As If Social Preference Models

Abstract

Two puzzling discrepancies within behavioral economics are discussed in this chapter. What is vehemently denied in the “heuristics and biases” research area, that real humans of flesh and blood exhibit perfectly rational behavior, is simply assumed in social preference models. And whereas the alleged fact that people fail to optimally serve their own interests is taken as a legitimate reason for ameliorative policy measures in the heuristics and biases area, it is evoking the opposite policy response in the research area investigating social preferences: the sort of prosocial behavior associated with social preferences is to be promoted. It is argued that the key to resolving these puzzles is that the “standard” perfect rationality-cum-self-interest model serves as the normative benchmark in behavioral economics. It is this “standard” model that is believed to identify not only optimal individual and social welfare but also what theoretical virtues economic theories and models ideally exhibit, such as simplicity, generality, and empirical consistency. The desire to outperform the standard model with respect to these theoretical virtues seems to drive the development of social preference models more than a quest for psychological realism. In particular, the issue of whether the social preferences posited in social preference models track non-self-interested motivation seems to be less important than the issue of whether the social preference models developed can cover a wider range of observed behaviors than the standard model.