Standard Rational Choice Theory Research Articles

Can rational choice explain hope and patience? Frustration and bitterness in the Book of Job

ABSTRACT Can rational choice theory justify hope and patience in dealing with calamities such as financial collapse or terminal illness? The Book of Job is a good entry-point. Three friends of Job counsel him to avoid hopelessness and bitterness arising from frustration regarding calamities. They do so on non-rational grounds. They argue that Job should ignore the evidence and instead blindly uphold the belief ‘God is just.’ However, such blindness permits magic, superstitions, and cultish beliefs. The specter of such beliefs is probably what prompted the fourth friend, Elihu, to dismiss the arguments of the three friends. Elihu reasons that one should be rational, i.e., acknowledge the evidence. This need not entail the conclusion ‘God is unjust’ – as God cannot perform miracles on a daily basis. That is, given the evidence, one cannot sustain hopeful beliefs that God will interfere and reverse the course of natural catastrophes and shocks from which humans, as well as other living beings, suffer. One at best can be patient, accept suffering considering worse counterfactuals. Based on Elihu’s critique of the arguments of the three friends, and building on Maimonides’s interpretation, this paper concludes that standard rational choice theory can explain patience, but not hope.

Sugden’s community of advantage

ABSTRACT Starting from a behavioural-economics critique of standard rational choice theory Sugden seeks to restate the case for classical liberalism. That case has three strands: a refutation of libertarian paternalism; a restatement of standard welfare theorems of economics in terms of opportunity sets; and underlining the role that ‘exchange’ plays in supporting civil liberal society. We explore questions about Sugden’s arguments in connection to all three strands and to relevant pieces of Adam Smith and James Buchanan to which Sugden appeals. Without substantive assumptions Sugden either adopts a view from nowhere or has to implicitly rely on non-negotiable interpersonal respect norms.

Is a fine still a price? Replication as robustness in empirical legal studies

Can fines lead to more of an undesirable behavior, rather than deterring it? This was the surprising finding in Uri Gneezy and Aldo Rustichini, “A Fine is a Price” published in the Journal of Legal Studies in 2000. In this field experiment at Israeli daycares, the introduction of fines caused an increase in late pick-ups by parents. The study has been frequently cited, especially for its suggestion that a fine can act as a price for non-compliance that “crowds-out” social norms and motivations for individuals.In this article, we conduct two related studies to explore the robustness of Gneezy & Rustichini’s findings and the relevance of their suggested explanations. We seek to replicate their results using experimental surveys administered on MTurk, an increasingly common methodology in empirical legal studies, psychology and economics. While not an exact replication, it allows us to control aspects of the experimental design that are difficult to replicate in the field. We are also able to directly investigate whether fines persistently change the way respondents perceive the consequences (signaling, completing the contract) or relevant social motivations (crowding-out), as suggested by Gneezy & Rustichini. In the first study we translate the original daycare field setting into a vignette-based experimental survey. Our second study similarly investigates the effect of introducing a fine on income tax reporting compliance – an example suggested in the original study. In both studies, respondents are randomized into experimental conditions exposing them to one of two alternate fines or a social norm-based measure. We solicit multiple compliance measures for respondents along with measures of the importance of the alternate explanations to their decisions.Our survey results do not replicate the original findings. In both our daycare and tax studies, the introduction of fines causes respondents to reduce non-compliant behaviour. Respondents expect others to behave similarly. Fines do not cause respondents to adjust their concerns about an incomplete contract consistently with Gneezy & Rustichini’s theory. They also show very little evidence of fines crowding out social motivations, despite being responsive to our social treatments. The effects of fines on outcome behaviours and respondents’ reasons are transitory. Once the fines are removed, our respondents return to their baseline behaviours. The survey results are consistent with intuitive judgments (and standard rational-choice theory) that fines deter. A survey is not a field experiment; however, our results suggest that more research is required to understand when and how any “fine is a price” effect may arise.

Conditional choice with a vacuous second tier

This paper studies a generalization of rational choice theory. I briefly review the motivations that Helzner gives for his conditional choice construction (2013). Then, I focus on the important class of conditional choice functions with vacuous second tiers. This class is interesting for both formal and philosophical reasons. I argue that this class makes explicit one of conditional choice’s normative motivations in terms of an account of neutrality advocated within a certain tradition in decision theory. The observations recorded—several of which are generalizations of central results in the standard theory of rational choice—are intended to provide further insight into how conditional choice generalizes the standard account and are offered as additional evidence of the fruitfulness of the conditional choice framework.

Rational Choice Requiem: The Decline of an Economic Paradigm and its Implications for Sociology

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.

Reflexivity and equilibria

The failure of models based on rational expectations to explain the ‘boom and bust’ of financial markets does not support Soros' critique of mainstream economics or his call for a theoretical revolution. Contrary to what Soros says, standard rational choice theory has the conceptual resources to analyse reflexivity. The dynamic of feedback loops for example can be described by simple models based on multiple equilibria and informational cascades. The problem is that agents and theorists sometimes lack the information required to identify equilibria and tipping points.

Reflexivity and Equilibria

The failure of models based on rational expectations to explain the “boom and bust” of financial markets does not support Soros’ critique of mainstream economics or his call for a theoretical revolution. Contrary to what Soros says, standard rational choice theory has the conceptual resources to analyse reflexivity. The dynamic of feedback loops for example can be described by simple models based on multiple equilibria and informational cascades. The problem is that agents and theorists sometimes lack the information required to identify equilibria and tipping points.

Rationality and Context-Dependent Preferences

The standard theory of rational choice in economics considers an agent’s choices to be rational if and only if the agent makes her choices in different choice situations on the basis of a fixed preference ordering defined over the set of all possible options. This implies that a rational agent’s preferences cannot be context-dependent. This paper outlines a simple framework for defining context-dependence of preferences and for discussing relationships between context-dependent preferences and the notion of rationality.

Practical beliefs vs. scientific beliefs: two kinds of maximization

There are two kinds of beliefs. If the ultimate objective is wellbeing (utility), the generated beliefs are “practical.” If the ultimate objective is truth, the generated beliefs are “scientific.” This article defends the practical/scientific belief distinction. The proposed distinction has been ignored by standard rational choice theory—as well as by its two major critics, viz., the Tversky/Kahneman program and the Simon/Gigerenzer program. One ramification of the proposed distinction is clear: agents who make errors with regard to scientific beliefs (e.g., the conjunction fallacy) should not be taken as committing irrationality—because they are most probably engaging the other kind of maximization, the pursuit of wellbeing.

Multiple-Self Models in Neuroeconomics - A Methodological Critique

The idea of multiple-self models in economics is that individual identity is the equilibrium result of the strategic interaction between sub-personal selves. These models fill the gap of standard rational choice theory in explaining inter-temporal inconsistency of choices. This modelling procedure requires an extension of revealed preference theory to the sub-personal level. This extension is grounded in the assumption that sub-personal selves are economic agents to whom analytical tools of microeconomics apply. I claim that this assumption is false and entails the empirical methodology of functional localization that fails to provide robust results.

Freedom of choice and bounded rationality: a brief appraisal of behavioral economists' plea for light paternalism

Behavioral economics has addressed interesting positive and normative questions underlying the standard rational choice theory. More recently, it suggests that, in a real world of boundedly rational agents, economists could help people to improve the quality of their choices without any harm to autonomy and freedom of choice. This paper aims to scrutinize available arguments for and against current proposals of light paternalistic interventions mainly in the domain of intertemporal choice. It argues that incorporating the notion of bounded rationality in economic analysis and empirical findings of cognitive biases and self-control problems cannot make an indisputable case for paternalism.

¿Qué es una norma social?. Una discusión de tres aproximaciones analíticas

In this paper we compare the definitions of social norm proposed by standard Rational Choice Theory, Cristina Bicchieri and Jon Elster. We try to determine how similar or different they are. as long as they present some differences, we try to establish which captures better the very nature of the phenomena that we usually name “social norm” and which provides us with a concept (or concepts) more precise and productive and more easily useable in explicative models. In our opinion, Jon Elster’s classification between moral, quasi-moral and social norms is the more successful in this respect. In spite of the fact that Jon Elster does not plan to use their concepts in formal mathematical models with predictive purposes, there is not anything inherent in them which prevents this use. on the other hand, the precision of these concepts makes them especially useful to be used in social mechanism models which let us propose causal, informative and parsimonious explanations of real concrete cases.

A model of non-informational preference change

According to standard rational choice theory, as commonly used in political science and economics, an agent’s fundamental preferences are exogenously fixed, and any preference change over decision options is due to Bayesian information learning. Although elegant and parsimonious, such a model fails to account for preference change driven by experiences or psychological changes distinct from information learning. We develop a model of non-informational preference change. Alternatives are modelled as points in some multidimensional space, only some of whose dimensions play a role in shaping the agent’s preferences. Any change in these ‘motivationally salient’ dimensions can change the agent’s preferences. How it does so is described by a new representation theorem. Our model not only captures a wide range of frequently observed phenomena, but also generalizes some standard representations of preferences in political science and economics.

Is there a place for psychology in the framework of rational choice theory?

This paper aims to discuss psychological aspect of rational choice theory. The standard version of rational choice rests on a kind of psychology, since it operates with mental states. In standard davidsonian version it is claimed that we explain rational actions by stating proper desires and beliefs that caused the action. We will explore two challenges to the standard version that might be called cultural and naturalistic versions of rational choice. Satz and Ferejohn (1994) challenged standard version by stating that we can provide rational-choice explanations without relying too much on psychological assumptions. They argued in favor of moderate externalism, which should replace thin desire-belief model with thick structuralist conception. According to their model moderate externalism is compatible with realism about psychological states, while at the same time those states need not figure in the best rational choice explanations of actions. The focus of rational choice explanations therefore shifts to non-individual and non-psychological entities, such as firms in explaining economic behavior, parties in explaining functioning of democracy, etc. Although there is a place for psychological states within a moderate externalism, those states are not causally relevant. On Pettit?s account desires and beliefs figure in rational choice explanations merely as ?standby causes?. They explain resilience of certain behavior, not its actual cause. Quite contrary to standard rational choice theory, the programming model (Pettit, 2002) defines the neurophysiological level as more basic in explaining behavior. This means that higher-level psychological states are causally relevant for certain behavior only if certain lower-level neurophysiological producer obtains. In this paper standard rational choice theory will be defended against culturalist and naturalist criticism.

QRE, NSNX and the Paradox of Voting

Levine and Palfrey's QRE account of turnout in large elections raises the broader question of how much of a departure from standard rational choice theory is justified by the considerable repertoire of rational choice anomalies that has accumulated since Downs and Olson half a century ago. An alternative but more controversial unconventional view turns on what I call NSNX motivation to account for how agents seek a balance between self-interest and social motivation. NSNX agents have irreducibly dual utility functions. QRE agents have a standard utility function but they do not maximize it. I review the situation showing why in situations where NSNX effects could be expected, QRE might mirror those effects. I show how, by varying parameters of an experiment, I can cleanly distinguish between actual QRE effects, which should bring predictions closer to the data than Nash, and NSNX effects, which should do the same.

Racionalidad y deliberación en la acción colectiva

The theory of collective action formulated by Mancur Olson in 1965 was based on an instrumental-strategic concept of rationality that has been generally used by standard rational choice theory. Different social theorists (such as Habermas or Elster) have tried to challenge this view by defending an alternative concept of rationality based on deliberation or rational argumentation. In this article I discuss to what extent these challenges have been successful in offering a real theoretical alternative to strategic rationality as a mechanism for the production and coordination of collective actions. For that purpose, three questions will be addressed: 1) Is communicative or deliberative rationality conceptually different from strategic rationality? 2) Is it empirically plausible as an explanatory principle for collective actions (and specially for those of social movements)? 3) Is it more defensible from a normative point of view?

The Historical Development of Hierarchical Behavior in Economic Thought

One of the basic ideas underlying the established conception of rational behavior is the unlimited substitutability of preferences. Economic agents are assumed to compare and reduce everything to a common denominator: utility. The most obvious example of such preferences can be found in standard consumer theory where complete substitutability of every good is assumed in the sense that a loss of some units of one bundle can always be compensated by gain of some units of another commodity (such preferences are sometimes called Archimedian—see Borch 1968). This conception of preferences has a long history in economic thought and forms the basis of the standard rational choice theory (Hicks and Allen 1934, Samuelson 1938, Hicks 1946, Houthakker 1950).

Evaluating new options in the context of existing plans

This paper contributes to the foundations of a theory of rational choice for artificial agents in dynamic environments. Our work is developed within a theoretical framework, originally due to Bratman, that models resource-bounded agents as operating against the background of some current set of intentions, which helps to frame their subsequent reasoning. In contrast to the standard theory of rational choice, where options are evaluated in isolation, we therefore provide an analysis of situations in which the options presented to an agent are evaluated against a background context provided by the agent's current plans—commitments to future activities, which may themselves be only partially specified. The interactions between the new options and the background context can complicate the task of evaluating the option, rendering it either more or less desirable in context than it would have been in isolation.

On the Framing of Multiple Prospects

We investigated decisions involving multiple independent uncertain prospects. At the extremes, a decision maker may either consider each prospect as a separate event (segregation) or evaluate the overall distribution of outcomes (aggregation). Contrary to choice by segregation, people sometimes reject a single gamble but accept a repeated play. On the other hand, people tend to choose by segregation when a particular gamble is singled out from a larger ensemble. Similarly, physicians make different choices when they evaluate problems on a case-by-case basis than when they consider the broader picture. Peoples' tendency to segregate multiple prospects represents a significant violation of the standard theory of rational choice.

Rational choice theory: Necessary but not sufficient.

I I I ! I ABSTRACT: A case is presented for supplementing the standard theory of rational choice, according to which subjects maximize reinforcement, with a theory arising from experiments on animal and human behavior. Data from these experiments suggest that behavioral allocation comes into equilibrium when it equalizes the average re- inforcement rates earned by all active response alternatives in the subject's choice set. This principle, called the matching law, deviates from reinforcement maximization in some, but not all, environments. Many observed devia- tions from reinforcement maximization are reasonably well explained by conformity to the matching law. The theory of rational choice fails as a description of actual behavior, but it remains unequaled as a normative theory. It tells us how we should behave in order to maximize reinforcement, not how we do behave.