.org/10.1007/s11245-018-9588-7

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