Abstract
The paper proposes and shows that standard rational choice theory has experienced a certain degree of breakdown or crisis in much of contemporary economic science, especially social, institutional, and related economics. It identifies and considers several instances of standard rational choice theory’s breakdown in modern economics. They are, first, the end or discredit of homo economicus, second, the rejection of the premise of exclusive economic motivation, including egoism, third, the refutation of the assumption of fixed ‘natural’ tastes and preferences, and fourth, the replacement of the conception of perfect rationality. Consequently, the paper suggests that much of contemporary economics tends to move toward a more complex and realistic post-rational and in part irrational choice theory. The paper also discusses the possible implications of this trend in contemporary economics for rational choice sociology. It concludes that the continuing expansion of rational choice theory to sociology and related social sciences may not be sustainable indefinitely if the trend continues toward its breakdown in parts of contemporary economics.
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Notes
Stiglitz (2002,488) states that ‘the deficiencies of the neoclassical paradigm—the failed predictions, the phenomena that were left unexplained—made it inevitable that it would be challenged.’ Also, Ellingsen and Johannesson (2007,146) comment that economists ‘have usually sought to analyze human resource management under the maintained assumption that employers and employees hold selfish and materialistic preferences, which they combine with arguments about incentives and information [and yet] it is not a dominant paradigm.’
North (2005,4) remarks that the ‘rationality assumption has served economists (and other social scientists) well for a limited range of issues in micro theory but is a shortcoming in dealing with [other] issues. Indeed the uncritical acceptance of the rationality assumption is devastating for most of the major issues confronting social scientists and is a major stumbling block in the path of future progress. The rationality assumption is not wrong, but such an acceptance forecloses a deeper understanding of the decision-making process in confronting the uncertainties of the complex world we have created.’
Moreover, according to Phelps (2007,544), ‘formal microfounded economic theory remained neoclassical, founded on the pastoral idylls of Ricardo, Wicksteed, Wicksell, Bohm-Bawerk and Walras’, only until the 1950s.
Merton (1968, p. 28) notes that ‘earlier and often much weightier scientific contributions tend to be obliterated (though not without occasional and sometimes significant exceptions) by incorporation into later work’, particularly citing Weber’s observation as an instance of the ‘fateful process of incorporation and extension in science’.
An increasing number of contemporary economists register the breakdown or crisis of Walrasian general market-economic equilibrium theory. For example, Blaug (2001, 160) observes that general equilibrium theory has been ‘dying a slow death ever’ and a ‘journey down a blind alley’ since Walras through his contemporary followers (Arrow and Debreu 1954; Hicks 1961; Samuelson 1983) in contemporary economics, as do also other economists (Akerlof and Yellen 1987; Allais 1997; Bowles and Gintis 1993; Phelps 2007).
Robbins (1952, pp. 96–7) states that homo oeconomicus is an ‘occasional assumption that in certain exchange relations all means are at one side, and all ends at the other [i.e.] only an expository device’.
Becker and Murphy (2000,3) recognize the ‘importance of culture, norms and social structure’ for economic actors and actions, and Mueller (1996,346) moreover admits that the ‘assumption that individuals pursue their own materialistic ends [homo economicus], which economists employ to explain individual behavior in the marketplace, pales in innocence alongside the actions those who seek political power have taken to achieve their ends.’
Stiglitz (2002,487) objects that ‘if all individuals were as selfish as economists have traditionally modeled them, matters would indeed be bleak. But there is a wealth of evidence that the economists’ traditional model of the individual is too narrow—and that indeed intrinsic rewards, e.g., of public service, can be even more effective than extrinsic rewards, e.g., monetary compensation (which is not to say that compensation is not of some importance).’
Ross (1899, p.386) in his article indicatively termed the ‘Sociological Frontier Of Economics’ remarks that the ‘student of economics cannot remain unaware that his is a realm bordered by other realms’, above all the societal, in particular that of social control. I thank the editor for suggesting that Ross’ concept of social control remains relevant to the present discussion.
As the editor alerted the author, an indication of the renewed interest in altruism in contemporary sociology is the establishment of an ASA section on Altruism, Morality and Social Solidarity, as well as the forthcoming publication of Handbook of Altruism, Morality and Social Solidarity.
Pareto suggests that rational choice sociology (i.e., a social science) premised on the assumption of universal rationality ‘would yield a general form of the social phenomenon having little or no contact with reality—it would be a sociology like a non-Euclidean geometry.’
Akerlof (1990,70) objects that economists ‘often think that the economic [rational choice] model is the world [and] then go out and merrily estimate things which they should never thought of estimating in the first place. That is why you can get a kind of economics which is very blind and foolish’, which suggests that extending the latter as characterized to sociology, etc. is a drastic non sequitur, a sort of ‘mother’ of all contradictions, if not what Merton calls ‘perversities’, in contemporary social science and theory. Cynics may comment that this is analogous or evocative of a certain tribe transferring and making its own ‘blind and foolish’ elder or warlord the king, savior, or role model for all other tribes. Also, Sen (1990, 266) suggests that rational choice tools ‘don't apply very well outside of economics [and] they don't apply very well inside economics either [as they] do not have much predictive and explanatory power even in economics. You cannot first ignore the enormous impact of sociological factors in economics and think that you have succeeded with the economic analysis, and then try to apply this narrow economic analysis outside the field of economics’. Coase (1998,73) advises that economists ‘should use these analytical [rational choice] tools to study the economic system [and not all human behavior].’ Stiglitz (2002,488) implicitly alerts ‘rational choice’ sociologists to the ‘deficiencies of the neoclassical paradigm’ of rationality, including ‘failed’ predictions and missing explanations, and the ensuing challenges to it.
For example, Frank (1996,116) remarks that Coleman’s ‘models and other narrow [sociological] versions of rational choice theory view the individual as a ruthlessly selfish monad’, just does it original economic version. Similarly, Hodgson (1998, 189) comments that ‘the problem also has to be faced that much of “sociology” has now embraced rational choice’ from orthodox economics, citing Coleman’s version as the prime example.
For instance, by rejecting such and related assumptions, Boudon (2003) does not simply reconstruct but explicitly goes ‘beyond’ rational choice theory as commonly understood in economics and sociology, as does in a way Fararo (2001) by integrating it into a wider theoretical model rather than reducing the latter to utility maximization in the way of Coleman (1990). In this sense, Boudon’s declaration of moving ‘beyond rational choice theory’ is effectively the diagnosis of its end or irretrievable decline and discredit in sociology.
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Zafirovski, M. Rational Choice Requiem: The Decline of an Economic Paradigm and its Implications for Sociology. Am Soc 45, 432–452 (2014). https://doi.org/10.1007/s12108-014-9230-0
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DOI: https://doi.org/10.1007/s12108-014-9230-0