Homo economicus

From Wikipedia, the free encyclopedia

 

The term homo economicus, or economic man, is a caricature of economic theory framed as a "mythical species" or word play on homo sapiens, and used in pedagogy. It stands for a portrayal of humans as agents who are consistently rational and narrowly self-interested, and who usually pursue their subjectively-defined ends optimally. 

 

Generally, homo economicus attempts to maximize utility as a consumer and profit as a producer. As a theory on human conduct, it contrasts to the concepts of behavioral economics, which examines cognitive biases and other irrationalities, and another mythical species, homo reciprocans, a model which emphasizes human cooperation). In game theory, homo economicus is often modelled through the assumption of perfect rationality.

The notion of "homo economicus" is often used by non-economists to critique an economic approach. There are distinct concepts involved: the preferences that individuals have among outcomes; and the processes that individuals use to make decisions. The question whether individuals are in fact able to make the best choices, given their preferences, leads to the economic definition of rationality, or the so-called "rational economic man". This concept of rationality does not restrict what sort of preferences are admissible.

History of the term

The term "economic man" was used for the first time in the late nineteenth century by critics of John Stuart Mill's work on political economy. Below is a passage from Mill's work that critics referred to:

[Political economy] does not treat the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end.

Later in the same work, Mill stated that he was proposing "an arbitrary definition of man, as a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained." 

Adam Smith, in The Theory of Moral Sentiments, had claimed that individuals have sympathy for the well-being of others. On the other hand, in The Wealth of Nations, Smith wrote:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

This comment now suggests the same sort of rational, self-interested, labor-averse individual that Mill proposed. Aristotle's Politics had discussed the nature of self-interest in Book II, Part V.

Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for surely the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser's love of money; for all, or almost all, men love money and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property.

Economists in the late 19th century—such as Francis Edgeworth, William Stanley Jevons, Léon Walras, and Vilfredo Pareto—built mathematical models on these economic assumptions. In the 20th century, the rational choice theory of Lionel Robbins came to dominate mainstream economics. The term "economic man" then took on a more specific meaning: a person who acted rationally on complete knowledge out of self-interest and the desire for wealth.

Model

Homo economicus is a term used for an approximation or model of Homo sapiens that acts to obtain the highest possible well-being for him or herself given available information about opportunities and other constraints, both natural and institutional, on his ability to achieve his predetermined goals. This approach has been formalized in certain social sciences models, particularly in economics.

Homo economicus is seen as "rational" in the sense that well-being as defined by the utility function is optimized given perceived opportunities. That is, the individual seeks to attain very specific and predetermined goals to the greatest extent with the least possible cost. Note that this kind of "rationality" does not say that the individual's actual goals are "rational" in some larger ethical, social, or human sense, only that he tries to attain them at minimal cost. Only naïve applications of the homo economicus model assume that this hypothetical individual knows what is best for his long-term physical and mental health and can be relied upon to always make the right decision for himself. See rational choice theory and rational expectations for further discussion; the article on rationality widens the discussion. 

As in social science, these assumptions are at best approximations. The term is often used derogatorily in academic literature, perhaps most commonly by sociologists, many of whom tend to prefer structural explanations to ones based on rational action by individuals. 

The use of the Latin form homo economicus is certainly long established; Persky traces it back to Pareto (1906) but notes that it may be older. The English term economic man can be found even earlier, in John Kells Ingram's A History of Political Economy (1888). The Oxford English Dictionary (O.E.D.) cites the use of homo oeconomicus by C. S. Devas in his 1883 work The Groundwork of Economics in reference to Mill's writings, as one of a number of phrases that imitate the scientific name for the human species:

Mill has only examined the homo oeconomicus, or dollar-hunting animal.

According to the OED, the human genus name homo is

Used with L. or mock-L. adjs. in names imitating Homo sapiens, etc., and intended to personify some aspect of human life or behaviour (indicated by the adj.). Homo faber ("feIb@(r)) [H. Bergson L'Evolution Créatrice (1907) ii. 151], a term used to designate man as a maker of tools.) Variants are often comic: Homo insipiens; Homo turisticus.

Note that such forms should logically keep the capital for the "genus" name—i.e., Homo economicus rather than homo economicus. Actual usage is inconsistent. 

Amartya Sen has argued there are grave pitfalls in assuming that rationality is limited to selfish rationality. Economics should build into its assumptions the notion that people can give credible commitments to a course of conduct. He demonstrates the absurdity with the narrowness of the assumptions by some economists with the following example of two strangers meeting on a street.

“

"Where is the railway station?" he asks me. "There," I say, pointing at the post office, "and would you please post this letter for me on the way?" "Yes," he says, determined to open the envelope and check whether it contains something valuable.

”

Criticisms

Homo economicus bases its choices on a consideration of its own personal "utility function". 

Consequently, the homo economicus assumptions have been criticized not only by economists on the basis of logical arguments, but also on empirical grounds by cross-cultural comparison. Economic anthropologists such as Marshall Sahlins, Karl Polanyi, Marcel Mauss and Maurice Godelier have demonstrated that in traditional societies, choices people make regarding production and exchange of goods follow patterns of reciprocity which differ sharply from what the homo economicus model postulates. Such systems have been termed gift economy rather than market economy. Criticisms of the homo economicus model put forward from the standpoint of ethics usually refer to this traditional ethic of kinship-based reciprocity that held together traditional societies.

Economists Thorstein Veblen, John Maynard Keynes, Herbert A. Simon, and many of the Austrian School criticise homo economicus as an actor with too great an understanding of macroeconomics and economic forecasting in his decision making. They stress uncertainty and bounded rationality in the making of economic decisions, rather than relying on the rational man who is fully informed of all circumstances impinging on his decisions. They argue that perfect knowledge never exists, which means that all economic activity implies risk. Austrian economists rather prefer to use as a model tool the homo agens. 

Empirical studies by Amos Tversky questioned the assumption that investors are rational. In 1995, Tversky demonstrated the tendency of investors to make risk-averse choices in gains, and risk-seeking choices in losses. The investors appeared as very risk-averse for small losses but indifferent for a small chance of a very large loss. This violates economic rationality as usually understood. Further research on this subject, showing other deviations from conventionally defined economic rationality, is being done in the growing field of experimental or behavioral economics. Some of the broader issues involved in this criticism are studied in decision theory, of which rational choice theory is only a subset. 

Other critics of the homo economicus model of humanity, such as Bruno Frey, point to the excessive emphasis on extrinsic motivation (rewards and punishments from the social environment) as opposed to intrinsic motivation. For example, it is difficult if not impossible to understand how homo economicus would be a hero in war or would get inherent pleasure from craftsmanship. Frey and others argue that too much emphasis on rewards and punishments can "crowd out" (discourage) intrinsic motivation: paying a boy for doing household tasks may push him from doing those tasks "to help the family" to doing them simply for the reward. 

Another weakness is highlighted by economic sociologists and anthropologists, who argue that homo economicus ignores an extremely important question, i.e. the origins of tastes and the parameters of the utility function by social influences, training, education, and the like. The exogeneity of tastes (preferences) in this model is the major distinction from homo sociologicus, in which tastes are taken as partially or even totally determined by the societal environment (see below). 

Further critics, learning from the broadly defined psychoanalytic tradition, criticize the homo economicus model as ignoring the inner conflicts that real-world individuals suffer, as between short-term and long-term goals (e.g., eating chocolate cake and losing weight) or between individual goals and societal values. Such conflicts may lead to "irrational" behavior involving inconsistency, psychological paralysis, neurosis, and psychic pain. Further irrational human behaviour can occur as a result of habit, laziness, mimicry and simple obedience. 

The emerging science of "neuroeconomics" suggests that there are serious shortcomings in the conventional theories of economic rationality. Rational economic decision making has been shown to produce high levels of cortisol, epinephrine and corticosteroids, associated with elevated levels of stress. It seems that the dopaminic system is only activated upon achieving the reward, and otherwise the "pain" receptors, particularly in the pre-frontal cortex of the left hemisphere of the brain show a high level of activation. Serotonin and oxytocin levels are minimised, and the general immune system shows a level of suppression. Such a pattern is associated with a generalised reduction in the levels of trust. Unsolicited "gift giving", considered irrational from the point of view of homo-economicus, by comparison, shows an elevated stimulation of the pleasure circuits of the whole brain, reduction in the levels of stress, optimal functioning of the immune system, reduction in cortico-steroids and epinephrine and cortisol, activation of the substantia nigra, the striatum and the nucleus acumbens (associated with the placebo effect, all associated with the building of social trust. Mirror neurons result in a win-win positive sum game in which the person giving the gift receives a pleasure equivalent to the person receiving it. This confirms the findings of anthropology which suggest that a "gift economy" preceded the more recent market systems where win-lose or risk-avoidance lose-lose calculations apply.

Responses

Economists tend to disagree with these critiques, arguing that it may be relevant to analyze the consequences of enlightened egoism just as it may be worthwhile to consider altruistic or social behavior. Others argue that we need to understand the consequences of such narrow-minded greed even if only a small percentage of the population embraces such motives. Free riders, for example, would have a major negative impact on the provision of public goods. However, economists' supply and demand predictions might obtain even if only a significant minority of market participants act like homo economicus. In this view, the assumption of homo economicus can and should be simply a preliminary step on the road to a more sophisticated model. 

Yet others argue that homo economicus is a reasonable approximation for behavior within market institutions, since the individualized nature of human action in such social settings encourages individualistic behavior. Not only do market settings encourage the application of a simple cost-benefit calculus by individuals, but they reward and thus attract the more individualistic people. It can be difficult to apply social values (as opposed to following self-interest) in an extremely competitive market; a company that refuses to pollute, for example, may find itself bankrupt. 

Defenders of the homo economicus model see many critics of the dominant school as using a straw man technique. For example, it is common for critics to argue that real people do not have cost-less access to infinite information and an innate ability to instantly process it. However, in advanced-level theoretical economics, scholars have found ways of addressing these problems, modifying models enough to more realistically depict real-life decision-making. For example, models of individual behavior under bounded rationality and of people suffering from envy can be found in the literature. It is primarily when targeting the limiting assumptions made in constructing undergraduate models that the criticisms listed above are valid. These criticisms are especially valid to the extent that the professor asserts that the simplifying assumptions are true or uses them in a propagandistic way.

The more sophisticated economists are quite conscious of the empirical limitations of the homo economicus model. In theory, the views of the critics can be combined with the homo economicus model to attain a more accurate model.

Perspectives

According to Sergio Caruso, when talking of Homo economicus, one should distinguish between the purely “methodological” versions, aimed at practical use in the economic sphere (e.g. economic calculus), and the” anthropological” versions, more ambitiously aimed at depicting a certain type of man (supposed to be actually existing), or even human nature in general. The former, traditionally founded on a merely speculative psychology, have proved unrealistic and frankly wrong as descriptive models of economic behaviour (therefore not applicable for normative purposes either); however, they are liable to be corrected resorting to the new empirically based economic psychology, which turns quite other than the philosophers’ psychology that economists have used until yesterday. Among the latter (i.e. the anthropological versions), one can make a further distinction between the weak versions, more plausible, and the strong ones, irreparably ideological. Depicting different types of “economic man” (each depending on the social context) is in fact possible with the help of cultural anthropology, and social psychology (a branch of psychology economists have strangely ignored), if only those types are contrived as socially and/or historically determined abstractions (such as Weber's, Korsch's, and Fromm's concepts of Idealtypus, “historical specification”, and “social character”). Even a Marxist theoretician such as Gramsci—reminds Caruso—admitted of the homo economicus as a useful abstraction on the ground of economic theory, provided that we grant there be as many homines oeconomici as the modes of production. On the contrary, when one concept of homo economicus claims to grasp the eternal essence of what is human, at the same time putting aside all other aspects of human nature (such as homo faber, homo loquens, homo ludens, homo reciprocans, and so on), then the concept leaves the field of good philosophy, not to speak of social science, and is ready to enter a political doctrine as the most dangerous of its ideological ingredients.

Homo sociologicus

Comparisons between economics and sociology have resulted in a corresponding term homo sociologicus (introduced by German sociologist Ralf Dahrendorf in 1958), to parody the image of human nature given in some sociological models that attempt to limit the social forces that determine individual tastes and social values. (The alternative or additional source of these would be biology.) Hirsch et al. say that homo sociologicus is largely a tabula rasa upon which societies and cultures write values and goals; unlike economicus, sociologicus acts not to pursue selfish interests but to fulfill social roles (though the fulfillment of social roles may have a selfish rationale—e.g. politicians or socialites). This "individual" may appear to be all society and no individual.

Rational choice theory

From Wikipedia, the free encyclopedia

Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. The basic premise of rational choice theory is that aggregate social behavior results from the behavior of individual actors, each of whom is making their individual decisions. The theory also focuses on the determinants of the individual choices (methodological individualism). 

 

Rational choice theory then assumes that an individual has preferences among the available choice alternatives that allow them to state which option they prefer. These preferences are assumed to be complete (the person can always say which of two alternatives they consider preferable or that neither is preferred to the other) and transitive (if option A is preferred over option B and option B is preferred over option C, then A is preferred over C). The rational agent is assumed to take account of available information, probabilities of events, and potential costs and benefits in determining preferences, and to act consistently in choosing the self-determined best choice of action.

Rationality is widely used as an assumption of the behavior of individuals in microeconomic models and analyses and appears in almost all economics textbook treatments of human decision-making. It is also used in political science, sociology, and philosophy. A particular version of rationality is instrumental rationality, which involves seeking the most cost-effective means to achieve a specific goal without reflecting on the worthiness of that goal. Gary Becker was an early proponent of applying rational actor models more widely. Becker won the 1992 Nobel Memorial Prize in Economic Sciences for his studies of discrimination, crime, and human capital.

Definition and scope

The concept of rationality used in rational choice theory is different from the colloquial and most philosophical use of the word. Colloquially, "rational" behaviour typically means "sensible", "predictable", or "in a thoughtful, clear-headed manner." Rational choice theory uses a narrower definition of rationality. At its most basic level, behavior is rational if it is goal-oriented, reflective (evaluative), and consistent (across time and different choice situations). This contrasts with behavior that is random, impulsive, conditioned, or adopted by (unevaluative) imitation.

Early neoclassical economists writing about rational choice, including William Stanley Jevons, assumed that agents make consumption choices so as to maximize their happiness, or utility. Contemporary theory bases rational choice on a set of choice axioms that need to be satisfied, and typically does not specify where the goal (preferences, desires) comes from. It mandates just a consistent ranking of the alternatives. Individuals choose the best action according to their personal preferences and the constraints facing them. E.g., there is nothing irrational in preferring fish to meat the first time, but there is something irrational in preferring fish to meat in one instant and preferring meat to fish in another, without anything else having changed. 

Rational choice theorists do not claim that the theory describes the choice process, but rather that it predicts the outcome and pattern of choices. An assumption often added to the rational choice paradigm is that individual preferences are self-interested, in which case the individual can be referred to as a homo economicus. Such an individual acts as if balancing costs against benefits to arrive at action that maximizes personal advantage. Proponents of such models, particularly those associated with the Chicago school of economics, do not claim that a model's assumptions are an accurate description of reality, only that they help formulate clear and falsifiable hypotheses. In this view, the only way to judge the success of a hypothesis is empirical tests. To use an example from Milton Friedman, if a theory that says that the behavior of the leaves of a tree is explained by their rationality passes the empirical test, it is seen as successful. 

Without specifying the individual's goal or preferences it may not be possible to empirically test, or falsify, the rationality assumption. However, the predictions made by a specific version of the theory are testable. In recent years, the most prevalent version of rational choice theory, expected utility theory, has been challenged by the experimental results of behavioral economics. Economists are learning from other fields, such as psychology, and are enriching their theories of choice in order to get a more accurate view of human decision-making. For example, the behavioral economist and experimental psychologist Daniel Kahneman won the Nobel Memorial Prize in Economic Sciences in 2002 for his work in this field. 

Rational choice theory has become increasingly employed in social sciences other than economics, such as sociology, evolutionary theory and political science in recent decades. It has had far-reaching impacts on the study of political science, especially in fields like the study of interest groups, elections, behaviour in legislatures, coalitions, and bureaucracy. In these fields, the use of the rational choice paradigm to explain broad social phenomena is the subject of active controversy.

Actions, assumptions, and individual preferences

The premise of rational choice theory as a social science methodology is that the aggregate behavior in society reflects the sum of the choices made by individuals. Each individual, in turn, makes their choice based on their own preferences and the constraints (or choice set) they face. 

At the individual level, rational choice theory stipulates that the agent chooses the action (or outcome) they most prefer. In the case where actions (or outcomes) can be evaluated in terms of costs and benefits, a rational individual chooses the action (or outcome) that provides the maximum net benefit, i.e., the maximum benefit minus cost. 

The theory applies to more general settings than those identified by costs and benefit. In general, rational decision making entails choosing among all available alternatives the alternative that the individual most prefers. The "alternatives" can be a set of actions ("what to do?") or a set of objects ("what to choose/buy"). In the case of actions, what the individual really cares about are the outcomes that results from each possible action. Actions, in this case, are only an instrument for obtaining a particular outcome.

Formal statement

The available alternatives are often expressed as a set of objects, for example a set of j exhaustive and exclusive actions:

${\displaystyle A=\{a_{1},\ldots ,a_{i},\ldots ,a_{j}\}}$

For example, if a person can choose to vote for either Roger or Sara or to abstain, their set of possible alternatives is:

${\displaystyle A=\{{\text{Vote for Roger, Vote for Sara, Abstain}}\}}$

The theory makes two technical assumptions about individuals' preferences over alternatives:

1. Completeness – for any two alternatives a_i and a_j in the set, either a_i is preferred to a_j, or a_j is preferred to a_i, or the individual is indifferent between a_i and a_j. In other words, all pairs of alternatives can be compared with each other.
2. Transitivity – if alternative a₁ is preferred to a₂, and alternative a₂ is preferred to a₃, then a₁ is preferred to a₃.

Together these two assumptions imply that given a set of exhaustive and exclusive actions to choose from, an individual can rank the elements of this set in terms of his preferences in an internally consistent way (the ranking constitutes a partial ordering), and the set has at least one maximal element. 

The preferences between two alternatives can be:

• Strict preference occurs when an individual prefers a₁ to a₂ and does not view them as equally preferred.
• Weak preference implies that individual either strictly prefers a₁ over a₂ or is indifferent between them.
• Indifference occurs when an individual neither prefers a₁ to a₂, nor a₂ to a₁. Since (by completeness) the individual does not refuse a comparison, they must therefore be indifferent in this case.

Research that took off in the 1980s sought to develop models which drop these assumptions and argue that such behaviour could still be rational, Anand (1993). This work, often conducted by economic theorists and analytical philosophers, suggests ultimately that the assumptions or axioms above are not completely general and might at best be regarded as approximations.

Additional assumptions

• Perfect information: The simple rational choice model above assumes that the individual has full or perfect information about the alternatives, i.e., the ranking between two alternatives involves no uncertainty.
• Choice under uncertainty: In a richer model that involves uncertainty about the how choices (actions) lead to eventual outcomes, the individual effectively chooses between lotteries, where each lottery induces a different probability distribution over outcomes. The additional assumption of independence of irrelevant alternatives then leads to expected utility theory.
• Inter-temporal choice: when decisions affect choices (such as consumption) at different points in time, the standard method for evaluating alternatives across time involves discounting future payoffs.
• Limited cognitive ability: identifying and weighing each alternative against every other may take time, effort, and mental capacity. Recognising the cost that these impose or cognitive limitations of individuals gives rise to theories of bounded rationality.

Alternative theories of human action include such components as Amos Tversky and Daniel Kahneman's prospect theory, which reflects the empirical finding that, contrary to standard preferences assumed under neoclassical economics, individuals attach extra value to items that they already own compared to similar items owned by others. Under standard preferences, the amount that an individual is willing to pay for an item (such as a drinking mug) is assumed to equal the amount he or she is willing to be paid in order to part with it. In experiments, the latter price is sometimes significantly higher than the former (but see Plott and Zeiler 2005, Plott and Zeiler 2007 and Klass and Zeiler, 2013). Tversky and Kahneman do not characterize loss aversion as irrational. Behavioral economics includes a large number of other amendments to its picture of human behavior that go against neoclassical assumptions.

Utility maximization

Often preferences are described by their utility function or payoff function. This is an ordinal number that an individual assigns over the available actions, such as:

${\displaystyle u\left(a_{i}\right)>u\left(a_{j}\right).}$

The individual's preferences are then expressed as the relation between these ordinal assignments. For example, if an individual prefers the candidate Sara over Roger over abstaining, their preferences would have the relation:

${\displaystyle u\left({\text{Sara}}\right)>u\left({\text{Roger}}\right)>u\left({\text{abstain}}\right).}$

A preference relation that as above satisfies completeness, transitivity, and, in addition, continuity, can be equivalently represented by a utility function.

Criticism

Daniel Kahneman

Both the assumptions and the behavioral predictions of rational choice theory have sparked criticism from various camps. As mentioned above, some economists have developed models of bounded rationality, which hope to be more psychologically plausible without completely abandoning the idea that reason underlies decision-making processes. Other economists have developed more theories of human decision-making that allow for the roles of uncertainty, institutions, and determination of individual tastes by their socioeconomic environment (cf. Fernandez-Huerga, 2008). 

Martin Hollis and Edward J. Nell's 1975 book offers both a philosophical critique of neo-classical economics and an innovation in the field of economic methodology. Further they outlined an alternative vision to neo-classicism based on a rationalist theory of knowledge. Within neo-classicism, the authors addressed consumer behaviour (in the form of indifference curves and simple versions of revealed preference theory) and marginalist producer behaviour in both product and factor markets. Both are based on rational optimizing behaviour. They consider imperfect as well as perfect markets since neo-classical thinking embraces many market varieties and disposes of a whole system for their classification. However, the authors believe that the issues arising from basic maximizing models have extensive implications for econometric methodology (Hollis and Nell, 1975, p. 2). In particular it is this class of models – rational behavior as maximizing behaviour – which provide support for specification and identification. And this, they argue, is where the flaw is to be found. Hollis and Nell (1975) argued that positivism (broadly conceived) has provided neo-classicism with important support, which they then show to be unfounded. They base their critique of neo-classicism not only on their critique of positivism but also on the alternative they propose, rationalism. Indeed, they argue that rationality is central to neo-classical economics – as rational choice – and that this conception of rationality is misused. Demands are made of it that it cannot fulfill.

In their 1994 work, Pathologies of Rational Choice Theory, Donald P. Green and Ian Shapiro argue that the empirical outputs of rational choice theory have been limited. They contend that much of the applicable literature, at least in political science, was done with weak statistical methods and that when corrected many of the empirical outcomes no longer hold. When taken in this perspective, rational choice theory has provided very little to the overall understanding of political interaction - and is an amount certainly disproportionately weak relative to its appearance in the literature. Yet, they concede that cutting edge research, by scholars well-versed in the general scholarship of their fields (such as work on the U.S. Congress by Keith Krehbiel, Gary Cox, and Mat McCubbins) has generated valuable scientific progress.

Duncan K. Foley (2003, p. 1) has also provided an important criticism of the concept of rationality and its role in economics. He argued that

“Rationality” has played a central role in shaping and establishing the hegemony of contemporary mainstream economics. As the specific claims of robust neoclassicism fade into the history of economic thought, an orientation toward situating explanations of economic phenomena in relation to rationality has increasingly become the touchstone by which mainstream economists identify themselves and recognize each other. This is not so much a question of adherence to any particular conception of rationality, but of taking rationality of individual behavior as the unquestioned starting point of economic analysis.

Foley (2003, p. 9) went on to argue that

The concept of rationality, to use Hegelian language, represents the relations of modern capitalist society one-sidedly. The burden of rational-actor theory is the assertion that ‘naturally’ constituted individuals facing existential conflicts over scarce resources would rationally impose on themselves the institutional structures of modern capitalist society, or something approximating them. But this way of looking at matters systematically neglects the ways in which modern capitalist society and its social relations in fact constitute the ‘rational’, calculating individual. The well-known limitations of rational-actor theory, its static quality, its logical antinomies, its vulnerability to arguments of infinite regress, its failure to develop a progressive concrete research program, can all be traced to this starting-point.

Schram and Caterino (2006) contains a fundamental methodological criticism of rational choice theory for promoting the view that the natural science model is the only appropriate methodology in social science and that political science should follow this model, with its emphasis on quantification and mathematization. Schram and Caterino argue instead for methodological pluralism. The same argument is made by William E. Connolly, who in his work Neuropolitics shows that advances in neuroscience further illuminate some of the problematic practices of rational choice theory.

More recently Edward J. Nell and Karim Errouaki (2011, Ch. 1) argued that:

The DNA of neoclassical economics is defective. Neither the induction problem nor the problems of methodological individualism can be solved within the framework of neoclassical assumptions. The neoclassical approach is to call on rational economic man to solve both. Economic relationships that reflect rational choice should be ‘projectible’. But that attributes a deductive power to ‘rational’ that it cannot have consistently with positivist (or even pragmatist) assumptions (which require deductions to be simply analytic). To make rational calculations projectible, the agents may be assumed to have idealized abilities, especially foresight; but then the induction problem is out of reach because the agents of the world do not resemble those of the model. The agents of the model can be abstract, but they cannot be endowed with powers actual agents could not have. This also undermines methodological individualism; if behaviour cannot be reliably predicted on the basis of the ‘rational choices of agents’, a social order cannot reliably follow from the choices of agents.

Furthermore, Pierre Bourdieu fiercely opposed rational choice theory as grounded in a misunderstanding of how social agents operate. Bourdieu argued that social agents do not continuously calculate according to explicit rational and economic criteria. According to Bourdieu, social agents operate according to an implicit practical logic—a practical sense—and bodily dispositions. Social agents act according to their "feel for the game" (the "feel" being, roughly, habitus, and the "game" being the field).

Other social scientists, inspired in part by Bourdieu's thinking have expressed concern about the inappropriate use of economic metaphors in other contexts, suggesting that this may have political implications. The argument they make is that by treating everything as a kind of "economy" they make a particular vision of the way an economy works seem more natural. Thus, they suggest, rational choice is as much ideological as it is scientific, which does not in and of itself negate its scientific utility.

An evolutionary psychology perspective is that many of the seeming contradictions and biases regarding rational choice can be explained as being rational in the context of maximizing biological fitness in the ancestral environment but not necessarily in the current one. Thus, when living at subsistence level where a reduction of resources may have meant death it may have been rational to place a greater value on losses than on gains. Proponents argue it may also explain differences between groups.

Benefits

The rational choice approach allows preferences to be represented as real-valued utility functions. Economic decision making then becomes a problem of maximizing this utility function, subject to constraints (e.g. a budget). This has many advantages. It provides a compact theory that makes empirical predictions with a relatively sparse model - just a description of the agent's objectives and constraints. Furthermore, optimization theory is a well-developed field of mathematics. These two factors make rational choice models tractable compared to other approaches to choice. Most importantly, this approach is strikingly general. It has been used to analyze not only personal and household choices about traditional economic matters like consumption and savings, but also choices about education, marriage, child-bearing, migration, crime and so on, as well as business decisions about output, investment, hiring, entry, exit, etc. with varying degrees of success.

Despite the empirical shortcomings of rational choice theory, the flexibility and tractability of rational choice models (and the lack of equally powerful alternatives) lead to them still being widely used.

Introspection illusion

From Wikipedia, the free encyclopedia

The surface appearance of an iceberg is often used to illustrate the human conscious and unconscious mind; the visible portions are easily noticed, and yet their shape depends on the much larger portions that are out of view.

The introspection illusion is a cognitive bias in which people wrongly think they have direct insight into the origins of their mental states, while treating others' introspections as unreliable. In certain situations, this illusion leads people to make confident but false explanations of their own behavior (called "causal theories") or inaccurate predictions of their future mental states.

The illusion has been examined in psychological experiments, and suggested as a basis for biases in how people compare themselves to others. These experiments have been interpreted as suggesting that, rather than offering direct access to the processes underlying mental states, introspection is a process of construction and inference, much as people indirectly infer others' mental states from their 

 behavior.

When people mistake unreliable introspection for genuine self-knowledge, the result can be an illusion of superiority over other people, for example when each person thinks they are less biased and less conformist than the rest of the group. Even when experimental subjects are provided with reports of other subjects' introspections, in as detailed a form as possible, they still rate those other introspections as unreliable while treating their own as reliable. Although the hypothesis of an introspection illusion informs some psychological research, the existing evidence is arguably inadequate to decide how reliable introspection is in normal circumstances. Correction for the bias may be possible through education about the bias and its unconscious nature.

Components

The phrase "introspection illusion" was coined by Emily Pronin. Pronin describes the illusion as having four components:

1. People give a strong weighting to introspective evidence when assessing themselves.
2. They do not give such a strong weight when assessing others.
3. People disregard their own behavior when assessing themselves (but not others).
4. Own introspections are more highly weighted than others. It is not just that people lack access to each other's introspections: they regard only their own as reliable.

Unreliability of introspection

[I]ntrospection does not provide a direct pipeline to nonconscious mental processes. Instead, it is best thought of as a process whereby people use the contents of consciousness to construct a personal narrative that may or may not correspond to their nonconscious states. Timothy D. Wilson and Elizabeth W. Dunn (2004)

A 1977 paper by psychologists Richard Nisbett and Timothy D. Wilson challenged the directness and reliability of introspection, thereby becoming one of the most cited papers in the science of consciousness. Nisbett and Wilson reported on experiments in which subjects verbally explained why they had a particular preference, or how they arrived at a particular idea. On the basis of these studies and existing attribution research, they concluded that reports on mental processes are confabulated. They wrote that subjects had, "little or no introspective access to higher order cognitive processes". They distinguished between mental contents (such as feelings) and mental processes, arguing that while introspection gives us access to contents, processes remain hidden.

Research continues to find that humans evolved only limited abilities to introspect

Although some other experimental work followed from the Nisbett and Wilson paper, difficulties with testing the hypothesis of introspective access meant that research on the topic generally stagnated. A ten-year-anniversary review of the paper raised several objections, questioning the idea of "process" they had used and arguing that unambiguous tests of introspective access are hard to achieve.

Updating the theory in 2002, Wilson admitted that the 1977 claims had been too far-reaching. He instead relied on the theory that the adaptive unconscious does much of the moment-to-moment work of perception and behaviour. When people are asked to report on their mental processes, they cannot access this unconscious activity. However, rather than acknowledge their lack of insight, they confabulate a plausible explanation, and "seem" to be "unaware of their unawareness".

The idea that people can be mistaken about their inner functioning is one applied by eliminative materialists. These philosophers suggest that some concepts, including "belief" or "pain" will turn out to be quite different from what is commonly expected as science advances. 

The faulty guesses that people make to explain their thought processes have been called "causal theories". The causal theories provided after an action will often serve only to justify the person's behaviour in order to relieve cognitive dissonance. That is, a person may not have noticed the real reasons for their behaviour, even when trying to provide explanations. The result is an explanation that mostly just makes themselves feel better. An example might be a man who discriminates against homosexuals because he is embarrassed that he himself is attracted to other men. He may not admit this to himself, instead claiming his prejudice is because he believes that homosexuality is unnatural.

A study conducted by philosopher Eric Schwitzgebel and psychologist Russell T. Hurlburt was set up to measure the extent of introspective accuracy by gathering introspective reports from a single individual who was given the pseudonym "Melanie". Melanie was given a beeper which sounded at random moments, and when it did she had to note what she was currently feeling and thinking. After analyzing the reports the authors had mixed views about the results, the correct interpretation of Melanie's claims and her introspective accuracy. Even after long discussion the two authors disagreed with each other in the closing remarks, Schwitzgebel being pessimistic and Hurlburt optimistic about the reliability of introspection.

Factors in accuracy

Nisbett and Wilson conjectured about several factors that they found to contribute to the accuracy of introspective self-reports on cognition.

• Availability: Stimuli that are highly salient (either due to recency or being very memorable) are more likely to be recalled and considered for the cause of a response.
• Plausibility: Whether a person finds a stimulus to be a sufficiently likely cause for an effect determines the influence it has on their reporting of the stimulus.
• Removal in time: The greater the distance in time since the occurrence of an event, the less available and more difficult to accurately recall it is.
• Mechanics of judgment: People do not recognize the influence that judgment factors (e.g., position effects) have on them, leading to inaccuracies in self-reporting.
• Context: Focusing on the context of an object distracts from evaluation of that object and can lead people to falsely believe that their thoughts about the object are represented by the context.
• Non-events: The absence of an occurrence is naturally less salient and available than an occurrence itself, leading nonevents to have little influence on reports.
• Nonverbal behaviour: While people receive a large amount of information about others via nonverbal cues, the verbal nature of relaying information and the difficulty of translating nonverbal behaviour into verbal form lead to its lower reporting frequency.
• Discrepancy between the magnitudes of cause and effect: Because it seems natural to assume that a certain size cause will lead to a similarly-sized effect, connections between causes and effects of different magnitudes are not often drawn.

Unawareness of error

Several hypotheses to explain people's unawareness of their inaccuracies in introspection were provided by Nisbett and Wilson:

• Confusion between content and process: People are usually unable to access the exact process by which they arrived at a conclusion, but can recall an intermediate step prior to the result. However, this step is still content in nature, not a process. The confusion of these discrete forms leads people to believe that they are able to understand their judgment processes. (Nisbett and Wilson have been criticized for failing to provide a clear definition of the differences between mental content and mental processes.)
• Knowledge of prior idiosyncratic reactions to a stimulus: An individual's belief that they react in an abnormal manner to a stimulus, which would be unpredictable from the standpoint of an outside observer, seems to support true introspective ability. However, these perceived covariations may actually be false, and truly abnormal covariations are rare.
• Differences in causal theories between subcultures: The inherent differences between discrete subcultures necessitates that they have some differing causal theories for any one stimulus. Thus, an outsider would not have the same ability to discern a true cause as would an insider, again making it seem to the introspector that they have the capacity to understand the judgment process better than can another.
• Attentional and intentional knowledge: An individual may consciously know that they were not paying attention to a certain stimulus or did not have a certain intent. Again, as insight that an outside observer does not have, this seems indicative of true introspective ability. However, the authors note that such knowledge can actually mislead the individual in the case that it is not as influential as they may think.
• Inadequate feedback: By nature, introspection is difficult to be disconfirmed in everyday life, where there are no tests of it and others tend not to question one's introspections. Moreover, when a person's causal theory of reasoning is seemingly disconfirmed, it is easy for them to produce alternative reasons for why the evidence is actually not disconfirmatory at all.
• Motivational reasons: Considering one's own ability to understand their reasoning as being equivalent to an outsider's is intimidating and a threat to the ego and sense of control. Thus, people do not like to entertain the idea, instead maintaining the belief that they can accurately introspect.

Criticisms

The claim that confabulation of justifications evolved to relieve cognitive dissonance is criticized by some evolutionary biologists for assuming the evolution of a mechanism for feeling dissonanced by a lack of justification. These evolutionary biologists argue that if causal theories had no higher predictive accuracy than prejudices that would have been in place even without causal theories, there would be no evolutionary selection for experiencing any form of discomfort from lack of causal theories. The claim that studies in the United States that appear to show a link between homophobia and homosexuality can be explained by an actual such link is criticized by many scholars. Since much homophobia in the United States is due to religious indoctrination and therefore unrelated to personal sexual preferences, they argue that the appearance of a link is due to volunteer-biased erotica research in which religious homophobes fear God's judgment but not being recorded as "homosexual" by Earthly psychologists while most non-homophobes are misled by false dichotomies to assume that the notion that men can be sexually fluid is somehow "homophobic" and "unethical".

Choice blindness

Inspired by the Nisbett and Wilson paper, Petter Johansson and colleagues investigated subjects' insight into their own preferences using a new technique. Subjects saw two photographs of people and were asked which they found more attractive. They were given a closer look at their "chosen" photograph and asked to verbally explain their choice. However, in some trials, the experimenter had slipped them the other photograph rather than the one they had chosen, using sleight of hand. A majority of subjects failed to notice that the picture they were looking at did not match the one they had chosen just seconds before. Many subjects confabulated explanations of their preference. For example, a man might say "I preferred this one because I prefer blondes" when he had in fact pointed to the dark-haired woman, but had been handed a blonde. These must have been confabulated because they explain a choice that was never made. The large proportion of subjects who were taken in by the deception contrasts with the 84% who, in post-test interviews, said that hypothetically they would have detected a switch if it had been made in front of them. The researchers coined the phrase "choice blindness" for this failure to detect a mismatch.

A follow-up experiment involved shoppers in a supermarket tasting two different kinds of jam, then verbally explaining their preferred choice while taking further spoonfuls from the "chosen" pot. However, the pots were rigged so that, when explaining their choice, the subjects were tasting the jam they had actually rejected. A similar experiment was conducted with tea. Another variation involved subjects choosing between two objects displayed on PowerPoint slides, then explaining their choice when the description of what they chose had been altered.

Research by Paul Eastwick and Eli Finkel (described as "one of the leading lights in the realm of relationship psychology") at Northwestern University also undermined the idea that subjects have direct introspective awareness of what attracts them to other people. These researchers examined male and female subjects' reports of what they found attractive. Men typically reported that physical attractiveness was crucial while women identified earning potential as most important. These subjective reports did not predict their actual choices in a speed dating context, or their dating behaviour in a one-month follow-up.

Consistent with choice blindness, Henkel and Mather found that people are easily convinced by false reminders that they chose different options than they actually chose and that they show greater choice-supportive bias in memory for whichever option they believe they chose.

Criticisms

It is not clear, however, the extent to which these findings apply to real-life experience when we have more time to reflect or use actual faces (as opposed to gray-scale photos). As Prof. Kaszniak points out: "although a priori theories are an important component of people's causal explanations, they are not the sole influence, as originally hypothesized by Nisbett & Wilson. Actors also have privileged information access that includes some degree of introspective access to pertinent causal stimuli and thought processes, as well as better access (than observers) to stimulus-response covariation data about their own behaviour". Other criticisms point out that people who volunteer to psychology lab studies are not representative of the general population and also are behaving in ways that do not reflect how they would behave in real life. Examples include people of many different non-open political ideologies, despite their enmity to each other, having a shared belief that it is "ethical" to give an appearance of humans justifying beliefs and "unethical" to admit that humans are open-minded in the absence of threats that inhibit critical thinking, making them fake justifications.

Attitude change

Studies that ask participants to introspect upon their reasoning (for liking, choosing, or believing something, etc.) tend to see a subsequent decrease in correspondence between attitude and behaviour in the participants. For example, in a study by Wilson et al., participants rated their interest in puzzles that they had been given. Prior to rating, one group had been instructed to contemplate and write down their reasons for liking or disliking the puzzles, while the control group was given no such task. The amount of time participants spent playing with each puzzle was then recorded. The correlation between ratings of and time spent playing each puzzle was much smaller for the introspection group than the control group.

A subsequent study was performed to show the generalizability of these results to more "realistic" circumstances. In this study, participants were all involved in a steady romantic relationship. All were asked to rate how well-adjusted their relationship was. One group was asked to list all of the reasons behind their feelings for their partner, while the control group did not do so. Six months later, the experimenters followed up with participants to check if they were still in the same relationship. Those who had been asked to introspect showed much less attitude-behaviour consistency based upon correlations between earlier relationship ratings and whether they were still dating their partners. This shows that introspection was not predictive, but this also probably means that the introspection has changed the evolution of the relationship.

The authors theorize that these effects are due to participants changing their attitudes, when confronted with a need for justification, without changing their corresponding behaviours. The authors hypothesize that this attitude shift is the result of a combination of things: a desire to avoid feeling foolish for simply not knowing why one feels a certain way; a tendency to make justifications based upon cognitive reasons, despite the large influence of emotion; ignorance of mental biases (e.g., halo effects); and self-persuasion that the reasons one has come up with must be representative with their attitude. In effect, people attempt to supply a "good story" to explain their reasoning, which often leads to convincing themselves that they actually hold a different belief. In studies wherein participants chose an item to keep, their subsequent reports of satisfaction with the item decreased, suggesting that their attitude changes were temporary, returning to the original attitude over time.

Introspection by focusing on feelings

In contrast with introspection by focusing on reasoning, that which instructs one to focus on their feelings has actually been shown to increase attitude-behaviour correlations. This finding suggests that introspecting on one's feelings is not a maladaptive process.

Criticisms

The theory that there are mental processes that act as justifications do not make behavior more adaptive is criticized by some biologists who argue that the cost in nutrients for brain function selects against any brain mechanism that does not make behaviour more adapted to the environment. They argue that the cost in essential nutrients causes even more difficulty than the cost in calories, especially in social groups of many individuals needing the same scarce nutrients, which imposes substantial difficulty on feeding the group and lowers their potential size. These biologists argue that the evolution of argumentation was driven by the effectiveness of arguments on changing risk perception attitudes and life and death decisions to a more adaptive state, as "luxury functions" that did not enhance life and death survival would lose the evolutionary "tug of war" against the selection for nutritional thrift. While there have been claims of non-adaptive brain functions being selected by sexual selection, these biologists criticize any applicability to introspection illusion's causal theories because sexually selected traits are most disabling as a fitness signal during or after puberty but human brains require the highest amount of nutrients before puberty (enhancing the nerve connections in ways that make adult brains capable of faster and more nutrient-efficient firing).

A priori causal theories

In their classic paper, Nisbett and Wilson proposed that introspective confabulations result from a priori theories, of which they put forth four possible origins:

• Explicit cultural rules (e.g., stopping at red traffic lights)
• Implicit cultural theories, with certain schemata for likely stimulus-response relationships (e.g., an athlete only endorses a brand because he is paid to do so)
• Individual observational experiences that lead one to form a theory of covariation
• Similar connotation between stimulus and response

The authors note that the use of these theories does not necessarily lead to inaccurate assumptions, but that this frequently occurs because the theories are improperly applied.

Explaining biases

Pronin argues that over-reliance on intentions is a factor in a number of different biases. For example, by focusing on their current good intentions, people can overestimate their likelihood of behaving virtuously.

In perceptions of bias

The bias blind spot is an established phenomenon that people rate themselves as less susceptible to bias than their peer group. Emily Pronin and Matthew Kugler argue that this phenomenon is due to the introspection illusion. In their experiments, subjects had to make judgments about themselves and about other subjects. They displayed standard biases, for example rating themselves above the others on desirable qualities (demonstrating illusory superiority). The experimenters explained cognitive bias, and asked the subjects how it might have affected their judgment. The subjects rated themselves as less susceptible to bias than others in the experiment (confirming the bias blind spot). When they had to explain their judgments, they used different strategies for assessing their own and others' bias.

Pronin and Kugler's interpretation is that when people decide whether someone else is biased, they use overt behaviour. On the other hand, when assessing whether or not they themselves are biased, people look inward, searching their own thoughts and feelings for biased motives. Since biases operate unconsciously, these introspections are not informative, but people wrongly treat them as reliable indication that they themselves, unlike other people, are immune to bias.

Pronin and Kugler tried to give their subjects access to others' introspections. To do this, they made audio recordings of subjects who had been told to say whatever came into their heads as they decided whether their answer to a previous question might have been affected by bias. Although subjects persuaded themselves they were unlikely to be biased, their introspective reports did not sway the assessments of observers.

When asked what it would mean to be biased, subjects were more likely to define bias in terms of introspected thoughts and motives when it applied to themselves, but in terms of overt behaviour when it applied to other people. When subjects were explicitly told to avoid relying on introspection, their assessments of their own bias became more realistic.

Additionally, Nisbett and Wilson found that asking participants whether biases (such as the position effect in the stocking study) had an effect on their decisions resulted in a negative response, in contradiction with the data.

In perceptions of conformity

Another series of studies by Pronin and colleagues examined perceptions of conformity. Subjects reported being more immune to social conformity than their peers. In effect, they saw themselves as being "alone in a crowd of sheep". The introspection illusion appeared to contribute to this effect. When deciding whether others respond to social influence, subjects mainly looked at their behaviour, for example explaining other student's political opinions in terms of following the group. When assessing their own conformity, subjects treat their own introspections as reliable. In their own minds, they found no motive to conform, and so decided that they had not been influenced.

In perceptions of control and free will

Psychologist Daniel Wegner has argued that an introspection illusion contributes to belief in paranormal phenomena such as psychokinesis. He observes that in everyday experience, intention (such as wanting to turn on a light) is followed by action (such as flicking a light switch) in a reliable way, but the processes connecting the two are not consciously accessible. Hence though subjects may feel that they directly introspect their own free will, the experience of control is actually inferred from relations between the thought and the action. This theory, called "apparent mental causation", acknowledges the influence of David Hume's view of the mind. This process for detecting when one is responsible for an action is not totally reliable, and when it goes wrong there can be an illusion of control. This could happen when an external event follows, and is congruent with, a thought in someone's mind, without an actual causal link.

As evidence, Wegner cites a series of experiments on magical thinking in which subjects were induced to think they had influenced external events. In one experiment, subjects watched a basketball player taking a series of free throws. When they were instructed to visualise him making his shots, they felt that they had contributed to his success.

If the introspection illusion contributes to the subjective feeling of free will, then it follows that people will more readily attribute free will to themselves rather than others. This prediction has been confirmed by three of Pronin and Kugler's experiments. When college students were asked about personal decisions in their own and their roommate's lives, they regarded their own choices as less predictable. Staff at a restaurant described their co-workers' lives as more determined (having fewer future possibilities) than their own lives. When weighing up the influence of different factors on behaviour, students gave desires and intentions the strongest weight for their own behaviour, but rated personality traits as most predictive of other people.

However, criticism of Wegner's claims regarding the significance of introspection illusion for the notion of free will has been published.

Criticisms

Research shows that human volunteers can estimate their response times accurately, in fact knowing their "mental processes" well, but only with substantial demands made on their attention and cognitive resources (i.e. they are distracted while estimating). Such estimation is likely more than post hoc interpretation and may incorporate privileged information. Mindfulness training can also increase introspective accuracy in some instances. Nisbett and Wilson's findings were criticized by psychologists Ericsson and Simon, among others.

Correcting for the bias

A study that investigated the effect of educating people about unconscious biases on their subsequent self-ratings of susceptibility to bias showed that those who were educated did not exhibit the bias blind spot, in contrast with the control group. This finding provides hope that being informed about unconscious biases such as the introspection illusion may help people to avoid making biased judgments, or at least make them aware that they are biased. Findings from other studies on correction of the bias yielded mixed results. In a later review of the introspection illusion, Pronin suggests that the distinction is that studies that merely provide a warning of unconscious biases will not see a correction effect, whereas those that inform about the bias and emphasize its unconscious nature do yield corrections. Thus, knowledge that bias can operate during conscious awareness seems the defining factor in leading people to correct for it.

Timothy Wilson has tried to find a way out from "introspection illusion", recounted in his book Strangers to Ourselves. He suggests that the observation of our own behaviours more than our thoughts can be one of the keys for clearer introspective knowledge.

Criticisms

Some 21st century critical rationalists argue that claims of correcting for introspection illusions or other cognitive biases pose a threat of immunizing themselves to criticism by alleging that criticism of psychological theories that claim cognitive bias are "justifications" for cognitive bias, making it non-falsifiable by labelling of critics and also potentially totalitarian. These modern critical rationalists argue that defending a theory by claiming that it overcomes bias and alleging that critics are biased, can defend any pseudoscience from criticism; and that the claim that "criticism of A is a defense of B" is inherently incapable of being evidence-based, and that any actual "most humans" bias (if it existed) would be shared by most psychologists thus make psychological claims of biases a way of accusing unbiased criticism of being biased and marketing the biases as overcoming of bias.