Thursday, November 22, 2007

How does rational choice theory relate to social facts and individual psychology?

Rational choice theory is a mid-level theory of human agency, intended to capture core features of human decision-making in order to provide a basis for abstract and generalized theories of the dynamics of various areas of social behavior. The disciplines of political science and economics make particularly extensive use of versions of rational choice theory (decision theory, expected utility theory, game theory, theories of parametric and strategic rationality) in designing theories and models of stylized circumstances of social action (e.g. market decision-making, production decisions, voting decisions, collective action decisions). Homo economicus -- the rationally self-interested preference- or utility-maximizing individual -- stands at the foundation of typical models in economics and political science.

The theory of economic rationality can be specified in numerous ways. In all its versions it is an abstraction from real human behavior, in two senses. The theory abstracts from idiosyncratic differences in reasoning across individuals; and it abstracts from other, perhaps systematic, factors that might influence reasoning (emotions and morals, for example). The theory allows for differences across individuals, of course, but primarily in the individual's preferences or utility function. (The nature of the decision rule is also a variable: more risk averse or less, optimizing or satisficing, maximin or maximize expected utility).

The question here is, what role does rational choice theory play in social explanations and in formal models in political science and economics, and how does it function in description of individual psychology and behavior?

Some formalistic economists and political scientists treat the assumptions of rational choice theory as purely formal axioms that can provide the basis for a mathematical treatment of a stylized problem -- solution to an n-person non-zero sum game, for example. These theorists are not concerned about the descriptive adequacy of the axioms, but rather the feasibility of employing the axioms to derive a solution to the problem.

This approach is unsatisfying, however, if we think that the results of formal economic or political analysis are supposed to be explanatory in some sense of actual social phenomena. Suppose we explain the low level of public contribution to public radio, by saying that the "contribution/non-contribution" game is an n-person prisoners' dilemma, and the mathematical solution to such a game demonstrates an equilibrium of low contribution. This mathematical finding is only potentially explanatory if we have some reason to think that the model bears a relevant relationship to the system of behavior it is modeling; the model assumes rationally self-interested maximizers; so the model is potentially explanatory of the public radio result only if the listeners are to some degree approximately well-described as "rationally self-interested maximizers." In other words, the rational-choice explanation of this real social situation appears to require that there be some degree of realism in the assumption of individual rationality. The purely formalistic interpretation of the axioms would render the account devoid of explanatory value.

This suggests a different approach to the question. It suggests that we should regard the assumption of rationality as an approximately true description of most human beings. Rational choice theory is an empirical theory of human behavior, at a high level of abstraction. "Abstract" in this context means "disregarding of interfering or contrary factors" -- as the theory of ideal gases is abstract in its disregard of intermolecular forces. In other words, the theory of rationality might be construed as a particularly abstract part of an empirical theory of human psychology.

If we take this approach, then we are naturally invited to test and improve upon this theory of human decision-making. Are there other factors of deliberation and action that need to be introduced? Are there differences across human groups and cultures with respect to the system of reasoning that individuals employ in practical decisions? Is the theory of maximizing rationality true of at least a certain range of individuals and decision-making problems? (Perhaps, for example, we are maximizing decision-makers when it comes to choosing a loaf of bread, but are influenced by emotions and commitments when it comes to choosing a political party to support.)

The advantage of a simple, abstract theory of deliberation (the theory of economic rationality) is that it provides a mathematically tractable way of modeling certain common situations of social action. If we advance a theory of deliberation and agency that postulates more nuance at the individual level and more variation across individuals and cultures, we may lose the ability to put forward models that result in equilibrium. More empirical adequacy may reduce the theoretical or deductive adequacy of the disciplines. However, it seems unavoidable that social science is better served by a theory of human agency and deliberation that is somewhat more faithful to actual human practical cognition. And it would remain possible that the narrow assumptions of economic rationality emerge as being adequately descriptive in certain well defined problem circumstances (the circumstances of anonymous markets, for example). Finally, it may be that other methods of aggregating from individual-level assumptions to models of collective behavior are feasible -- for example, the agent-based models that are advocated by the Santa Fe Institute.

There may be one additional reason why rational choice theory asserts a centrality that separates it from the rest of social psychology -- that is the role that rationality plays in a normative sense. We might think that reason and rationality are especially important human creations, and that it is valuable to have a theory of pure rationality (and its implications) even if the typical human reasoner falls far short of its assumptions.

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