Academic journal article Vanderbilt Law Review

Putting Rational Actors in Their Place: Economics and Phenomenology

Academic journal article Vanderbilt Law Review

Putting Rational Actors in Their Place: Economics and Phenomenology

Article excerpt


The model of human behavior that is used in microeconomics is both normative and descriptive. As a normative model, it is an historical successor to the medieval concept of grace and the Renaissance concept of virtue. As a descriptive model, it is a theory of human psychology. Economists tend to deemphasize this point because psychology is a notoriously "soft" science, and economists aspire to the "hard" sciences' precision. Nonetheless, any model that states the way human beings behave under specified circumstances is necessarily a theory of the way the human mind functions, and thus belongs in the category of psychology.

The particular brand of psychology that microeconomics propounds is generally called rational actor theory, and comes in two varieties. The "weak" or "thin" variety states that people's behavior is generally designed to maximize their ability to achieve their goals. The "strong" or "thick" variety, which quite correctly declares itself to be a subset of the first, states that people's behavior is generally designed to maximize their ability to achieve the particular goal of their material self-interest. Because terms such as weak or strong, thick or thin, carry extraneous connotations, the first variety will be described in this Article as rational actor theory, and the second will be described as rational choice theory.

Both of these psychological models have been subjected to sustained criticism, ranging from minor emendations to outright rejections. The essence of this criticism has been that these models, although they possess a simplicity that makes them easy to apply, are unrealistic accounts of human behavior. Originally the criticism was based on what may be called macro-empirics, that is, observations about large-scale behaviors such as altruism, self-sacrifice, ideological commitment, and cooperation.1 In recent years, a new criticism, based on what may be called micro-empirics, or behavioral economics, has been articulated. This is essentially a set of laboratory studies which suggest that people in a variety of simple experimental settings do not behave in a rational manner. Instead, their behavior displays a variety of systematic irrationalities that include endowment effects, regret, and excessive optimism.2

While these empirically based criticisms of rational actor theory seem convincing, rational actor theory itself has been confirmed by other empirical tests that seem equally convincing. One strategy for resolving this conflict is to assume that the theory is in fact a comprehensive account of human behavior, and that its subsequent developments, unknown at present, will be able to explain the apparently disconfirming data. The difficulty with this approach, however, is that it is based on an unjustified assumption that rational actor theory is correct. In addition, the theory's existing explanations, as they are extended across an increasingly wide range of behaviors, are already becoming counterintuitively complex. A second strategy for resolving the conflict is to assume that rational actor theory only operates over a delimited range of behaviors, and that the situations identified by the macro- and micro-empirical criticisms are explained by a different theory. This approach has the advantage of being based on the data as it presently exists, and of potentially offering more intuitively appealing explanations. It requires, however, that the boundary between rational actor theory and its alternatives be defined and that these alternatives be described by some positive theory of their own, rather than by uninformative negations like "irrational."

This Article offers a preliminary version of this second resolution. It argues that rational actor theo and its rational choice component, are accurate theories of human psychology, but only in a limited range of situations. The limitations occur because these theories are actually subsets of a larger, more comprehensive theory, namely phenomenology. …

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