Rationality and utility theory

Abstract

Mainstream economics portrays agents as choosing rationally. Many generalizations in economics concerning how people do in fact choose are also claims about how they ought rationally to choose. If people are, to some reasonable degree of approximation, rational, then a theory of rational preference, belief, and choice will constitute an approximate theory of people's actual preferences, beliefs, and choices. The fact that economics is built around a theory of rationality distinguishes economics from the physical sciences, where quarks and polymers do not choose at all and whose theories have no comparable normative dimension. In common usage, someone is rational if and only if her motives, beliefs, and choices are appropriately sensitive to reasons. Spelling out this vague idea is a huge philosophical challenge. “Folk psychology” – the everyday theory of human rationality – takes actions to derive from constraints, beliefs, and a wide array of motivational factors such as urges, emotions, habits, and desires. So, for example, when one rainy Friday night a hungry student named Ellen takes a frozen pizza out of the refrigerator, unwraps it, puts it in her stove, and turns knobs on the stove, we folk psychologists explain Ellen's action by the constraints (pizzas do not get hot by themselves), Ellen's beliefs – including especially her beliefs that turning the knobs will cause the stove to heat the pizza – and her desire to eat hot pizza. This sort of explanation is familiar but not very satisfactory. Ellen might also like to eat her pizza frozen, or she might also have a desire to reheat some leftover meatloaf. Or she might rather skip dinner and keep studying decision theory. What explains her action is not merely wanting to eat hot pizza (plus possessing the requisite beliefs) but also wanting to do this as much as or more than she wants to carry out any of her feasible alternatives. The theory of rational choice that dominates economics is less ambitious than folk psychology: it aims only to specify formal conditions on preferences, beliefs, and choices. Economists tighten up the folk-psychological account of action by replacing the noncomparative notion of a “desire” with the comparative notion of a “preference.”