In the spirit of more engagement with the left rather than a mere continuation of lobbing potshots at libertarians, let me point out a disjunction between these two “recent”:http://leninology.blogspot.com/2010/07/imperialism-of-market-reason.html “posts”:http://leninology.blogspot.com/2010/08/on-class-structure-and-income.html at Lenin’s Tomb
The first, riffing on David Harvey, and what sounds to be a terrible book by Ben Fine and Dimitris Milonakis, is your standard-issue dismissal of economic notions of rationality as a kind of imperialism.
bq. One aspect of this specious conception of “reason” is the encroachment of a set of analytical principles established by marginalist economics into other fields of social science. … Underpinning this approach is three basic analytical principles. … individualism … rational self-interest … exchange. … This imperialism of “reason” (“economic imperialism”, as Fine and Milonakis dub it), has policy consequences. ‘Public choice’ economics, for example, has acquired a prized position in the academia, in think-tanks, and among policy ‘wonks’. … rightist political animus … What I’m describing as the imperialism of market “reason” is nothing other than the ability of the ruling class to naturalise and universalise its accumulation activities, to express it as an ideology, a pseudo-sociology with pseudo-explanations for social phenomena, and to use that ideology as a justification for advancing on and enclosing all areas of public life that are not commodified, not subject to the laws of accumulation.
The second, is (well justified) praise for Erik Olin Wright.
bq. In 1979, Erik Olin Wright produced a book on the relation between class and income inequality with the aim of persuading social scientists working in the field of inequality to take marxist ideas seriously. He was, to put it mildly, in the wrong place at the wrong time. But his procedure was to rigorously conceptualise class as an antagonistic relationship centred on exploitation, rather than a system of gradations, or a competitive system based on the technical division of labour, market position, or authority relations. Having done this, he proceeded to show that with this understanding of class divisions in mind, it was possible to provide a powerful explanatory framework for understanding how income inequalities are perpetuated.
The problem is, of course, that Olin Wright’s work builds heavily on just the kinds of rationality-based modeling that lenin has excoriated a few weeks previously. His intellectual project (as I understand it – and we will be talking about it in greater detail in a few months), goes in two directions. The first is to try, as lenin suggests, to persuade social scientists to take class and related concepts seriously. The second is, however, to try to get Marxists and other radicals to think more seriously about the microfoundations of their arguments. And rational choice (as Wright discusses in an “interview”:http://www.ssc.wisc.edu/~wright/Polyc-int.PDF that everyone should read, especially those interested in the forthcoming seminar on his new book), is one very useful way for constructing theories about these microfoundations.
bq. Rational choice models are models of human action and interaction in which the actors are assumed to consciously make choices in which they systematically take into account the alternative pay-offs (the “costs and benefits”) of different choices, and make their choices on this basis. … Nothing in these models depends upon concepts of class relations, modes of production, or any of the other ingredients of Marxism. … his does not imply, however, that rational choice models are inappropriate for Marxist questions. As long as one believes that in some circumstances human agents make choices consciously and that they at least sometimes attempt to rationally evaluate the costs and benefits of alternative courses of action, the rational choice models are potentially useful. … even within classical Marxism there were many problems in which Marxists effectively deployed rational choice models, although without the formal apparatus of such models. … The basic point here, then, is this: rational choice models and game theory are perfectly usable within Marxist analysis and have, at least implicitly, been present from the beginning of the Marxist tradition. … the evidence is pretty strong that some of the significant advances in the Marxist tradition in recent years have been aided by the use of these tools. I would point people to the various important work of John Roemer on exploitation, Adam Przeworski’s work on the class basis of social democracy, Sam Bowles and Herb Gintis’s work on contested exchange, and my work on class compromise.
In his first post, lenin is perpetuating a pretty commonly held myth among people on the left – that there is something inherently right-wing about rational choice microfoundations. In his post, if you read it carefully, there is an unexplained jump from the description of microfoundations to more specific claims about public choice economics. Here, lenin is right that public choice economics has a fundamental “right-wing bias”:https://crookedtimber.org/2006/11/15/economics-and-ideology/ but this _does not spring_ from the microfoundations themselves, but from the specific features of the models that public choice economists use. “Exchange” need not take place on equal terms after all – and game theory provides one useful way in which one can capture the likely sources of inequality in exchange relations. This “paper”:http://tuvalu.santafe.edu/%7Ebowles/PersistentInst.pdf by Sam Bowles and Suresh Naidu, for example, uses evolutionary game theory to show how persistently unequal (and exploitative) institutions may arise as a result of repeated contact between actors with unequal bargaining power (Jack Knight’s book, “Institutions and Social Conflict”:http://www.amazon.com/gp/product/0521421896?ie=UTF8&tag=henryfarrell-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0521421896 makes a similar argument from mixed-motive coordination games.
Rational choice theory has its flaws, but it should be a key part of any leftist’s conceptual vocabulary. First, it forces leftists to ask themselves some awkward questions. If you want to make arguments about class solidarity, the power of social democratic ‘majorities’ to win elections where the working class is not actually in the majority etc, you need to think carefully about the microfoundations of these arguments. Rational choice lets you do this. It sometimes comes up with the wrong answers (there are many aspects of social life that it models badly, and that are better modeled using other assumptions) – but it helps serve as a useful mental astringent to the persistent tendency of the left to make claims that are more inspired by wishful thinking than any deep understanding of the mechanisms of social coordination. Second, it allows leftists to understand how many of the arguments made for the benefits of deregulation etc are intellectually extremely weak, and rely on the systematic obfuscation of many of the implications of rational choice theory for the interdependence of choice, for the ways in which self-interested actors can exploit asymmetries of power and information etc. “Tom Slee’s book”:https://crookedtimber.org/2010/04/27/the-new-new-left-book-club/ on this is the best and most lucidly argued introduction to the ways in which game theory provides both insights and a political rationale for the left that I know. _Everyone_ (including those someones who already have some grounding in this debate) should read it.That leftists so frequently make blanket condemnations of ‘rational choice,’ ‘market reason’ and the like suggests to me that they don’t really understand the flimsiness of the relationship between the ideology and its theoretical priors, and the ways they themselves can use these priors to improve their arguments.
{ 86 comments }
JamieSW 08.30.10 at 4:58 pm
fyi: you linked to the same post of lenin’s twice. The second one is here.
Hidari 08.30.10 at 5:07 pm
‘Rational choice theory’.
OK: here’s a question for you. I like to get the simple, dumb questions out of the way first.
What, precisely, does ‘rational’ mean in the phrase ‘rational choice theory’?
(Some people may suspect, entirely correctly, that I have some follow up questions as well, but I’d just like to get this particular ball rolling first before I first stop it and then start hitting it with a hammer).
Tom Hurka 08.30.10 at 5:34 pm
Another simple question:
The first quote from Lenin assumes that rational choice is always concerned with “rational self-interest,” i.e. people are always egoistically motivated. The long quote from Wright appears to make no such assumption, i.e. it talks only of “costs and benefits” without assuming that those have to be costs and benefits to the self.
So is rational choice theory as you understand it necessarily egoistic? Or can I make rational choices by calculating costs and benefits for other people, such as my children, whom I care about for their own sake and not just as means to my own good?
(If the theory isn’t egoistic, then Lenin has misdescribed it. If it is, then it’s still deeply problematic.)
Lemuel Pitkin 08.30.10 at 5:35 pm
This is great — just what I’ve been hoping for. I’m especially pleased by the plug for my buddy Suresh. He’s got a whole series of papers doing just what you’re talking about here — showing how force, coercion and unequal power relations can operate in formally equal market contexts. Of my generation of economics grad students, he’s about the only one I know who has made it to the top tier without compromising any major principles. (Admittedly orthodoxy is less strictly enforced in micro than macro.)
On the specific argument here:
1. How deep is your disagreement with the LT guys, really? You agree with them that “there are many aspects of social life that [rational choice] models badly.” And I assume you agree that a fairly wide swathe of the economics profession does not agree, but thinks the standard microeconomic toolkit can be applied to any human activity. (I vividly remember the first day of the one economics course I took as an undergrad, which began, “Economics is the science of how human beings make choices.”) I’d think you’d agree that this can fairly be labeled imperialism, and certainly that it needs to be argued against. (You probably would not agree with LT, while I probably would, that “the imperialism of market reason is nothing other than the ability of the ruling class to naturalise and universalise its accumulation activities,” but that’s a second-order question in this context.)
2. Once we’ve agree that rational maximizing is a useful way of thinking about some human activities but not about others, how do we sort out which is which? There is one case where it clearly is appropriate: profit-maximizing businesses. What distinguishes this case is not just the general rationality of business organization. It’s that we can identify and measure the specific quantity being maximized. And even more important, we can identify a clear sociological basis for maximization: businesses with greater profits survive and grow, businesses with lower profits shrink or fail. So over time, no matter what specifically is happening within the firm, those firms that behave as if they were rational profit-maximizers will make up an ever greater share of the economy. But this mechanism is specific to competitive market economies. There is no equivalent process by which individuals who gain less “utility” will be progressively displaced by those who gain more.
Contrary to Wright, it is simply not the case that the assumption that agents “consciously make choices in which they systematically take into account the alternative pay-offs (the “costs and benefitsâ€) of different choices” is equivalent tot he assumption of maximization; you also need to show that those various payoffs can be expressed in terms of a single uniform metric. Nor is it the case that rational maximization is a broadly applicable empirical first approximation. Here is a good recent paper by Steven Fazzari arguing (IMO quite persuasively) that rational maximizing is not a useful framework for understanding household consumption. It’s even less likely to be so as we move into the realms of politics and social life. The general point — which is almost a cliche in heterodoxy these days — is that micro needs macrofoundations just as much as the reverse. Yes, there are important areas of human life (especially under capitalism) that can be usefully approximated by rational agents maximizing some objective function; but this can never be simply assumed, you need an account of the specific sociological process that brings it about.
Sandwichman 08.30.10 at 5:36 pm
One has to distinguish between the utility (perhaps necessity) of rational choice assumptions for the purpose of model building and the delusion that those models encompass the entire range of actual motivation and behavior. The ideological use of rational choice relies on the blurring of those distinctions. That blurring of distinctions could well be described as an “encroachment” or “imperialism” of reason. Relying solely on the quotes supplied above, I don’t see a necessary contradiction between opposing such an encroachment of reason while at the same time endorsing the strategic (and presumably delimited) use of models that employ microfoundational assumptions of rationality.
I’m not saying people are this way, but if they were this way — and we may have to assume they are this way if we hope to predict behavior and outcomes — then it follows that they will do x under y circumstances. But let us not become deluded by predictions founded on questionable assumptions.
y81 08.30.10 at 5:37 pm
“Rational” in “rational choice theory” generally means “calculated best to advance the interest of the individual making the choice (after allowance for uncertainty, time value of money, etc.).”
Tom 08.30.10 at 5:42 pm
Does rational mean what y81 says, or does it also add the idea that interests are advanced by optimizing under exogenous preferences?
Lemuel Pitkin 08.30.10 at 5:52 pm
“Rational†in “rational choice theory†generally means “calculated best to advance the interest of the individual making the choice
No, it’s broader than that. It means we can write an objective function such that people’s behavior can be described as maximizing the value of that function. Of course this is trivially true if we simply define the objective as the observed behavior. The usefulness of the rationality assumption depends on the objective function being significantly simpler than naive description. This is a purely formal condition; it does not depend on any positive assumption, such as self-interestedness.
The main alternative to maximization as a tool for describing behavior is norms or, more generally, rules. See for instance this argument by George Akerlof that a wide range of cases that economists typically analyze in terms of utility maximization would be better approached in terms of norms. (That this is his Nobel acceptance speech suggests that the critique of rational maximization extends a bit beyond Marxists.)
Jed Harris 08.30.10 at 5:54 pm
How does rational choice deal with modes of production like open source (source of much of the software we use today) and open content (source of e.g. Wikipedia and YouTube)? These are clearly economic processes, in the sense that they displace for profit production. But the institutional framework is designed so that the results are not appropriable — thus there’s no exchange in any normal sense.
There are lot of other examples: Most art, music, blogging, local theater, etc. Even arguably most scientific publishing where appropriability is obviously not necessary or welfare enhancing.
If rational choice can handle these processes convincingly, then I’d be inclined to take it seriously as an analytical framework. However if it doesn’t work for them, then I think it is probably a bad tool for any purpose, because most actual human activity — including normal business in “market oriented” societies — relies heavily on this sort of voluntary coordination.
The papers I’ve seen that try to apply rational choice to these processes hypothesize they are driven by unlikely and empirically unsupported motivations (like enhancing future earnings). But maybe I’ve missed some good work, and if so I’d be delighted to hear about it.
Lemuel Pitkin 08.30.10 at 5:59 pm
If rational choice can handle these processes convincingly, then I’d be inclined to take it seriously as an analytical framework. However if it doesn’t work for them, then I think it is probably a bad tool for any purpose, because most actual human activity—including normal business in “market oriented†societies—relies heavily on this sort of voluntary coordination.
This is going a little too far, I think. It’s perfectly possible to argue that while the existence of capitalist firms depends on a substrate of norm-based behavior, those firms are genuinely profit-maximizing in their market interactions.
Hidari 08.30.10 at 6:04 pm
#6,7,8
OK, right.
Now, give me an example of a behaviour that could not, somehow, be described as ‘rational’ given that human beings have multiple and conflicting interests, which change over time, and that, moreover, the word (and concept) ‘interest’ are inferred from behaviour and discourse by other (motivated) individuals in specific contexts: in other words, that this inference is not, in any sense, ‘disinterested’ (pun intended).
My key point here is that it is self-evidently true that ‘“there are many aspects of social life that [rational choice] models badly.‒
But which are the aspects of social life that it models well, in a predictive sense, or, post hoc, in a meaningful on-tautological sense? (i.e. I know this specific behaviour was rational because I start off with the assumption that the guy doing it is rational, and he did it, therefore……)
Lemuel Pitkin 08.30.10 at 6:10 pm
I should say — and then I’ll shut up for a while — that there is a narrower definition of rationality that is sometimes used. This starts by saying that individual behavior be characterized as maximizing an objective function, as above, and then adds that the only arguments in that function are the basket of goods consumed by that individual (including appropriately discounted future consumption, etc.) Or even narrower, the basket of market goods.
The reason to use this narrower definition is to argue that not only can individuals be described as maximizing utility, but that they will collectively do so under the institutions of market liberalism. If preferences do not take this form, we can still speak of utility maximizing, but we can no longer claim that a liberal market economy is Pareto optimal. This is the point of Amartya Sen’s famous essay “The Impossibility of a Paretian Liberal,” which John Holbo misunderstood at such length last year.
Lemuel Pitkin 08.30.10 at 6:11 pm
which are the aspects of social life that it models well, in a predictive sense
Business decisions of capitalist firms in a competitive market.
Nick 08.30.10 at 6:21 pm
“There are lot of other examples: Most art, music, blogging, local theater, etc. Even arguably most scientific publishing where appropriability is obviously not necessary or welfare enhancing.
If rational choice can handle these processes convincingly, then I’d be inclined to take it seriously as an analytical framework. However if it doesn’t work for them, then I think it is probably a bad tool for any purpose, because most actual human activity—including normal business in “market oriented†societies—relies heavily on this sort of voluntary coordination.”
My understanding of rational choice is that it can model those sort of activities, but the fact that it can do, renders it almost too flexible to be especially predictive in many areas. The important aspect of ‘rational’ is not that people’s preferences are narrowly selfish (e.g. personal wealth maximising) but that they are ‘given’. In some way fixed in the model, like point scores in a game. So your ‘pay-off’ might include a whole bunch of benefits that don’t accrue to you personally but lots of other people that you are interested in doing well (which could include a whole community).
I think this restricts rational choice to arenas where desirable outcomes are pre-set. So a competitive/co-operative market place could be one. A competitive election might be another (where your goal is to beat your political opponent). Any situation of open-ended or changing goals are not going to have predictable rational activity taking place.
Kieran Healy 08.30.10 at 6:31 pm
‘Public choice’ economics, for example, has acquired a prized position in the academia, in think-tanks, and among policy ‘wonks’. … rightist political animus …
Public Choice and Classical Marxism have very similar theories of the state, and very similar predictions about the actions of those who seek to control it.
Jed Harris 08.30.10 at 6:32 pm
Re Lemuel Pitkin: “It’s perfectly possible to argue that while the existence of capitalist firms depends on a substrate of norm-based behavior, those firms are genuinely profit-maximizing in their market interactions.”
If individuals “rationally maximized” their individual advantage in most employment situations no company would survive. It doesn’t help to say thing work because of “norm-based” behavior, because then we are just making up norms (or more likely claiming there “must be” norms) that make things work. Norms need micro-foundations too.
The history of Wikipedia (for example) shows that norms crystallize out of interactions, and evolve subject to selective pressures in any given social environment. Something like rational choice has to explain how norms are maintained, not the other way around.
Lemuel Pitkin 08.30.10 at 6:33 pm
If individuals “rationally maximized†their individual advantage in most employment situations no company would survive.
Of course. But this does not preclude the firm as a whole acting to maximize profits. But I’m repeating myself.
Hidari 08.30.10 at 6:42 pm
‘But this does not preclude the firm as a whole acting to maximize profits’.
Now I don’t have the relevant empirical data to hand (so everything I say from now on should be taken with the relevant pinch of salt), but it’s not actually clear to me that every firm does try to ‘maximise’ profits, that every firm should, or that every firm can. Moreover, the statement is fairly vapid (a truism) unless one asks: ‘over what time period’?.
After all, it’s one of the key criticisms of the so-called ‘Anglo-Saxon’ system of capitalism that firms try ‘too hard’ to maximise short-term profits over long term sustainable growth. Therefore, to maximise profits endangers the long term security of the firm. Therefore the rational decision to maximise profits is irrational.
But this is the problem with the whole concept. Almost every human action (or action by a firm for that matter) can be described ex post facto as being either rational or irrational, depending on one’s own subjective definition of what rationality is conceptualised to be.
Hidari 08.30.10 at 6:44 pm
#13
‘Business decisions of capitalist firms in a competitive market.’
Define ‘competitive’. In a non-tautologous way.
Jed Harris 08.30.10 at 6:46 pm
Re Nick: I agree that the fixed payoff assumption is unrealistic and problematic in a larger historical context. But I don’t think it necessarily leads to pathological results for local, “steady state” models. For example, this assumption should be OK if we are modeling the continued participation of a contributor in a given open source or open content project.
I don’t see the flexibility you describe in actual rational choice literature. Furthermore I think these models can’t be solved with current techniques if we permit “other regarding” preferences. If people could write down and solve interesting models that seemed to fit actual peer production (which is captured in immense detail by online archives) then we’d have a much better basis for judging how well rational choice models fit “non-market” production.
I’d be very happy to see references that show people can actually use rational choice to model peer production etc. But someone needs to actually show me, not just say it could be done.
Jed Harris 08.30.10 at 6:56 pm
Re Lemuel Pitkin: “But this does not preclude the firm as a whole acting to maximize profits.”
OK, I’ll agree for the sake of argument. (I don’t think viable firms actually do use this as their objective function, but it doesn’t matter.)
But to say anything interesting about the underlying social issues — for example to “conceptualise class as an antagonistic relationship centred on exploitation” (Henry’s quote from Erik Olin Wright) — we can’t just focus on firm level competitive behavior, we have to be able to model the social relationships of production.
Furthermore, note that (for example) open source projects are directly competing with putatively profit maximizing firms (such as Microsoft) and winning in important domains. So even in the case of strictly “firm level” behavior, the modeling breaks down unless we can extend it to cover non-profit-maximizing actors.
Henri Vieuxtemps 08.30.10 at 7:02 pm
I think it’s quite true that the ruling class in every society will try to rationalize (naturalize, universalize) its activities and redefine the concept of “reason”. It can be defined as self-interest, or community-interest, or ethnic-interest, or following traditions or religious dogma (rule-based), or whatever.
You need the context. Yes, in a liberal capitalist society it probably is egoistic self-interest.
Lemuel Pitkin 08.30.10 at 7:08 pm
it’s not actually clear to me that every firm does try to ‘maximise’ profits, that every firm should, or that every firm can.
Doesn’t matter if they try to, should or can. As long as the capital available to a firm at time t depends on its profits at time t-1, firms in general will behave as if they are seeking to maximize profits. It’s exactly the same as Darwinian selection.
Of course there are a thousand caveats in practice. Nonetheless, profit maximization is the unavoidable starting point for understanding the behavior of firms under capitalism. In that sense, I am completely in agreement with John Q.
Nick 08.30.10 at 7:13 pm
Surely it depends where the firm is getting its capital from? If its a ‘non-profit’ or some sort of ‘social entereprise’ (however defined by investors), it might be loaned capital below the the standard rate of return. I suppose, under some sort of ‘ideal-type’ capitalism, such capital wouldn’t be available. But such a system has not and perhaps could not ever exist.
Hidari 08.30.10 at 7:30 pm
‘Of course there are a thousand caveats in practice. Nonetheless, profit maximization is the unavoidable starting point for understanding the behavior of firms under capitalism’.
Right, I’m now going to completely backtrack and agree with you, as long as a very large amount of stress is placed on that first sentence (in other words, that this could only ever be true in a highly (and unrealistically) abstract view of the firm: in reality, things are rather different).
But I would also like to kinda backtrack over my basic point. It is of course, false that people are rational or ever could be, that people are self-interested utility maximisers and so forth.
But it is sorta, kinda true that firms can be described in this way. And that leads to all sorts of interesting consequences.
To go back to where we started from: I think Henry is wrong to criticise the first of the Lenin articles linked to. If Lenin turns up maybe he can clarify. But I don’t think that Lenin is denying that firms/businesses/the ‘capitalist class’ act in their own self-interest. Indeed, I think he would insist on it. What Lenin is decrying is two things:
a: the association of this self-interest (described, ex post facto, as ‘rational’) with virtue, and
b: the fact that this dehistoricised, decontexutalised, version of ‘rationality’, which is accurate to a certain extent as a description of the behaviour of
firms, is then, so to speak, projected onto the individuals within those firms, and then onto everyone: this is the ‘imperialism’ which Lenin’s original post is about.
The problem is that we in the West are all heirs to Plato and Socrates (and others in the Rationalist tradition) and we find it very difficult to get our heads round the idea that to be rational is not necessarily to be Good in an ethical and so, given these connotations, to describe an action is rational is by definition to give it a positive sounding ‘spin’.
But of course (and I should really have pointed this out earlier) sometimes firms do behave in a classically ‘rational’ fashion. For example, in terms of the recall of the Ford Pinto.
Hidari 08.30.10 at 7:31 pm
‘we find it very difficult to get our heads round the idea that to be rational is not necessarily to be Good in an ethical’
This should say ‘we find it very difficult to get our heads round the idea that to be rational is not necessarily to be Good in an ethical sense’.
Lemuel Pitkin 08.30.10 at 7:37 pm
It is of course, false that people are rational or ever could be, that people are self-interested utility maximisers and so forth. But it is sorta, kinda true that firms can be described in this way. … this dehistoricised, decontexutalised, version of ‘rationality’, which is accurate to a certain extent as a description of the behaviour of
firms, is then, so to speak, projected onto the individuals within those firms, and then onto everyone: this is the ‘imperialism’ which Lenin’s original post is about.
Exactly.
Except “sorta kinda” is still a little weak for me. It’s not just that capitalist firms behave sort of like idealized profit maximizers, it’s that there are very strong sociological forces that prevent them from deviating too far from the ideal.
(Also, thanks for pointing out that the OP is by Henry. Id’ thought it was John Q.)
chris 08.30.10 at 7:41 pm
One has to distinguish between the utility (perhaps necessity) of rational choice assumptions for the purpose of model building and the delusion that those models encompass the entire range of actual motivation and behavior. The ideological use of rational choice relies on the blurring of those distinctions. That blurring of distinctions could well be described as an “encroachment†or “imperialism†of reason.
I dispute such a label. An ideology that assumes that humans behave rationally in circumstances in which the available evidence shows that humans behave irrationally is not, itself, rational. You can’t build an empire *of reason* by throwing away your reason. At most, you get an empire of cargo cult logic — reason as mascot, not as organizing principle.
Economics will never get out of the toy universes of its own devising until economists accept that theirs is a *descriptive* science and observed facts trump any amount of armchair speculation or proofs extended beyond the validity of their hypotheses.
Lemuel Pitkin 08.30.10 at 7:45 pm
One other point, and then I really will shut up. IMO, perhaps the most important caveat to the claim that capitalist firms behave as profit maximizers is the role of finance. In a world where all profits were retained and all investment was financed from retained earnings — which was approximately the case for the first century or so of industrial capitalism — the analogy between capitalist and Darwinian competition would be fairly exact. But in the world of contemporary capitalism, where most profits flow through the financial system, things are more complex. The specific institutional structure of finance now determines both how tight the profit maximization constraint is and, as Hidari says above, the time horizon over which it binds.
Much of the most important work in contemporary Marxist economics is addressed to exactly this question.
Substance McGravitas 08.30.10 at 7:47 pm
Why?
Jed Harris 08.30.10 at 7:51 pm
The question of how accurate it is to model firms as “rational” is pretty much a red herring in this discussion. It doesn’t help us to understand whether or not rational choice can usefully support alternatives to neo-classical social analyses.
Also, I agree with Lemuel Pitkin’s implicit point that the actual behavior of firms is ultimately constrained by a sort of evolutionary process. However in practice availability of capital isn’t the primary selective pressure for lots of firms. Ability to hire the right people, maintain adequate control over their brand image, maintain their internal culture / controls, etc. may be much more critical. Lots of companies generate more capital internally than they need.
One extreme example of this is web startups and peer production projects which often require no outside capital at all, but can drive a lot of economic activity and sometimes generate a lot of money.
chris 08.30.10 at 7:54 pm
we find it very difficult to get our heads round the idea that to be rational is not necessarily to be Good in an ethical sense
I don’t see why. If you want to be good, rationality might help you be more effective at being good (assuming your system of ethics considers effectiveness important, otherwise you probably won’t care). But if you want to be selfish, or oppressive, or pointlessly destructive, rationality will help you be more effective at that too. The whole question of rationality in pursuing your goals is completely separate from the ethical standing of the goals themselves, and that’s even before you start to get into ends and means questions.
John Quiggin 08.30.10 at 7:56 pm
I have a lot of sympathy with the points raised by Hidari. Public choice normally assumes egoism, and this is not empirically justified in general, although markets induce and favor egoistic rationality. A model with some altruism works better
http://ideas.repec.org/a/bla/ecorec/v63y1987i180p10-21.html
On the emptiness of rationality as a concept
http://johnquiggin.com/index.php/archives/2003/06/11/word-for-wednesday-rational-no-definition-offered/
I also agree with Kieran @15, as stated here
http://johnquiggin.com/index.php/archives/2003/07/23/public-choice-marxism/
If I get some more free time, I’ll try to work this up into a proper post
Hidari 08.30.10 at 8:02 pm
‘It’s not just that capitalist firms behave sort of like idealized profit maximizers, it’s that there are very strong sociological forces that prevent them from deviating too far from the ideal.’
In terms of major transnational corporations (especially those based in the ‘Anglo-Saxon world’), you are probably right about this.
Aulus Gellius 08.30.10 at 8:09 pm
Hidari 08.30.10 at 8:25 pm
#32: I don’t see why either. In fact, like you, I find the whole idea risible.
But as I said, Socrates thought otherwise, and a lot of people in the West agree with him, not us.
Henry 08.30.10 at 10:23 pm
In sort-of-consecutive order
JamieSW – thanks. Fixed.
Hidari – my definition more or less follows Lemuel’s below.
Tom Hurka – I don’t think that rational choice necessarily implies this at all. But I actually think that models which do imply it are more _useful_ for my particular purposes, because they have the potential of conflict of interest baked into the cake as it were. This is what I see as the most useful aspect of rational choice for lefties – that it forces you to take cooperation not as a given stemming from class solidarity, group identity or whatever, but as the product of negotiating a variety of interests, not all of which are easily reconciled with each other.
Jed – I think that rational choice can explain a lot more about these modes of social production than you might think – e.g. the role of individual interest in developing a reputation as a nifty programmer, the heavy support given to FLOSS by businesses with a direct interest such as IBM etc. But it can’t explain everything. Steve Weber’s book on open source and public goods is useful here.
Lemuel – I would see rational choice as _a_ science of how human beings make choices (far from the only one). So my problem with rc is not that it extends itself outside of the context of market choices but rather that its practitioners often make heroic assumptions, ignore inconvenient aspects of their own theory, and tend completely to discount its limitations (incredible assumptions about the cognitive abilities of human beings and their knowledge of social situations etc). I think that Wright’s arguments are closer to the mark – it provides an interesting understanding of choice making in interdependent situations. The claim that payoffs have to be comparable seems to me not to be that awful a limitation – I am not convinced that there are that many incommensurables in practical life (or – to put it another way – we very frequently have to choose across apparent incommensurables). NB also that this suggests that non-cooperative game theory rather than e.g. perfect competition models are more likely to be fruitful of insight.
My not particularly scientific summation for students of the benefits and drawbacks of rational choice is that it is like a microwave oven. You can cook pretty well everything in a microwave oven – as long as you are prepared to accept that sometimes it will come out tasting pretty awful. That said, some things that you would expect to come out badly, come out quite well (I _swear_ by microwaving corn-on-the-cob as an alternative to boiling and grilling). So while you shouldn’t strictly delimit the use of rc to certain areas (because it may surprise you), you shouldn’t advocate it as a Key to All Mythologies either.
This said – I disagree with the implicit claim of a number of commenters here on the claim that egoistic self-interest is historically largely a product of capitalism. While I think its level and form of expression can surely _vary_ with social structure, it has been a reasonable constant across human epochs. You can explain rather a lot e.g. about feudal structures by looking to the self interest and relative bargaining power of nobles and peasants.
John – I agree with you on broad principle, but would contend that in the absence of a really good theory of when-altruism and when-egoism, lefties are better off, at least for some purposes, sticking with an assumption of rational egoism. The reason being that otherwise the temptation to smuggle in overly optimistic assumptions that _of course_ the workers will show solidarity etc will prove overwhelming to all but the truly stout of spirit. Or – in other words – I think that the best general attitude for the left is a broad optimism that better and more general forms of social organization are possible, combined with a specific and stringent skepticism regarding the particulars of proposed political and social strategies for bettering the situation (not to say that all such strategies will have to _satisfy_ e.g. the possibility condition of a hard individual self-interest constraint, but that strategies which do not need to really make a convincing and specific claim for alternative mechanisms, rather than wave their hands around in the air with claims about human beings’ tendencies towards altruism or collective solidarity). And much of the classical literature on the left (including many books that I love dearly) have an unreasonably large amount of such handwaving …
Lemuel Pitkin 08.31.10 at 12:27 am
in practice availability of capital isn’t the primary selective pressure for lots of firms. Ability to hire the right people, maintain adequate control over their brand image, maintain their internal culture / controls, etc. may be much more critical. Lots of companies generate more capital internally than they need.
You raise some very interesting questions. To the extent this is true — and it is certainly true to some extent — these firms are going to be subject to something quite other than the normal logic of capitalism. Matter of fact, one of my old UMass colleagues developed exactly this idea in his dissertation, arguing that Silicon Valley startups could be seen as a nascent form of socialist organization of production.
Personally I would not go that far. While the conditions you describe are fairly widespread in some industries in some periods, there are strong pressures that tend to subject them, eventually, to the logic of profit maximization. In most cases, tech companies do acquire outside financial claimants who may tolerate the prioritization of internal culture, etc. in good times, but will become more importunate if their returns are in doubt. In some cases, the situation you’re describing might continue for as long as the founders remain active. But the succession issue almost always resolves itself in outsider ownership and financial criteria for management. Given Anglo-American capitalism’s lack of either the business dynasties of Mediterranean Europe or the shopfloor-to-management career tracks and universal banks of Germany, while there may be alternatives to production for profit at the firm or even, exceptionally, at the industry level, there really are none at the level of society as a whole.
I freely admit, tho, that this is a very tricky set of questions, that are best approached with an abundance of concrete empirical study and theoretical flexibility.
Matt 08.31.10 at 12:45 am
You can explain rather a lot e.g. about feudal structures by looking to the self interest and relative bargaining power of nobles and peasants.
And not just those, either. Though he didn’t quite put them in rational choice terms, Alec Nove did an excellent job of showing how you could use this sort of reasoning to make sense of lots of behavior in the Soviet Union that was otherwise quite baffling- why, given the small size of Soviet apartments, people tended to have (and still had, many years later, when I lived in Russia) large and heavy furniture, for example. RC isn’t a universal tool, but it’s often quite a useful one, in lots of different situations.
Metamorf 08.31.10 at 1:30 am
Two quick points:
a) “Rational choice”, because of its agnosticism regarding motive (or, in game theory, the nature of the payoff), should really just be interpreted as purposeful behavior. It doesn’t necessarily imply selfish behavior, and can be used to model altruistic behavior as well. It can even be used for unconscious behavior when that’s governed by instincts, drives, etc. All that it doesn’t handle is random behavior.
And, b) “Unequal” does not equal or imply “exploitative”.
Lemuel Pitkin 08.31.10 at 1:45 am
“Rational choiceâ€, because of its agnosticism regarding motive (or, in game theory, the nature of the payoff), should really just be interpreted as purposeful behavior.
Yes.
All that it doesn’t handle is random behavior.
No.
It also doesn’t handle rules-governed behavior. Which is most (almost all?) behavior.
Metamorf 08.31.10 at 2:03 am
It also doesn’t handle rules-governed behavior. Which is most (almost all?) behavior.
“Rules-governed behavior” isn’t purposeful?
Lemuel Pitkin 08.31.10 at 2:05 am
“Rules-governed behavior†isn’t purposeful?
That is correct.
Metamorf 08.31.10 at 2:20 am
Ah, you’re talking about robots. I see.
mcd 08.31.10 at 3:22 am
To what extent people are rational ( use any definition you please) surely depends on the consequences of being rational. If it makes no difference at all whether you’re rational, I see no strong reason for people to be. There’s lots of competing choices like fun. If every slight deviation from rationality is sanctioned (say CEOs who have outside investors to please), there may well be quite a lot of it.
I agree that rule-governed behavior is an alternative to rational choice, because there’s no choice (the rules say what you do), whether it’s rational or not.
Indeed, rationality may negate the idea of choice, if rationality says there’s only one thing you can do in some situation.
Metamorf 08.31.10 at 3:36 am
Well, another point then: it’s not going to be helpful to get mired in the old free will vs. determinism issue. Rules, norms, etc. aren’t the same as deterministic causes, and they can easily be integrated into any “rational choice model” by simply including rules as part of the motivation or purpose behind the choice. That people don’t always follow rules is no different than noting that rational choice often has to deal with multiple, sometimes conflicting, options.
Henri Vieuxtemps 08.31.10 at 6:12 am
“Rational choice†… should really just be interpreted as purposeful behavior.
Now you’re completely into descriptive part of this thing, but that is not very interesting. When I knock on wood to avoid jinxing myself, that’s certainly purposeful, but is it rational?
I say: “rational†is a pattern of behavior that leads to success. Now all you need is a good definition of “success”.
Alex Gregory 08.31.10 at 7:47 am
Something that hasn’t been mentioned, but I’d like to hear more about: I take it that rational choice models behaviour by appeal to our preferences (or values, whatever). But isn’t any complete model of behaviour going to also need to model how those preferences change? It’s not as though this is some minor issue: Our preferences change all of the time, largely in response to what’s going on in the world around us, including say, advertising, the behaviour of others around us, and the opportunities available to us. Or is there some clever rational choice way of accounting for this?
Robert 08.31.10 at 7:50 am
Has anybody read Donald P. Green and Ian Shapiro’s Pathologies of Rational Choice Theory: A Critique of Applications in Political Science (Yale University Press, 1994)?
I don’t see any contradiction between critically engaging with Analytical Marxism and decrying the extension of Rational Choice Theory to all domains of human behavior. Maybe “Lenin”‘s praise for Wright (“powerful explanatory framework”) is overdone, although I’d have to look at the nuts and bolts of Wright’s argument to see if RCT is being confined to an arena where RCT might be applicable. I could see myself saying something like that about John Roemer.
Z 08.31.10 at 8:02 am
I disagree with the implicit claim of a number of commenters here on the claim that egoistic self-interest is historically largely a product of capitalism. While I think its level and form of expression can surely vary with social structure, it has been a reasonable constant across human epochs. You can explain rather a lot e.g. about feudal structures by looking to the self interest and relative bargaining power of nobles and peasants.
Egoistic self-interest is surely a reasonable constant; but its expression in the form of accumulation of monetary capital is a distinctive trait that can be linked convincingly (or so I think at least) to certain agents with specific sociological positions within specific societies (for instance graduates of the recently founded business administration schools in the late 70s France). To take your example, I won’t dispute that an analysis of the feudal society through bargaining power can be useful, but it seems to me it will be almost powerless to explain e.g the economic role of the Church in the circulation of goods (and more significantly land) or the respective evolution of land-owning patterns in Germany and France (and this is the kind of understanding you want if you wish to understand medieval Europe).
But I gather that your argument is less academy than policy-oriented: is it a fair summary of your position to say that irrespective of the truth-value of the statement “egoistic rational choice models are accurate models of the human behavior”, people on the left should learn to master that kind of arguments in the crafting of their policies?
One quick last word: like many commenters, I am very glad to read more engagement with the left on CT.
Hidari 08.31.10 at 9:06 am
‘I disagree with the implicit claim of a number of commenters here on the claim that egoistic self-interest is historically largely a product of capitalism. While I think its level and form of expression can surely vary with social structure, it has been a reasonable constant across human epochs. You can explain rather a lot e.g. about feudal structures by looking to the self interest and relative bargaining power of nobles and peasants’.
Could I just say that this indicates something that I (and others) touched on earlier, but which I can guarantee we will see a lot more of, assuming this thread goes on? Which is the unacknowledged switch between macro and micro levels of analysis.
As I pointed out earlier, it is simply false that ‘people’ (i.e. ordinary, individual people) are wholly egoistic and self-interested in any political system (which is not to deny that some people are bastards or that capitalism doesn’t encourage egoistic tendences, insofar as they exist). But, of course, you can describe entities (in the case of capitalism, corporations) in this way, which produces interesting models.
In the same way, I’m not denying that classes of people (‘nobles’, ‘peasants’) can be described as if they were self-interested*. Indeed, this is the whole point of certain interpretations of Marxism.
I doubt, moreover, that Marx would have denied that self-interest and egoism existed in the 13th century. His whole point in the Communist Manifesto was not that there was no exploitation in the medieval period, but more simply that back then it was all dolled up in fancier sounding rhetoric than in our own day.
*One might note in passing that we have drifted a long way from what most people understand by the word ‘rational’ by using this definition.
Zamfir 08.31.10 at 9:11 am
If every slight deviation from rationality is sanctioned (say CEOs who have outside investors to please), there may well be quite a lot of it.
But in practice, staying on as CEO as much more complex than that. Having good social ties with crucial investors can be important, having good ties within the firm makes you harder to dislodge too. Then there is marketing and branding, which works towards investors too: projecting an image of success and future possibilities matters a lot, at least as much as actual performance.
And that is assuming CEOs have a clear goal to stay on as CEO, or soemthing else simple like “being paid a lot”. But many CEOs do care about their business in a more complicated sense, as something they helped create and are responsible for. Many also already have loads of cash, so they value their work mainly because it makes thm important people. With the money at best a measure of their importance, not the thing itself.
Which means they might prefer staying on at an important firm for a lower salary, or to work for a company where they get more control relative to other directors. They might have personal preferences to work with certain people, and not with others.
Brett Bellmore 08.31.10 at 11:00 am
“Public Choice and Classical Marxism have very similar theories of the state, and very similar predictions about the actions of those who seek to control it.”
Really? Classical Marxism predicts that those who take over the state in the name of the proletariat will rule for their own benefit? Huh, I had no idea classical Marxism was so pessimistic about the prospects of actually implementing itself.
Louis Proyect 08.31.10 at 12:37 pm
Rational choice theory provides the underpinning for just about every analytical Marxist I have read, including Wright. Here’s my take on John Roemer’s use of the theory:
When we turn to the specifics of Roemer’s methodology, we become strangers in a strange land indeed. Those of us who have read Eduardo Galeano’s “Open Veins of Latin America”, Walter Rodney’s “How Europe Underdeveloped Africa” or Engels on the working-class of Manchester in 1840 must make a big adjustment when we confront the naked ahistoricism of Roemer. There is no history there, just laboratory experiments based on rational choice players who are either hirers of labor, laborers or peasants. In addition to people of these various types, there are the means of production which consist of corn, farms and factories. He simply postulates their existence but has no interest in addressing the question of how they came into existence.
Look how he tries to explain the inadequacy of the labor theory of value with his parlor game. He puts the following pieces on the board. There is a population which is divided between those who hire labor and those who are hired. The hired are 1/3 of the population.
The hired portion of the population spends a four hour portion of its day working with seed corn that it already owns. The result of such labor is the production of 1/2 bushel of corn.
Then these souls go out and hire themselves out to other souls who also own some seed corn. One individual might hire himself or herself out to three hirers. In the process, the hired person works four hours for each hirer, produces 1/2 bushel of corn, and receives 1/4 bushel for a wage. The hirer retains 1/4 bushel as profit.
This process takes place throughout society using all available seed corn. This arrangement finally exhausts all seed corn since there is two to one ratio between hirer and hired. Each hirer has gained 1/4 bushel in profits while each worker manages to eke out the 3/4 bushel he or she needs, which requires 12 hours labor on the farm. So everybody ends up with a bushel of corn, the minimum daily requirement for a member of this society.
Now here is the key question for Roemer. Why will people who hire themselves out agree to this arrangement? He says that they will because they are “no worse off” than they would be if they were on their own. The income-leisure bundle derived from working for others or working for themselves would be the same.
Are the hired exploited by the hirers? No, answers Roemer, since 12 hours work would produce the same results if the hired person was working for himself or for others. The initial distribution is egalitarian and the outcome is egalitarian. Twelve hours work produces the same results working for oneself or for others. The persons hiring themselves out are “trading some ‘surplus’ labor” for access to somebody else’s “capital”.
This does not amount to exploitation since some of the hiring people could easily have been hired as well. All that matters is the amount of hours and capital that are input and the amount of goods being produced. If they are in balance, there is no exploitation. It does not matter whether you do the production on your own land in the countryside or in the corn factory in the city owned by the hirer. Roemer assures us that “Every producer is indifferent among these various arrangements, assuming no particular preferences for the country life over the city life.”
The problem with Roemer’s example is that it describes a situation which has no historical or social parallel. The notion that there can be a free-floating arrangement where some people in a society choose to be hirers or hired simply ignores how these categories originally arose. They arose out of compulsion. The compulsion was rooted in laws like the Enclosure Acts that drove peasants off the land and others that required taxes to be paid in money rather than in-kind agricultural goods.
Furthermore, the relationship between hirer and hired at the outset was one in which there was no equilibrium between labor and capital as input, and goods produced as output. The whole driving logic behind the capitalist system was to produce a disequilibrium from the beginning. Why would anybody take the trouble to build a factory unless there was some assurance that the output side would be greater than the input side to an extreme degree?
The industrial revolution in England was marked by two features: extreme exploitation of labor in the factory system in the classic Marxian sense, and outright pillage of the resources of the colonial world at the point of a bayonet. Roemer’s case studies never depict these class relations.
Leaving aside its relevance to history, one thing that strikes me as particularly specious is Roemer’s assertion that individuals have no preference for working their own land in the countryside or in the urban factories, as long as the income-leisure bundle is equivalent. What a one-dimensional understanding of the human race! Peasants are deeply attached to their land and don’t make rational calculations simply based on narrow, economic factors.
full: http://www.columbia.edu/~lnp3/mydocs/analytical_marxism/roemer.htm
chris 08.31.10 at 1:19 pm
It also doesn’t handle rules-governed behavior.
Sure it does — you just assign some amount of negative utility to rule-breaking, based on the perceived importance of the rule, and then you get the result that rules will be broken only when a goal of even greater importance is served thereby (e.g. speeding on the way to the hospital — although most drivers appear to assign low value to obeying the speed limit anyway — or stealing to prevent your family from starving).
The great thing about RCT is that you can smuggle in almost anything through preferences; that’s also what makes it difficult to use in practice. The tricky part is modeling what happens when different people have different preferences, which is always in practice.
Lemuel Pitkin 09.01.10 at 12:39 am
I take it that rational choice models behaviour by appeal to our preferences (or values, whatever). But isn’t any complete model of behaviour going to also need to model how those preferences change?
This is an important point. It’s one of the reasons the Fazzari paper I linked to upthread gives for the conclusion that consumption choices cannot usefully be described as maximizing anything.
chrismealy 09.01.10 at 4:09 am
You can confound any discussion of economics by pointing out that in the real world everything is endogenous. Why people want what they want and how other people’s wants influence them is a lot harder and more interesting than walrasian tatonnement.
Bowles has a pretty good paper on endogenous preferences [pdf]. That Fazzari paper looks interesting.
BenP 09.02.10 at 7:48 pm
I say: “rational†is a pattern of behavior that leads to success. Now all you need is a good definition of “successâ€.
Success for who?
Henri Vieuxtemps 09.02.10 at 8:47 pm
Why, for the individual in question, of course. And since in a capitalist society “success” is commonly associated with one’s net worth, “rational” behavior (from society’s point of view) has to be such that leads to the fastest increase of one’s net worth. Getting a better-paying job, saving, investing – that sort of things.
piglet 09.02.10 at 9:53 pm
piglet 09.02.10 at 9:56 pm
Success, of course, defined in Darwinian terms, the only unambiguous and operational definition that I know of.
ScentOfViolets 09.03.10 at 3:40 am
IIRC, no less a personage than von Neumann pointed out that you don’t have a well-ordering of preferences to plug into your function, that these functions are themselves not well-ordered, and indeed that presupposing these functions return a single scalar value that you can maximize can model real-world choice is naive and unfounded in the extreme.
Iow, rational choice theory only works on a restricted set of problems whose domain is well-understood and very special. If you want to talk about any sort of mathematical modeling, that is.
Lemuel Pitkin 09.03.10 at 4:57 am
SoV-
Right. Which is why I have been arguing that it is applicable mainly to the business activity of capitalist firms in a competitive market. Which puts me in partial disagreement with Henry, who thinks it’s much more widely applicable, and also with various folks on this thread, who think it isn’t applicable even there.
Henri Vieuxtemps 09.03.10 at 7:03 am
Success, of course, defined in Darwinian terms
Certainly, in the context of the species, but marxists tend to analyze from the socio-economic angle.
Also, the guy quoted in the post, who’s complaining about ‘the imperialism of market “reason‒, clearly he is not interested in describing/modeling human behavior; he is concerned about a particular normative definition of “reason†and its effects. And therefore, it seems to me, a lot of the responses are missing the point.
DFC 09.03.10 at 9:05 am
Very interesting your discussion about rational choice, I would like to join you if you want, I am from Spain, so, please be patient with my english
Reading the work of Max Weber about the impact of “cultures” (or may be religious roots) in the people’s bahavior, he mention, for example the difference in “choice” of the peasants in the “catholic mediterreanean” area (Spain, Italy…) and in the Calvinist area (North of Europe) at the beginning of XVII century
In the case of the mediterranean peasant, an increase in the peasant’s salary makes them work LESS, because they earn more quickly “enough” money to “live”, so the money in this case is a des-incentive of the “industriousness”
In the case of “calvinist” peasants the increase in salary makes them work much more hardly to earn as much as possible, because seem that no money is “enough”, so in this case the money is an strong incentive for the work
We can argue about religious aspects, social imitation-social values, also about the role of fear in the process, or the diferences in extensive families safety networks, but at the end there are totally different behavior. A lot of them not “rational” for a lot of people (depend of the “lens” you see)
Yes in both cases we can argue that there is an egoistic and/or “rational choice” behavior, but if we make egoistic and “rational choice” definition so extensive , at the end they do not say nothing, they are a mere tautology and do not explain anything
engels 09.03.10 at 3:00 pm
On this very blog a few months ago there were a series of excellent posts by John Quiggin discussing the failure of the ‘micro-based’ approach to macroeconomics, in light of the lattes role in the global financial crisis. He concluded, as I recall, that its influence had been highly pernicious.
And yet today Henry is enjoining us Marxists, from across the aisle as it were, in a spirit of a friendly advice, to dedicate ourselves what we might term ‘micro- based Marxism’.
Funny, isn’t it?
engels 09.03.10 at 3:03 pm
The obvious criterion of success or failure for a macroeconomic theoretical framework is that it should provide the basis for predicting, understanding and responding to macroeconomic crises. If that criterion is applied to the current crisis, the micro-foundations approach to macroeconomics has been a near-total failure.
Lemuel Pitkin 09.03.10 at 3:30 pm
Yes, I was a bit disappointed that John Q. did not comment on this post. There does seem to be some tension between his views and Henry’s on this question, which would be interesting to explore.
ScentOfViolets 09.03.10 at 3:31 pm
Who to believe? Von Neumann or Henry? Gee, that’s a tough one. You can pretend to mathematically model phenomena, but that doesn’t mean your “model” makes any sense. I could just has well use the “mathematical formula”: effort + perseverance = success. Does that say anything meaningful as a model? Can you even assign quantitative values to any of the variables?
Hidari 09.03.10 at 4:06 pm
‘The obvious criterion of success or failure for a macroeconomic theoretical framework is that it should provide the basis for predicting, understanding and responding to macroeconomic crises. If that criterion is applied to the current crisis, the micro-foundations approach to macroeconomics has been a near-total failure.’
Oh I would go further and state that it has been a total failure. After all, even of the people who ‘predicted’ the current crisis, who gave meaningful, quantitative predictions, complete with dates and times when these data would be produced? ‘There will be a recession of some severity at some point in the not-too-distant future’ does not really count, IMHO. (Although to be fair, that still does better than what most academic economists produced which was ‘Everything’s fine! I can’t see properly because I have my hands over my eyes and bungs in my ears but I’m sure everything is fine! Recess….what? Sorry what? What did you say? I didn’t catch….what? No sorry nothing happening here, everything….is….what? No no everything’s fine and will be, forever, new paradigm, blah blah blah.’ ‘
engels 09.03.10 at 4:32 pm
Out of curiosity, does Henry have any reasons for panning the Fine-Milonakis book? (I haven’t read it yet myself but I thought it looked pretty damn good.)
engels 09.03.10 at 4:37 pm
My last comment disappeared. Henry, I would be interested to know why you think the Fine-Milonakis book looks ‘terrible’. I haven’t read it yet (and I’m not a social scientist) but I thought it looked very interesting.
BenP 09.03.10 at 9:37 pm
“And since in a capitalist society “success†is commonly associated with one’s net worth, “rational†behavior (from society’s point of view) has to be such that leads to the fastest increase of one’s net worth. ”
“there is something inherently right-wing about rational choice microfoundations”
One might say “Rationality” is in the eye of the beholder and cannot be projected as a universal onto the actions of all participients of a class riven society, that is to say class determines rationality.
El Cid 09.04.10 at 11:14 am
Wouldn’t the opposite of rational choice theories be “irrational choice theory”, or “unreasonable choice theory”, or “inexplicable choice theory,” or “consciously disadvantageous choice theory”?
Beldon Floss 09.04.10 at 8:37 pm
Rational choice theory takes for granted that which it is meant to explain and cannot get to grips with unintended consequences.
It is rational for each capitalist in competition with others to maximize their competitive advantage over others by introducing advances in production techniques. However, unbeknown to him the generalisation of these new techniques throughout the industry will result in a falling rate of profit. His rational choice was made on the basis of incomplete knowledge of the whole and results in damage to his class and of course himself. Further, even when he knows that the result of improved technique in production will ultimately work against him he is still compelled to make these improvements. He might say who cares `life is short’ and a short term advantage for me is all I care about but not even the general intelligence of the capitalists, its executive government, can prevent the objective pressures to improve productive techniques and somehow preserve the capitalist system in aspic for all time. Rational choice cannot transcend the historical contingency of this system however much it tries ideologically and physically to naturalise it or `rationalise’ it.
Lemuel Pitkin 09.05.10 at 2:30 am
Wouldn’t the opposite of rational choice theories be “irrational choice theoryâ€, or “unreasonable choice theoryâ€, or “inexplicable choice theory,†or “consciously disadvantageous choice theoryâ€?
No.
John Quiggin 09.05.10 at 2:40 am
@66,68 I did comment above, with some links, but I think I need to work out my further thoughts on this in a post.
Chris Bertram 09.05.10 at 6:59 am
I’ve been away, so I’m very late to this discussion. Let me therefore just recommend, to those who don’t know it, Robert Paul Wolff’s recent primer on formal methods in political philosophy of which the first installment is at
http://robert-wolff.blogspot.com/2010/05/formal-methods-in-political-philosophy.html
Wolff does a pretty good job, I think, of showing that many of the supposedly innocuous assumptions of RCT are not innocuous at all. That doesn’t mean it isn’t useful, and my sense is that Henry’s line here is driven by the political scientist’s pragmatic interest in generating new and interesting perpectives on various problems.
On the non-innocuousness, I’d particularly recommend episode 2 of Wolff’s primer:
http://robert-wolff.blogspot.com/2010/05/formal-methods-in-political-philsophy.html
johng 09.05.10 at 7:21 am
A reply to this post is at:
http://leninology.blogspot.com/2010/09/rational-choice-marxism.html
Beldon Floss 09.05.10 at 9:39 am
Basically without knowledge of the whole one cannot know what the correct rational choice is in any given situation. On the basis of partial knowledge one is likely to be making choices that are wholly contrary to one’s actual interests. But what we really need to know is where did the attitude that society is a means to an end rather than an end in itself originate. The Freakeconomists who naturalise this situation can’t tell us that. Don’t want to tell us that.
The working class rationally combines to prevent the competition between its self from driving down wages, it can even spontaneously overthrow governments, but with out the whole picture it cannot grasp the necessity to overthrow the state and the capitalist system which will only re-establish itself if not transcended much like peasant revolts removed the ruling monarchy only to establish a new royal house and the whole feudal system set off again. It is the competition between the capitalists that continuously undermines and ruins the workers but combinations are designed only to assist the workers in their competition with the capitalist. That is why economics must give way to philosophy and politics to gain the whole picture and its true always contradictory logic so that a real rational choice can be made.
bianca steele 09.05.10 at 2:57 pm
Henry, who would be a good person to read on rational choice from a philosophy perspective? Levi? I don’t really know whether rational choice in philosophy precedes or draws on rational choice in economics and social sciences generally?
Henry 09.05.10 at 3:08 pm
Most of the people who do this well imo are not pure philosophers, but people with strong philosophical training and an inclination towards political theory. NB that I am not a philosopher though, so my viewpoint may be suspect. Brian Barry is excellent, esp. when in polemical mode (although sometimes rather unfair) – _Sociologists, Economists and Democracy_ is the most obvious reference. Jon Elster’s early stuff – especially _The Cement of Society_ although he has seriously gone off rational choice in recent years ( see “this”:http://investigadores.cide.edu/aparicio/Elster_ExcessiveAmbitions_sep09.pdf for a characteristically entertaining and splenetic statement of the case against). I’m fond of the work of Russell Hardin (whose work on trust I rely on extensively in my own writing). I think that Jim Johnson and Jack Knight’s forthcoming book on the justification of democracy is a really important demonstration of the value of rational choice and an emphasis on clashing interests – but it won’t be out for another year or so. Real philosophers may have other recommendations …
johng – thanks – that deserves a proper and lengthy response, but it is (at least for me) turning out to be a very useful conversation.
bianca steele 09.05.10 at 4:21 pm
BenP@73: One might say “Rationality†is in the eye of the beholder and cannot be projected as a universal onto the actions of all participients of a class riven society, that is to say class determines rationality.
This sounds like an old fashioned view, and I think it would be modified (and made more consistent with a perspective opposed to unearned privilege) by a concept something like hegemony. What you are saying is exactly why the US right opposes liberalism and the left (or one of them, and one of the main reasons it appeals to a certain kind of person): these attempt to impose a system deduced by intellectuals onto the social world. (Cf. Talmon’s Origins of Totalitarian Democracy and similar criticism of mid-20th century totalitarianism from a liberal perspective.)
Lemuel Pitkin 09.05.10 at 6:04 pm
Not specifically in response to this post, as far as I can tell, but Robert Vienneau has some very interesting discussions of these issues on his blog.
Patrick 09.06.10 at 2:48 am
Along the lines of Objective Functions versus Norms, I find the idea of Satisficing to be very helpful. A lot of results from cognitive science suggest that people can’t come anywhere close to evaluating an objective function; they follow a set of heuristics that have been utility maximizing in the past and fit social behavioral constraints.
http://en.wikipedia.org/wiki/Satisficing
zosima 09.08.10 at 7:45 am
@ScentOfViolets
Well-ordering is a constraint on a rigorous axiomatization of utility theory, but it is rarely a constraint in practice. I think you’d be hard pressed to find an example where it is an implausible or unreasonable assumption for a model. It is the sort of thing, like a Cartesian Norm, that is so trivial in practice that you only lose generality in carefully designed pathological cases. In particular, as long as the Axiom of Choice holds, a set can be well ordered.
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