Some Thoughts on Rational Choice Theory Part 1

This is spurred by a rather old blog post on The Stone that I never quite got around to addressing, but meant to.  My first observation is that this is an excellent reminder that some people really do take rational choice theory and rational choice philosophy seriously as ways to describe human behavior.  I often forget this, I don't think I've ever had a professor that took it as gospel, even the economics ones, and I haven't known anyone in person that did.

The next observation is that I really like how the blog takes down rational choice philosophy, worth reading.  Philosophy isn't my forte so no more to say here.

The third thing I want to get into is that this is a great opportunity to discuss rational choice theory.  For the rest of the posts on this subject I will be putting my professor hat on, no doubt many of you will know most, if not all, of what I have to say already but I need the practice.



What I want to address breaks down into two components, which I'll mostly be dealing with in separate posts.  The first component is that rational choice theory really does often give us the best first approximation of human action in the modern world.  While I don't have the time or the energy to get original data on this, and no amount of data would really suffice for proof anyway, I do feel that an institutional argument will suffice to show how incentives can be set up at the systemic level to drive rational behavior.  The second is how commonly history books have to stress that unlike in the modern world we can't assume that the actors are acting as maximizers, rational or not.  It is simply impossible to explain the observed data from these assumptions.

This leads immediately to the question, what changed and why?  Why are modern people generally well described by rational choice theory, while earlier time periods are not?

My answer is fairly straightforward, the behavior exhibited by rational choice theory is not the result of any intrinsic characteristics of human behavior but is rather the product of institutions.  These institutions have become so common because there are huge advantages to them, societies that adopt institutions which create rational maximizing behavior outcompete those that don't.  But these institutions and their continuation cannot be explained solely in rational maximizing terms; followed to its maximal extent, rational choice theory will undermine the very institutions that lead to rational maximizing behavior.  Thus it is important to understand some common ways that human behavior diverges from rational norms and what this says about how to maintain these institutions, which I'll be getting into in a third post. 

My hope for these posts is both that I'll get those that favor rational choice analysis to think harder about its assumptions and their historicity as well as get those that dislike this form of analysis to see its utility.  Despite its problems, rational choice theory is a useful approach to many problems, that it is wrong in its assumptions being the product of intrinsic human behavior rather than institutional forces doesn't change this.