I think it was a mistake for economists to give the word rational a different meaning than the conventional one when discussing human behavior. The common meaning of the word rational is already in the sphere of human behavior which economists are trying to address. They should have coined a new term.

1 reasonable as opposed to emotional

2 calculating as opposed to intuitive

1 and 2 are definitely not how economists use the word. The standard view is that the mental process is not our business and “rational” is a statement about behavior. This is the standard view because it is obvious that no one calculates as an agent in economic theory does when deciding what to order in a restaurant.

3 self-interested as opposed to altruistic

Economists often identify rational with self interested but the official line is clear. Ratiopnal means maximizing some objective which can include the welfare of others as arguments so rational altruism is definitely allowed by economic theory.

4 materialistic as opposed to non-materialistic

Clearly not what economists mean. Many are religious and don’t consider that irrational.

5 logically consistent as opposed to inconsistent

This is really a red herring. The reason is that it is really a clearly false statement that utility functions are time separable and not a statement of rationality at all. If given a chance for Pizza or conversation I choose Pizza then given a choice between reading a book and conversation I choose conversation then given a chance between reading another book and shoving another Pizza down my throat I read a book this just shows I had a very empty stomach and now have a full one. It does not mean I am irrational.

All of the alleged implications of rationality such as trasitivity revealed pref etc are really absurd claims about time separability. If they were what economists really mean by rationality then all economists would have long since admitted that no one is rational. Instead they are silly arguments which have nothing to do with anything and are accepted only by theorists who have lost track of the concept of consumption.

Got to admit that Amartya Sen said this long ago but it was clear to me before I heard it from him.

The whole idea of rationality as consistency requires that one may face the same choice twice. This is impossible if the choice made in the past has an effect on the objective in the present. All know that past choices do have such effects. Thus rationality means transitivity when there is no really good reason to think that non separabilities are important, that is to say, nothing.

This is the essence of my disagreement. GT is a tool, a method. It is not a theory in the same sense that RTC is a theory – a theory of human behavior. GT is a theory in a mathematical sense in the same way as say, Functional Analysis is a theory. So to the fact that ‘rationality’ gets used in confusing and ambigous ways, you gotta add the confusing and ambigous ways in which the word ‘theory’ gets used. This is why I’m objecting to conflating the two. You wanna argue about the validity/usefulness of the assumption of rationality in economics (or Social Science in general) that’s one thing. You wanna argue about the validity/usefulness of game theoretic methods in economics (and beyond) that’s another. There’s hardly any value added to the discussion by slapping these two topics together.

I don’t think there’s anything intrinsic about game theory that implies rationality. Note that your discussion about rationality above has nothing to do with game theory per se, it’s just sort of appended ad hoc to a sentence that mentions GT. Usually the strong rationality (I’d rather call it ‘sophistication’, as in the case with SPNE) that you’re objecting to is added in, but that’s because of the standard problem that … well, when you get rid of rationality you don’t have much to replace it with. This is true of most economic models, whatever the tools you’re using.

Another counter example. Games which have both ‘rational’ and ‘crazy’ or ‘random acting’ agents. The rationality assumption lies in the equilibrium concept used (or not), not in the game itself.

Also, the basic problem in modeling human behavior is that you want your model to generate non-trivial sharp predictions which have a hope of being tested against real life data (contrary to what some posters assert above). That’s not easy. Rationality by itself in fact doesn’t usually deliver, partly because in economics at least it’s a much weaker concept then most people think. So how do you get these non-trivial sharp predictions? You gotta throw in something else. In non-game-theoretic models the assumption of price taking behavior (which in fact in many cases is not strictly speaking “rational”) usually gets you there. In game theoretic models you need some kind of sophistication on the part of the agents – have them think about how the other player is going to act, whether certain strategies are credible or not etc. Or you assume that players who play strategies which result in lower payoffs get eliminated over time – evolutionary approach. Either way, you got to have something there to make it work which goes beyond rationality.

The length of my posts, I think, reflects the fact that I’m a wordy kind of guy, but also that there’s too many issues here being discussed at once, btw.

Rational choice theory is a bit vaguer – some would use this term as a synonym for neoclassical economics, but most commonly it’s used in connection with applications of neoclassical economics to politics.

Look at notions like subgame perfectness, iterated dominance and so on. These are important in game theory and rely on much more stringent rationality criteria (including common knowledge of rationality) than most microeconomics or macroeconomics (extreme forms of rational expectations macro are an exception, but no one much believes them any more).

Well. No.

1.Even if the definition given above is circular – in the sense that all behavior is rational by definition – it is not necessarily empty. As social scientists we still might want to know what exactly the function being maximized consists of. If I see you doing something, which in layman’s terms could be called ‘irrational’, I still might want to understand the reason behind the madness. I wouldn’t call you irrational or nothin’ but, I would still be interested in the peculiar kind of a utility function, the preferences, the motives, that generate a particular type of behavior.

2.Maximization itself implies an existence of a structure. Generally speaking, well ordered preferences (transitive and complete) over a given choice set. Hence to maximize something, one has to assume consistency and comparability of alternatives in the first place – the (5) above. So the standard definition of rational preferences in economics is actually quite parsimonious, at least relative to how other disciplines define rationality. In absolute terms it is not, because:

3.The “rational” in economics refers not to people but to their preferences. Preferences are rational, people … well, who knows. Which is not a trivial distinction. I might have transitive and complete preferences but that does not automatically imply I “act” on them. I think Conchis above is making the same point. And,
4.Your Mathematical Claim smacks of the whole ‘Revealed Preference Approach’, without the revealing part. Not that there’s anything wrong with that. What’s wrong with that is to equivocate transitivity with consistency within that approach or in the context of the above definition. Consistency can only be determined if you have more than one observation since it necessarily involves comparing stuff. If you want to judge only a single observed choice, welp, then it’s gonna be consistent by definition since all you can go by is that choice itself. So in a way, there’s an intertemporal aspect here – if you see me doing one thing and then another how can you know whether I’m an irrational type of guy or whether my preferences have changed in the meantime, while still being complete and transitive. That’s the basic shortcoming of both the axiomatic approach to “rationality” and the mathematical claim above. Both are static. That’s what motivated Samuelson, though it became pretty obvious that even if you paribus all the ceteris you still can’t squeeze much out if it.

I guess these last two points agree with the spirit of the post, although for completely different reasons. And what Game Theory has to do with any of it beats the hell outta me.

Yes, but it’s always brought up by people who don’t know what they’re talking about. Take evolutionary game theory. There’s no rational behavior there, simply because there’s no choice (unless someone wants to argue that a Hawk and a Dove are rational). Some people just do one thing (for whatever reason), some do another (for whatever reason), some strategies survive and some don’t. There’s still the concept of equilibrium, albeit different than standard.
Non-cooperative game theory in a way is more of an analysis of available strategies than behavior, or decision making. Of course, since economics, whatever else it may do or be, does study “choice” in most applications the “how” of decision making is as important as the “what”.

Rationality and game theory are NOT necessarily linked by some vital umbilical cord. One is an assumption, which can be relaxed or even dropped, the other simply a tool, a method. It’s like saying that if you own a car, then you can only drive it to Wichita, Kansas and nowhere else. You can drive it lots of places if you’ve got directions and you can use Game Theory in a lot of ways that don’t imply ‘rationality’.
If you want to get down on rationality in economics then get down on rationality in economics. Game Theory is just an innocent bystander in that brawl.

What is rational, here, is relative to the role that Bennett is playing. On the one hand, he is a debtor to the company, on the other hand, he is the chief executive officer of the company. In the latter position he guides the company into being acquired, in the former position he takes an ugly debt off the company’s books.

Now, it seems to me that game theory equates the individual with the role of one player at one game asserting a strategy that leads to an optimal advantage. But in reality, every game determines roles for the players, and sometimes superimposes different roles. Which is why starting off with a simple model that segregates and boxes information—as in the prisoner’s dilemma —doesn’t model the way a role is usually played. And that means that the deviations from the models of game theory are hard to model within the theory, even retrospectively.

Speaking specifically of market behavior, I’d say mostly: emotional, intuitive, self-interested, materialistic and logically consistent.

Logical consistency arises not because people are logical but because they adopt heuristics that avoid things like intransitivity.

Another way of viewing the contrast between game theory and standard microeconomics is that standard micro usually works OK as long as people are rational on average. Game theory often requires everyone to be perfectly rational.

In the third objection, though, game theory actually has something to teach us. My pithy annalysis would come from an actual game (although in this case a game against nature) blackjack. A “game-theoretic” analysis of blackjack tells you how to play the game. That can be useful even if few players play that way. The goal is certainly not a predictive model of how actual players play blackjack. Such a model might be interesting, but for very different reasons.