Are You An Economic Machine?

October 23, 2009

This question is, put crudely, what the debate about rational choice theory orbits around. Rational choice theorists would answer in the affirmative, while critics would demur. Simply, rational choice theory holds that people make rational choices which in their eyes maximize utility; this idea underpins almost every aspect of economic thought today. It is important to state straight off the bat that this is not a normative statement. Rational choice theorists do not hold that this is the way the world should be, just the way the world is.

One huge strong point of this idea is that it gives people agency. In a rational choice theorist’s eye, nothing is fated; people choose the course of their lives. With this in mind, they’ve constructed a model for understanding how people make choices.

Rational Choice Model:
1.) People are able to order their goals. This is otherwise called rank ordering.
2.) People choose so as to maximize their satisfaction. So, after rank ordering, which can happen in unbelievably brief spans of time, the theory holds, a person selects the choice they think will work out best for them.

One thing social scientists love about this model and theory is that it, ideally, lets them be predictive. If they can isolate all variables, they should be able to predict what a person will do before a person does that. Now, there is a certain amount of contradiction in this idea, since one thing that rational choice theorists love about the idea is that people are independent actors, but if a social scientist can predict their actions, then it puts into question the idea of that person’s agency and makes them into nothing more than an economic machine. Some of the more doctrinaire theorists are fairly comfortable making this assertion. It also assumes that humans are selfish. Put another way, altruism doesn’t exist in this view; instead people who make a seemingly altruistic choice do so for a utilitarian reason.

The theory makes a number of assumptions in order to hold itself together:

1.) Individuals are instrumental utility maximizers. (In plain English, people choose what makes them feel the best.)
2.) Individuals are consistently rational.
3.) Only individuals matter.

Those last two are fairly self-explanatory, I think.

Now, to be fair, I think this is actually a fairly good theory when applied with limits. I think it has excellent explanatory power, but very poor predictive power. Unfortunately, me saying that would just get me into a circular argument with a rational choice theorist. I would insist that all possible variables cannot possibly be known, making prediction spotty, and in reply I would hear that if we could isolate those variables, then the predictive ability of the theory would be greatly improved. Suffice it to say, the jury is out on this point.

To get back on topic, while I think it does possess excellent explanatory power, I am nowhere near thinking that it covers the whole picture. Thinking of humans as economic machines is important, I think, but leaving it there is like seeing the sketch of a great painting and saying that no more need be seen; this is a perfect understanding of the artist’s intent and subtlety. To strip the metaphor out, it is an important, perhaps critical, tool for understanding human behavior, but it cannot explain everything.

One example is addiction. To use myself as the case study, I am hopelessly caffeine addicted. I’ve tried to break the addiction several times, but I simply lack the will to pull through all the way. Caffeine is undoubtedly a relatively benign addiction, but to be honest, its pull is no less powerful for it. I find myself drinking Red Bulls are 11 at night, knowing full well it will keep me awake for longer than I want or need to be. I’ll stop in at coffee shops even when I don’t want coffee. My ability to choose rationally has been undercut by an underlying chemical addiction. Now, the most extreme of rational choice theorists would say that I am in fact acting rationally. I recognize that I’m having a bit of a caffeine pique, and in order to satisfy that, I go get some caffeine. The problem I see with this is that sometimes I know full well that I shouldn’t be drinking whatever it is I’m drinking and I do it anyway. I see nothing rational with that choice– just me being stupid.

Another stumbling block here is the scientific community’s growing understanding of the brain’s underlying irrationality. Without getting too technical, recently a scientist hooked some people up to a brain scanner and had them play Rock, Paper, Scissors. The results were, for me at least, fascinating. When the brain waves are made audible, the process of the choice sounds a lot like white noise on a blank radio frequency; then, out of the blue a snap! like a snare drum. That’s the choice being made. As near as the scientists can tell there is no process here. The brain in these moments in kind of like, “Ah… Um… THIS ONE!” It is only after the fact that the brain begins to make rationalizations for the choice. Now, I understand that this puts into question the whole idea of free will, but I think our understanding of this will grow over time and that some space can be carved out in here.

Somewhat ironically two people whose entire world-views rest (unknowingly in one case) on rational choice theory as it relates to economics are on the complete opposite end of the spectrum. Marx and Friedman both assume that humans are economic beings who make choices based almost solely on their own economic self-interest. Uncle Karl, as most know thought that this would necessarily result in a proletarian revolution and consolidation of economic resources, while ol’ Milton thought that free, unfettered markets were the best way to solve things, since the markets would act rationally. (According to his math equations.)

For me, the greatest strike against rational choice theory lies here. In the twentieth century we saw the collapse of Marx’s idea of socialism, and over the last two years the world has watched as Friedman’s idea of rational markets has proved a myth.

There’s more to say on this point, but I think this is probably more than enough for now.

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2 Responses to “Are You An Economic Machine?”

  1. Matt said

    An important detail to consider about rational choice theory is that it assumes all actors have access to perfect information, which they do not. This is in addition to the assumptions you listed.

  2. christophermahlon said

    There’s that, and there’s also an excellent point that I heard in lecture today, pointing out that rational choice theory really doesn’t have all that much to say in a society that isn’t structured around individual choice and markets. The whole idea of homo oeconomicus is birthed from the rise of capitalism, and cannot possible apply to situations before the idea of markets, individual choice, and so forth. It also cannot apply to contemporary situations in which the market, or western market theory, is largely irrelevant. If these frameworks of thinking aren’t part of a society’s schema, then the rules of interpreting those frameworks also do not apply.

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