Academic journal article The American Journal of Economics and Sociology

Social Dimensions of Individualistic Rationality

Academic journal article The American Journal of Economics and Sociology

Social Dimensions of Individualistic Rationality

Article excerpt

Introduction

The purpose of this article is to re-examine the introduction of social dimensions into the economic conception of individual rationality. I will endeavor to show that the main problem of most of the different attempts to socialize the rational utility maximizer is that they preserve a fundamental a-social aspect of the model: its opportunistic nature. To overcome this difficulty I propose to blur the Weberian distinction between instrumental and expressive rationality and in so doing, allow a far more realistic--and altogether richer--conception of the sociality of man in his, or her, pursuit of their own affairs.

There is a considerable amount of literature that attempts at socializing the rational utility maximizer, or Homo-Economicus. Most of it, however, proposes to do so by the introduction of direct social considerations into the objective function. But in so doing, they turn the analysis into an ad-hoc one and the agent into a Homo-Sociologicus. Whether or not this is an improvement on the Homo-Economicus is far from obvious. (1) For one, as we shall see below, the Homo-Sociologicus is not free from the opportunistic nature of Homo-Economicus.

There are, in my view, three main streams characterizing the literature that evolved around the care about the social dimensions in individuals' behavior. The first one is the one in which areas outside of economics have adopted the rational utility maximizer. These include public choice theory in politics, (2) sociology, (3) and the more eclectic use of the model in dealing with many specific social issues. (4) By expanding the domain to which the model of the rational utility maximizer can be applied, the model appears to become more socially relevant. (5) However, while such an approach could tell us about the behavior of rational individuals in the social domain, it does not tell us much about how the fact that the agent is a social being will affect his, or her, more private, economic interactions.

The second stream is the one that is emerging from game theory and experimental economics. Here, there are mainly two questions that drive the analysis. First, there is the problem of coordination games; how do agents select a Nash-equilibrium? (6) Second, there is the accumulated experimental evidence that the predictions of the standard model in the cases of Ultimatum and Public Good games are incorrect. (7) Notwithstanding the questions of whether any of these is typical of the economic decisions that individuals make or whether experimental results are reliable, the search for solutions generated a considerable interest in the social dimensions of individual behavior.

These led, on the one hand, to a near-collective idea such as "team reasoning" according to which people make choices that will benefit others too, and on the other hand, to notions of social preferences where the "other" becomes explicit in one's very individualistic preferences. The idea of "team reasoning," as a manifestation of the social dimension in individual behavior, is rather problematic. It requires that agents will have such a strong sense of community that they will be able to understand its objectives and identify with the entire system within which they operate. They will also have to believe that everyone else shares their commitment and to act on edicts emanating from this "collective" reasoning. (8) While this may make sense in the context of a well defined game environment, its extension to the whole economy (or even the market) is somewhat difficult to follow. Moreover, as Krueger (2008) finds, this approach borders a complete departure from methodological individualism. While such a departure may be deemed necessary by some, here, we are still interested in examining whether methodological individualism can carry, in a meaningful way, the social dimensions of human behavior.

The response to the failure of the standard model to correctly predict the results of Ultimatum and Public Good games was to insert social consideration into the utility functions of individuals and so to transfer their preferences into social preferences. …

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