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Published by EH.Net (January 2003)
Amartya Sen, _Rationality and Freedom_. Cambridge, MA: Harvard University
Press, 2002. vii-736pp. ISBN 0-674-00947-9.
Reviewed for EH.NET by Robert D. Tollison, Robert M. Hearin Professor of
Economics, Department of Economics, University of Mississippi
Professor Sen has been at the forefront of modern economics for many years,
a fact signified by his receipt of the Nobel Prize in Economic Science in
1998. He has in particular devoted a significant amount of effort to
welfare economics and social choice theory, where his immense creativity
has energized an otherwise sterile and highly technical part of the
discipline. He is equally good in math and words, so that his work in this
area is accessible to most economists and scholars in other disciplines. H
e is not just a puzzle solver; he is a deep and significant thinker on such
issues. The essays in this book represent some of his most important work
in these areas. While not denying their importance, these are not
literatures that I have followed closely, so I will abjure from making any
other comments on these aspects of Sen's work.
Sen has also been a leading constructive critic of rational choice theory
(recall his terminology-rational fools). In this regard he joins other
modern critics of economic methodology, who have created a virtual cottage
industry of anomalies and other claims of the refutation of the
implications of rational choice theory (RCT). Many of the essays in this
volume present Sen's criticisms of RCT, and since this is an issue in which
I am interested, I will focus my review on this aspect of Sen's collection
of essays.
First, this is not the first time that RCT has come under assault by
scholars arguing that economic actors do not conform to a maximization
hypothesis. Recall the extensive debate about whether firms maximize
profits in the late 1940s and 1950s. This was a useful interlude in
economics, but it mostly served the purpose of forcing scholars to be more
careful in framing maximization hypotheses, and as a consequence, the
profit-maximization hypothesis is basically a non-issue today. Does a
similar fate await the criticisms of RCT? Time will tell.
Second, many of the criticisms of RCT by Sen and others are equivalent to
letting the best become the enemy of the good. No one can reasonably argue
that RCT is a convincing theory of human behavior at all times and under
all circumstances. It cannot explain why the soldier throws himself on the
grenade to save his compatriots. Maybe it will in the future, but this is
not the point. The point is that it provides a reasonable explanation of
choices in the vast majority of cases of ordinary behavior, and ordinary
behavior in market and non-market settings arguably constitutes the bulk of
human existence. Given this empirical regularity, we depart from the use of
the model at our own analytical peril. Why discard a useful theory because
it does not explain everything, but almost everything? And needless to say,
with what do we replace homo economicus? Homo Boobus?
Third, the charge from Sen and others that economics is about narrow
self-interest is entirely misplaced. When I was taught RCT as a graduate
student, it was made clear from the start that economics is silent on what
people want. Rather, given what they want, individuals pursue their goals
efficiently. Hence, there is room for all types of behavior in RCT.
Individuals may be sinners or saints, angels or alligators, but
self-interest, scarcity, and the law of demand are the best predictors of
their actions. RCT is a big tent whose scope has expanded radically over
the last half century, and it continues to expand each day as scholars
continue to find new areas of application. Narrow self-interest is a canard
that has unfortunately captured the interest of a few otherwise thoughtful
economists. And the fact that practitioners in other disciplines do not
understand RCT except as a caricature of narrow, greedy behavior should
come as no surprise; in some cases RCT threatens to overtake their
disciplines and devalue their human capital.
Fourth, I have not done the basic research on the issue, but I wonder what
the scorecard is in the anomalies business? My impression is that
practically every anomaly has been met with empirical evidence suggesting
that RCT is the preferred explanation of the postulated choice outcome or
experimental evidence. In any event, it would be a useful exercise to
catalogue every proposed anomaly and what the evidence shows in each case.
We need to know if the set of verifiable anomalies is an empty economic
box. And if an issue is unresolved, this can be a separate category on the
scorecard.
Fifth, modern economic theory does not assume that all actors are equally
rational (whatever this may mean). People pursue their self-interests with
different degrees of skill, either naturally acquired or learned. It has
always seemed to me that this point is not fully appreciated by the critics
of economics or by economists themselves as they go about their business of
explaining human behavior. And I am not talking about bounded rationality,
but rather innate differences in the ability of individuals to pursue their
goals effectively. Many anomalies seem to derive from this basis or at
least from the absence of repeated play formats wherein such differences
would be mitigated through learning.
Of course, the main advertisement for a modified economic methodology is
the fact that someone as smart and insightful as Sen (as well as some of
the other critics) sees a need for such a change. I, nonetheless, perhaps
simplistically, do not see the promise of a new economics. RCT is doing
fine, and while anomalies add spice to the defense of RCT, in my view, in
the end, they will come to nothing. Professor Sen is to be applauded for
forcing our profession to examine our paradigm more closely, but the shot
across the bow, correcting the course, in the end falls harmlessly into the
ocean.
Robert D. Tollison teaches economics at the University of Mississippi. His
principal areas of research are public choice and industrial organization.
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