Title: Rationality and institutions : an inquiry into the normative implications of rational choice theory
Authors: Engelen, Bart
Issue Date: 29-Sep-2007
Abstract: I aim to analyze in this dissertation what a desirable basic institutional structure looks like from the perspective of rationality. While the main topic is thus normative in nature, I start by clarifying in the first part what the notion of rationality exactly entails. I do so by focusing explicitly on the economic conception of rationality, according to which a rational individual is motivated to serve his self-interest on the basis of cost-benefit calculations. Such a Homo Economicus is characterized by his intentional and instrumental actions, his perfectly informed beliefs and his exogenously given and egoistic preferences. In my view, however, this model is inadequate if one aims to understand what it means to be rational. The requirements that actions should be instrumental, beliefs should be based on perfect information and preferences should be exogenously given and egoistic in nature turn out to be overly demanding in this respect.
That is why I propose to drop these assumptions in what I label the minimal conception of rationality. Since the latter turns out to be very formal indeed, I propose two further alternatives, which focus not so much on the choice of means to achieve certain goals, as they focus on the choice of these goals themselves. According to the first, broad conception, actions are rational if they are based on good reasons, which are further qualified as well-informed beliefs and autonomous preferences. According to the second, expressive conception, actions, beliefs and preferences are rational if they express the things the individual at hand cares about. The latter requires that individuals can reflect upon and identify with their reasons, which implies a capacity to reflect upon and distance themselves from their own bundle of preferences.
In the second part of this dissertation, I try to show the value and limitations of these conceptions by applying them to the context of large-scaled elections. In this respect, it becomes immediately clear that the economic conception fails to explain why quite a lot of people go out and vote. After all, since a single vote has only an infinitesimal impact on the electoral result, it does not enable people to serve their interests or realize their goals. This leads to the so-called voting paradox, according to which no rational individual will decide to vote. The standard solution is to assume that individuals vote because they derive satisfaction from the very act itself. However, this strategy is rather ‘ad hoc’ and does not explain how people vote once they find themselves inside the voting booth. The expressive conception of rationality does better in this respect. It suggests that people vote because they care about democracy in general or about a specific political candidate or ideology. Since they conceive of themselves as being a good citizen (or a good socialist), they express this aspect of their identity by going out to vote (for the socialist party).
In the third part of this dissertation, I analyze more fully the normative implications of the different conceptions of rationality. More specifically, I try to answer the question which basic institutional structure is desirable if one assumes that people are by and large rational. This immediately shows that both the normative issue (what should institutions look like) and the explanatory issue (how do rational individuals act) are closely connected. In my view, proposals regarding institutional design and reform should be based on empirically adequate models of individual actions and motivations. This search for a realistic utopia goes against the conventional strategy of most economists. They rely on the Homo Economicus model, even if this fails to explain individual behavior.
To explain more fully what the normative implications are of the counterfactual assumption that all people are economically rational, I focus on the work of James Buchanan. In his theory of constitutional choice, he argues in favor of a minimal state whose only task is to make sure that the market functions properly. Buchanan thus favors strict constitutional limitations for governments, which tend to expand beyond legitimate borders as soon as politicians and public servants are allowed to serve their own interests. In my view, however, the abovementioned criticisms of the Homo Economicus model have theoretical as well as normative implications. After all, the empirically supported fact that a majority of individuals does not act in economically rational ways creates more room for legitimate government intervention. Expressively rational citizens will, for example, more easily agree on the necessity and desirability of a collective provision of certain public goods. In addition, expressively rational politicians and public servants can be more easily trusted to serve the public interest rather than their narrowly defined self-interest.
As an alternative to Buchanan’s one-sided focus on economic rationality (at the individual level) and the market (at the institutional level), I focus on the work of Samuel Bowles en Herbert Gintis. More specifically, I explore their work on the phenomenon of strong reciprocity, which refers to the widespread tendency of people to reward prosocial behavior and punish antisocial behavior, even if this is costly for themselves. Since this is clearly economically irrational, Bowles and Gintis propose to complement the Homo Economicus model with the Homo Reciprocans model. This model, which comes close to the expressive conception of rationality, is able to incorporate the insight that social norms surrounding reciprocity, cooperation and fairness are crucial in regulating interactions.
At the normative level, Bowles and Gintis stress that such norms often lead to socially desirable outcomes, since they enable people to live in harmony without relying on coercive and costly government interventions. This suggests that the debate between proponents of the market on the one hand and the state on the other hand neglects the importance of communities where people spontaneously interact on the basis of generally prosocial norms. As such, the insights of Bowles and Gintis lead to a defense of a basic institutional structure in which markets, states and communities mutually complement and reinforce each other. They also justify a general optimism as regards to the capacity and motivation of people to try and improve the rules and institutions that govern their everyday lives.
Table of Contents: General introduction

1. Remarks regarding content
2. Remarks regarding style and methodology


Introduction to Part I

1. Why rationality?
2. Methodological individualism

Chapter 1: The economic conception of rationality

1. Economic rationality and its failures
2. The role of economic rationality within the social sciences

Chapter 2: Alternative conceptions of rationality

1. Minimal rationality
2. Broad rationality
3. Expressive rationality

Conclusion of Part I

1. Schematic overview
2. The relation between different conceptions of rationality


Introduction to Part II

Chapter 3: Economic rationality and voting decisions

1. Economic rationality and voting decisions
2. Reconciling rationality and democracy

Chapter 4: Alternative conceptions of rationality and voting decisions

1. Minimal rationality and voting decisions
2. Broad rationality and voting decisions
3. Expressive rationality and voting decisions

Conclusion of Part II


Introduction to Part III

1. Why study institutions from the perspective of rationality?
3. In search of a realistic utopia
4. Introducing Public Choice theory and Analytical Marxism

Chapter 5: James Buchanan's theory of constitutional choice

1. Why study James Buchanan?
2. Buchanan's intellectual background
3. Buchanan's theoretical assumptions
4. Normative implications of Buchanan's theoretical assumptions
5. Criticizing and complementing Buchanan's theoretical assumptions
6. Normative implications of criticizing and complementing Buchanan's theoretical assumptions
7. Conclusion

Chapter 6: The alternative of Samuel Bowles and Herbert Gintis

1. Why study Samuel Bowles and Herbert Gintis?
2. Bowles' and Gintis' intellectual background
3. Bowles' and Gintis' theoretical assumptions
4. Normative implications of Bowles' and Gintis' theoretical assumptions
5. Conclusion

Conclusion of Part III

1. Conclusions at the explanatory level
2. Conclusions at the normative level

General conclusion

1. Avoiding a pessimistic determinism
2. The value and limitations of this research project

Publication status: published
KU Leuven publication type: TH
Appears in Collections:Centre for Ethics, Social and Political Philosophy
Centre for Economics and Ethics, Leuven

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