Rationality and Freedom

Published by EH.Net (January 2003)

Amartya Sen, Rationality and Freedom. Cambridge, MA: Harvard University

Press, 2002. vii-736pp. ISBN 0-674-00947-9.

Reviewed for EH.NET by Robert D. Tollison, Robert M. Hearin Professor of

Economics, Department of Economics, University of Mississippi

Professor Sen has been at the forefront of modern economics for many years, a

fact signified by his receipt of the Nobel Prize in Economic Science in 1998.

He has in particular devoted a significant amount of effort to welfare

economics and social choice theory, where his immense creativity has energized

an otherwise sterile and highly technical part of the discipline. He is equally

good in math and words, so that his work in this area is accessible to most

economists and scholars in other disciplines. H e is not just a puzzle solver;

he is a deep and significant thinker on such issues. The essays in this book

represent some of his most important work in these areas. While not denying

their importance, these are not literatures that I have followed closely, so I

will abjure from making any other comments on these aspects of Sen’s work.

Sen has also been a leading constructive critic of rational choice theory

(recall his terminology-rational fools). In this regard he joins other modern

critics of economic methodology, who have created a virtual cottage industry of

anomalies and other claims of the refutation of the implications of rational

choice theory (RCT). Many of the essays in this volume present Sen’s criticisms

of RCT, and since this is an issue in which I am interested, I will focus my

review on this aspect of Sen’s collection of essays.

First, this is not the first time that RCT has come under assault by scholars

arguing that economic actors do not conform to a maximization hypothesis.

Recall the extensive debate about whether firms maximize profits in the late

1940s and 1950s. This was a useful interlude in economics, but it mostly served

the purpose of forcing scholars to be more careful in framing maximization

hypotheses, and as a consequence, the profit-maximization hypothesis is

basically a non-issue today. Does a similar fate await the criticisms of RCT?

Time will tell.

Second, many of the criticisms of RCT by Sen and others are equivalent to

letting the best become the enemy of the good. No one can reasonably argue that

RCT is a convincing theory of human behavior at all times and under all

circumstances. It cannot explain why the soldier throws himself on the grenade

to save his compatriots. Maybe it will in the future, but this is not the

point. The point is that it provides a reasonable explanation of choices in the

vast majority of cases of ordinary behavior, and ordinary behavior in market

and non-market settings arguably constitutes the bulk of human existence. Given

this empirical regularity, we depart from the use of the model at our own

analytical peril. Why discard a useful theory because it does not explain

everything, but almost everything? And needless to say, with what do we replace

homo economicus? Homo Boobus?

Third, the charge from Sen and others that economics is about narrow

self-interest is entirely misplaced. When I was taught RCT as a graduate

student, it was made clear from the start that economics is silent on what

people want. Rather, given what they want, individuals pursue their goals

efficiently. Hence, there is room for all types of behavior in RCT. Individuals

may be sinners or saints, angels or alligators, but self-interest, scarcity,

and the law of demand are the best predictors of their actions. RCT is a big

tent whose scope has expanded radically over the last half century, and it

continues to expand each day as scholars continue to find new areas of

application. Narrow self-interest is a canard that has unfortunately captured

the interest of a few otherwise thoughtful economists. And the fact that

practitioners in other disciplines do not understand RCT except as a caricature

of narrow, greedy behavior should come as no surprise; in some cases RCT

threatens to overtake their disciplines and devalue their human capital.

Fourth, I have not done the basic research on the issue, but I wonder what the

scorecard is in the anomalies business? My impression is that practically every

anomaly has been met with empirical evidence suggesting that RCT is the

preferred explanation of the postulated choice outcome or experimental

evidence. In any event, it would be a useful exercise to catalogue every

proposed anomaly and what the evidence shows in each case. We need to know if

the set of verifiable anomalies is an empty economic box. And if an issue is

unresolved, this can be a separate category on the scorecard.

Fifth, modern economic theory does not assume that all actors are equally

rational (whatever this may mean). People pursue their self-interests with

different degrees of skill, either naturally acquired or learned. It has always

seemed to me that this point is not fully appreciated by the critics of

economics or by economists themselves as they go about their business of

explaining human behavior. And I am not talking about bounded rationality, but

rather innate differences in the ability of individuals to pursue their goals

effectively. Many anomalies seem to derive from this basis or at least from the

absence of repeated play formats wherein such differences would be mitigated

through learning.

Of course, the main advertisement for a modified economic methodology is the

fact that someone as smart and insightful as Sen (as well as some of the other

critics) sees a need for such a change. I, nonetheless, perhaps simplistically,

do not see the promise of a new economics. RCT is doing fine, and while

anomalies add spice to the defense of RCT, in my view, in the end, they will

come to nothing. Professor Sen is to be applauded for forcing our profession to

examine our paradigm more closely, but the shot across the bow, correcting the

course, in the end falls harmlessly into the ocean.

Robert D. Tollison teaches economics at the University of Mississippi. His

principal areas of research are public choice and industrial organization.