By Deepanshu Mohan:
The soaring instances of racial discrimination, adversities from global climate change, acts of terrorism, frequency in economic crises through speculative stock market crashes, debt, capital flight etc. all seem to bring out a common behavioural aspect that ties most of these recurring phenomena within/across nations today: a reflection of choices made by individuals in actions driven by a motivation to maximise their absolute self-interest while ignoring the consequences of such actions on the well-being of others.
A mainstream economist may tell you that a “rational” economic individual or group would seek to do exactly this, advocating for “self-interest maximising” behaviour as a guiding force in rational economic decision-making. But is that how we can understand the idea of rationality today? Here, I seek to address the entrenched nature of the uniformly held belief (“self-interest maximisation defining rationality”) in mainstream economic thought today. Based on a closer observation and reading of the literature, I see if there is more to the concept of rationality than how it is perceived to be.
A theme of prodigious scholarly exploration amongst political and economic philosophers (from Aristotle in ancient Greece to Thomas Schelling, George Akerloff in recent times); the idea of rationality, in individual and social choice decision making, has emerged most visibly in modern economic theory.
Almost every given model designed in providing an empirical explanation or solution to a given economic problem implicitly assumes a self-interest maximising rational individual. While rational thought in economics seeks to explore the behavioural aspect of human nature through fundamental questions like who is a rational economic individual, and what a rational economic individual ought to do, the predictive nature of rational choice explained solely under the blanket of a self-interest maximising belief (under Rational Choice Theory (RCT)) seems narrow, both from a normative and empirical sense.
In his work on “Rationality and Freedom” (2002), Amartya Sen argued how particular aspects of preferred choices in our decisions are quite often motivated by other forms of ‘reasons’, through “habit formation” or an experiential behaviour of the individual under given stimuli. Additionally, if an individual’s goals can accommodate for broader values or social considerations (based on her/his position in a social setting), the ability of her/him to make a decision may go beyond a single-minded self-promotion interest.
For example, a woman deciding to marry someone under a more socially restrained family set-up may not be able to make an individual decision based solely on a self-interest maximising principle (i.e., marrying someone who she loves or is most convinced in happily marrying). In her decision to marry someone, she may primarily be influenced by her family’s own collective belief (in this case, based on the weight of social preference attached to parameters like caste, employment level, income, identity etc. by the woman’s parents or her extended relatives). It would be unfair to call the woman here “irrational”, just because her own decision to marry is not based on a purely self-interest maximising principle.
It is pertinent to note here that in denying that rationality, in terms of decision-making, demands that one must act in a single-minded way does not necessarily prevent oneself from promoting the goals of others (assuming that she/he thinks and decides without being coerced in any way). Rational choice can also be realised on developing a reasonable understanding in the ability of an individual to critically scrutinise her/his decision based on the constraints of what can be part of some accepted societal or sensible behaviour (can be related to what Adam Smith calls “the established rules of behaviour” in “The Theory of Moral Sentiments”).
One may ask then why do mainstream economists restrict the concept of rationality in justifying the behaviour of an economic individual to a self-interest maximising basis only?
One possible answer to this is in context to what is interpreted from the works of Adam Smith by most economists who somehow hail Smith as a proponent of the assumption of the exclusive interest of self-interest. This is not true and a social choice theorist like Amartya Sen provided enough evidence on this in his own work (refer to his classic 1977 essay on “Rational Fools“).
Also, a closer reading of “The Theory of Moral Sentiments” by Adam Smith gives us a more lucid understanding of his view on rationality in an individual’s decision-making motivations which, as Smith argued, are also based on attributes of sympathy, generosity and public spirit; featured as non-self interest maximising motivational factors for an individual’s actual choice.
Reasonableness In Rationality?
There is nothing irrational about decisions or making actual choices beyond the contours of maximising one’s own welfare or well-being. We can definitely take the feature of self-interest maximisation as a useful motivation for explaining most individuals’ decisions. However, there is more than this to the concept of rationality; as an individual’s goals can go beyond a single-minded promotion of self-interest to be driven by a more reasonable choice made from a process of self-scrutiny (what may be more prudential in its applied nature through some form of self-introspection or reflection based on an individual’s past experiences or actions) or alternatively, within a social context considering the demands of “reasonable conduct” towards others (what John Rawls discusses extensively in his work on “A Theory of Justice”).
In considering the demands of the latter, i.e., “reasonable conduct”, social considerations and preferences (in case of our above example, the weight attached by the woman’s parents on parameters like caste, identity, income level and social position of a man) can very well play an important role in the decision-making process of an individual (i.e., the woman herself). So, what we may believe is right or wrong from the lens of rationality here, may pretty well go beyond what most mainstream economists dictate.
Thomas Scanlon in “What We Owe To Each Other?” makes a valuable argument. In it he says, “Thinking about right and wrong is, at the most basic level, thinking about what could be justified to others on grounds that they, if appropriately motivated, could not reasonably object.” Scanlon’s emphasis (also interpreted by Sen in 2009) here is on the need for a rational individual to incorporate a degree of “reasonableness” into her/his actual choice (the kind of which John Rawls talks about) and subsequently, going beyond the idea of self-interest maximisation as the only rational motivation.
The idea of ‘rational’ thought in decision-making today may do well to incorporate the role played by a critical self-scrutinised choice process and/or the dynamics of reasonable conduct which is conscious to the existing social preferences and considerations present. The broader application of such form an evolving thought which may provide a more holistic and applied meaning to rational expectations, while challenging and questioning the logical core of mainstream economic thinking today.
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