Rational Choice Theory - Criticism

Criticism

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. DON C. LAVOIE (1977, p. 325) argued that

To the devastating critiques of positivism by such philosophers as Brand Blanshard, W. V. Quine, S. Toulmin, A. R. Lousch and Karl Popper, can now be added that of Professors Hollis and Nell. The reason for the impotence of modern economics, these authors show, lies in its method. The rejuvenation of economics necessitates developing a different methodology, one which pays attention to the aspects of social sciences which distinguish them from natural sciences. We need a method which recognizes that people are not atoms and that society is not a laboratory.

Hollis and Nell (1975) dissect the textbook combination of neo-Classicism and Positivism, so crucial to the defence of orthodox economics against now-familiar objections. 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. But we shall argue that 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 fulfil.

In their 1994 work, Pathologies of Rational Choice Theory, Green and 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 Foley (2003, p. 1) has also provided an important critic 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 neo-Classical economics is defective. Neither the Inductive Problem, nor the problems of Methodological Individualism can be solved within the framework of neoclassical assumptions. The neo-Classical 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 Inductive 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).

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. It may also explain differences between groups such as males being less risk-averse than females since males have more variable reproductive success than females. While unsuccessful risk-seeking may limit reproductive success for both sexes, males may potentially increase their reproductive success much more than females from successful risk-seeking.