The most common argument against the use of rational choice models outside economics is that they make unrealistic assumptions about individual behavior. We argue that whether the falsity of assumptions matters in a given model depends on which factors are explanatorily relevant. Since the explanatory factors may vary from application to application, effective criticism of economic model building should be based on model-specific arguments showing how the result really depends on the false assumptions. However, some modeling results in imperialistic applications are relatively robust with respect to unrealistic assumptions.
The traditional game and decision theories are, of course, also called theories of rational choice.
2.
However, the links between standard microeconomic consumer theory and methodological individualism in any substantial sense are tenuous. If there are any individuals to be found in micro-theory, virtually nothing follows from their utility maximization at the aggregate level. This is the content of the famous Sonnenschein-Mantel-Debreu results (Kirman 1989).
3.
We are indifferent between simulation theory and the theory of folk psychology, and in general wish to avoid commitment to specific philosophical positions concerning the nature of intentional states.
4.
Alexander Rosenberg (1992, see also 1980) argued some fifteen years ago that economics should be conceived of as a formalization of folk psychology. He also claimed that it was doomed to stagnation because we cannot obtain better and better information on people's desires and beliefs.
5.
Myerson (1985) makes this argument most forcefully, but it dates back at least to Roy Harrod (1938). Harrod also links it with the scientific respectability of economics. “[M]arshall says in the principles that the marginal utility of two pence is greater in the case of a poorer man than in that of a richer...It may be urged that the economist hereby goes outside his proper `scientific' field…Whether the nth unit of X has greater or less utility to a given individual may be made the subject of test. He can be given the choice. But there are no scientific means of deciding whether the nth of X has greater or less utility to individual P than the mth of Y has to another individual Q. The choice can never be put” (pp. 395-396).
6.
We use the term “operationalization” as referring generally to the process of providing empirical content for the assumptions of self-interest and utility maximization. We do not mean to suggest that this is necessarily related to making theoretical concepts measurable.
7.
Myerson (1999) characterizes the whole of economics as the science of incentives.
8.
In fact, such arguments have been subject to criticism even within economics. It was argued during the marginalist controversy in the 1940s that corporate profit maximization was not consistent with individual utility maximization by firm managers.
9.
There are, however, some experimental results suggesting that cognitive biases do matter at the aggregate level (see e.g., Camerer 1995; 1998).
10.
Luce and Raiffa's (1957) classic book remains one of the clearest expositions of these issues.
11.
Friedman also gives an example in which no goals need to be attributed to the “agents.” The leaves of a tree position themselves as if they were seeking the maximum amount of sunlight.
12.
Our main aim is not to interpret what Friedman really said or meant. We just found it convenient to use his well-known views to introduce the distinction between behavioral and psychological realism.
13.
Money-pump arguments have often been coupled with selection pressures. See, however, Cubitt and Sugden (2001) for a critical account of such arguments.
14.
In this case, the more interesting results of the theory concern the instruments used to keep customers loyal to a particular firm and to avoid free-riding in the religious collective.
15.
Mosteller and Nogee (1951) were the first to try, and the first to fail, to do this.
16.
Many rational choice theorists subscribe to some version of the hypothetico-deductive view of theory testing. One version of this doctrine is usually attributed to Friedman (1953). He emphasizes that the realism of the assumptions does not matter because the empirical testing of predictions derived from a theory is the only ultimate arbiter for evaluating them, and that assumptions cannot be tested independently. Whatever plausibility this view has with respect to models or theories that really allow for deriving testable predictions, it is mere window dressing when the theories are not in fact tested. We agree in broad terms (but only in broad terms, see e.g., Monroe [1997]) with Green and Shapiro's (1994) assessment that rational choice theorists have had only limited success in terms of empirically tested and verified theories. These issues concerning testing are relevant to the topic of this article, but we cannot delve too deeply into them here because they are broad enough to deserve much more comprehensive treatment.
17.
In a loose sense, the institutional setting “programs for” the allocation (Jackson and Pettit 1992). However, we prefer not to limit our discussion on robustness to cases in which the possible microbehaviors constitute the explanatorily relevant macrofeature.
18.
The qualifier “almost” derives from the fact that the parties lose those who are too alienated to vote at all.
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The preference profile is, roughly speaking, a collection of all individuals' preferences, i.e., it contains one preference ordering for each individual.
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