Academic journal article The American Journal of Economics and Sociology

On the Economics of Moral Preferences

Academic journal article The American Journal of Economics and Sociology

On the Economics of Moral Preferences

Article excerpt


THE MODEL OF MAN that has dominated the neoclassical tradition in economics comprises two separable core assumptions: rationality and self-interest (Sen 2002a: 22f.). Technically, this notion of rational, self-interested behavior has been specified as the assumption that agents maximize a utility function subject to the constraints they face. In this construction, the rationality component is specified in terms of the maximization assumption, and the self-interest component is specified in terms of the entries that are included in the utility function. In fact, the agents that populate the standard economic models are essentially "reduced" to utility functions (Witt 2005: 4ff). Once the agents' utility functions are specified, the analyzing economist need not know more about them in order to predict what they will choose given the choice of options and the constraints they face. (1)

Both components of the economists' standard model, rationality and self-interest, have long been the target of criticism from nonmainstream approaches within the field, and even more so from other social sciences (Vanberg 2004). More recently, such critique has gained new impetus, not least due to research findings in behavioral and experimental economics (McFadden 2005: 12ff), and there is a broadening discussion on whether and, if so, how the economic model of man might be modified in order to account for behavioral observations that appear to conflict with its traditional interpretation. Proposals for such revisions typically focus on modifying the content of the utility function while maintaining the assumption that agents maximize their utility function, whatever its content may be. (2) A. Sen (2002a: 24) speaks of a remarkably large literature that seeks to accommodate "the dissonance between the theory and the actuality of behavior" by "skillfully 'elongating' the self-interest model."

The focus of the present article is on attempts to account in such manner for the role of moral or ethical concerns in human conduct. It is argued that this strategy ignores the critical difference between preferences over outcomes and preferences over actions, and that it fails to recognize that "moral preferences" belong in the second category. It is argued further that preferences over actions cannot be consistently accounted for within a theoretical framework that focuses on the rationality of single actions but require a shift of perspective, from a theory of rational choice to a theory of rule-following behavior.


Moral Preferences as Preferences Over Actions

IN THE LITERATURE on empirical evidence for "behavioral anomalies," references are quite often made to the fact that "standards of fairness" (Kahneman, Knetsch, and Thaler 1987: 114) appear to influence agents' behavior, and that including "a preference for fairness in the objective function" (Kahneman, Knetsch, and Thaler 1987: 115) can help to resolve the recognized anomalies. Such references to the role of concerns for fairness, equity, or justice are particularly common in the literature on ultimatum game experiments, presumably the most widely applied and discussed experiments in behavioral economics. (3) One of the most prominent contributors to this literature is Ernst Fehr, who has argued in a number of articles (Fehr and Schmidt 1999, 2003; Fehr and Falk 2003; Fehr and Fischbacher 2002) that rational choice theory can accommodate the seeming "anomalies" observed in such experiments if one relaxes the assumption of self-interest. The remedy Fehr and co-authors suggest is to include in the utility function "social preferences, in particular, preferences for reciprocal fairness," that make a person care "not only about the material resources allocated to her but also ... about the material resources allocated to relevant reference agents" (Fehr and Fischbacher 2002: C1ff).

There has been some discussion on whether the subjects' behavior in ultimatum game experiments is indeed motivated by fairness concerns, as Fehr and co-authors claim, or whether such behavior cannot be explained in terms of more simple, self-interested concerns (e. …

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