Economics, Rational Choice Theory, Phin Upham
In this essay, Phin Upham discusses Rational Choice Theory, its critics, and its applications. Part 19.
Second Class of Critics
The second class of critics differs importantly from both of the above discussed sets of critics. These people reject RCT as the process of human thinking altogether. March and Alchian are two good examples. March (1973) claims that RCT cannot explain why we did our actions in any meaningful sense. Intentionality, which is at the heart of rationality, he argues, is an interpretation of action, rather than a prior position. Rather, RCT can at best be seen as a tool to make future actions, but not an explanatory mechanism.
Alchian claims that humans use an evolutionary selection approach to decision making. He appeals to G. Tintner’s claim that since actions and events do not have certain outcomes but instead a spectrum of outcomes, the idea of maximization becomes incoherent. How can one compare a narrower but taller utility distribution curve to a wider but shorter distribution curve? If the value of outcomes is not commensurable, RCT crumbles. Alchian continues by constructing a very different way of describing the human decision making process. More recent psychological literature, such as that of Donald Green and Ian Shapiro, has questioned the empirical underpinnings of RCT, claiming that it has serious methodological flaws that are revealed when good empirical experimentation shows that it is hopelessly out of touch with reality. Tversky and Kahnemon (86), for example, argue that RCT is so seriously flawed that he constructs a new theory of rationality. We argue that the deviations of actual behavior from the normative model are too widespread to be ignored, too systematic to e dismissed as random error, and too fundamental to be accommodated by relaxing the normative system.”(167) His argument begin with the claim that the “modern theory of decision making under risk emerged from a logical analysis of games of chance rather than a psychological analysis of risk and value.” (167). Once they have established a basis for the lack of descriptive adequacy for RCT, they continue to show numerous ways that agents violate RCT laws when acting. For example, they are risk adverse with proportionally large sums (to their net worth) and risk hungry with proportionally small sums.
They also point out that the psychological question of the framing of a question, irrelevant form the perspective of a simple rationality model, makes a very large difference. They give an example taken from McNeil et al, 1982. Given the choice between:
Problem 1 (survival frame)
Surgery: Of 100 people having surgery 90 live through the post-operative period, 68 are alive at the end of the first year, and 34 are alive at the end of five years.
Radiation Therapy: Of 100 people having radiation therapy all live through the treatment, 77 are alive at the end of one year, and 22 are alive at the end if five years.
Problem 1 (mortality frame)
Surgery: Of 100 people having surgery 10 die during surgery o the post operative period, 32 die by the end of the first year, and 66 die by the end of the five years.
Radiation therapy: Of 100 people having radiation therapy, none die during treatment, 23 die by the end of one year, and 78 die by the end of five years.
The difference in presentation produced markedly different responses. Those choosing radiation therapy rose form 18% in the survival frame (N=247) to 44% in the mortality frame (N=336). This result held steady whether the question was asked to clinical patients or physicians. Yet the two frames give the same substantive information.
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