Philosophy, Politics, and Economics

An Introduction

Gerald Gaus, John Thrasher

• Publisher: Princeton University Press
• Year: 2021
• Print ISBN: 9780691219790, 9780691211251
• eBook ISBN: 9780691219806
• Topic: Philosophie
• Subtopic: Wirtschaftstheorie

An updated and expanded edition of the classic introduction to PPE—philosophy, politics, and economics—coauthored by one of the field's pioneers

Philosophy, Politics, and Economics offers a complete introduction to the fundamental tools and concepts of analysis that PPE students need to study social and political issues. This fully updated and expanded edition examines the core methodologies of rational choice, strategic analysis, norms, and collective choice that serve as the bedrocks of political philosophy and the social sciences. The textbook is ideal for advanced undergraduates, graduate students, and nonspecialists looking to familiarize themselves with PPE's approaches.

Starting with individual choice, the book develops an account of rationality to introduce readers to decision theory, utility theory, and concepts of welfare economics and consumer choice theory. It moves to strategic choice in game theory to explore such issues as bargaining theory, repeated games, and evolutionary game theory. The text also considers how social norms can be understood, observed, and measured. Concluding chapters address collective choice, social choice theory and democracy, and public choice theory's connections to voters, representatives, and institutions.

Rigorous and comprehensive, Philosophy, Politics, and Economics continues to be an essential text for this popular and burgeoning field.

• The only book that covers the entirety of PPE methods
• A rigorous, nontechnical introduction to decision theory, game theory, and positive political theory
• A philosophical introduction to rational choice theory in the social sciences

1

Rationality

This chapter considers basic questions concerning the nature of rationality. We begin by looking at rationality and choice generally before connecting these ideas to economic rationality in the form of the Homo economicus model of rationality. Rationality, we argue, is goal oriented: rational choice is about choosing actions to achieve one’s chosen goals. This simple idea, though, has a number of potential complexities hidden within it and getting clear on these is a big part of this chapter. After developing the idea of rational choice and rational beliefs, we add more content to that notion to generate the Homo economicus model of rationality that we will use and interrogate throughout the rest of this book.

Rationality and Choice

In the course of a day and over the entire course of a life, we are constantly confronted with choices. Some are comparatively minor, like the choice of what to have for breakfast. Others are decidedly less so, like the choice of what career to pursue, where to live, and whether to have children. Retrospectively, we look at the choices we have made and ask whether we made the “right” choice in the circumstances. We can and do also ask this about the choices we see others make and even of imaginary or long dead characters. Should Hamlet have looked for his father’s killer? Did it make sense for Lear to turn Cordelia away? Was it a good idea for Abraham Lincoln to go to Ford’s Theater on the night of April 15, 1865? We all know how these decisions turned out (not well), but the question of whether those characters made a good decision can’t be wholly answered by what we know of the actual results of those decisions.

The world presents us with challenges, inconveniences, and opportunities. We make choices and act to make the world a more comfortable place to live. We find things we care about, things we value. We attempt to act to achieve our goals and values. When we deliberate about what we should do, we look for something to justify one choice over another. We want some reason to act in a particular way. The goal of all action or choice is to improve our lot by our own lights, and when we look at the world and see a state of affairs that we believe could be made better, this judgment gives us a reason to take action. There are intricacies to what it means to have a reason, but at its simplest level, a reason is just a justification for an action. If I am thirsty, I have a reason to drink some water.

In ordinary life as well as in the social sciences and philosophy, we evaluate choices and decisions on the basis of whether they are rational. In that sense, rationality is the basic norm of decision-making. In a sense, all of economics is about rationality. Economic analysis is based on a certain conception—or, as we shall see, conceptions—of rational choice.

The (very) short answer to the question “what is economics?” is “the theory of rational choice, and its consequences, under constraints.” It is because this basic idea is so powerful, and economists have developed it in such sophisticated ways, that economic approaches have come to dominate other social sciences such as political science, as well much of political philosophy. The core of the economic model—and indeed, all our thinking about rational action—is a theory of rationality. We call this “rational choice theory” or “decision theory,” but in all its forms it amounts to developing basic norms for evaluating choices and decisions.

This theory was developed, in one strand, by Thomas Hobbes and later British empiricists and through them became basic to the emerging science of political economy in the nineteenth century. The model has given rise to a variety of specifications. Some follow David Hume (1711–1776) and argue that all rational action is intended to satisfy desires. Another strand comes out of the development of probability theory and statistics. These strands fused into a general theory of rationality in the twentieth century by Oskar Morgenstern (1902–1977), John Von Neumann (1903–1957), Frank Ramsey (1903–1930), Leonard Savage (1917–1971), and others. The theory they developed became the rational choice theory that is the basis of contemporary economics, game theory, political science, and is used in political philosophy.

What Is Rationality?

The basic material of any theory of rational choice consists of three elements. These are states of the world (states), actions that one might take (actions), and ways the world can be after one acts (outcomes). The world is one way, we want it to be other than it is, and we act to bring that better world about. This is the basic model of rational choice.

It is important to note that while this is a model of choice, one is always choosing actions, which are causal interventions on the world. In this sense, we can agree with John Milton (1608–1674) that “reason is but choosing.” States of the world and outcomes are both just ways the world happens to be or how it might be. The difference between them is temporal or, rather, causal. Actions transform states into outcomes and not vice versa, and this is what distinguishes one from the other.

We choose actions, not outcome. If I am thirsty (state), I can’t decide to have my thirst sated (outcome). I can, however, choose to take a drink of water (action) in an attempt to bring about the outcome that I want. In this case, choosing this action will very likely lead to a positive outcome. This is the trivial case where it is pretty clear what the right or rational choice is, but knowing what is rational is not always so easy. Indeed, it is not always possible to clearly evaluate the paths from actions to outcomes. Some of these subtleties will be discussed in the next chapter, for now it is only necessary to say that rationality is an evaluative standard that we apply to choices of actions that aim at outcomes.

We can begin to think about what a standard of rationality might look like by considering some obvious failures of rationality. We are unlikely to believe that choices that seem random are rational. This is not because randomness is contrary to rationality; indeed, as we will see in later chapters, adopting a policy to choose randomly may be a perfectly rational strategy in some situations. What makes randomness seem non-rational, when it is not done as the result of a larger strategy, is that it makes the choice in question seem to lack a point or an aim. Rational choice aims at having a positive impact by one’s own lights at least.

All rational choice aims at an end, which is to say that all rational choices aim to bring about some kind of outcome. In this sense, rational choice is teleological since the choice of an action is parasitic on the end that the action is meant to achieve. This is also described as instrumental rationality, since the idea is that rationality is an instrument for connecting means (actions) to ends (outcomes). Rationality, in this sense, is a norm or evaluative standard for assessing choices on the basis of how the choice of actions is related to various outcomes. As a norm, rationality is distinct from thinking, reasoning, or deliberating. One may deliberate at length and still not make a rational choice, or one may make a rational choice without deliberating at all.

This last point is very important. Since rationality is an evaluative standard—a norm—and not, in the first instance, a process, we can often attribute rationality to choices that we may not have understood at the time or that seemed otherwise strange. Much of the social sciences, especially psychology, is the search for an explanation, in rational terms, for otherwise puzzling behavior. We see this in literature and history as well. Think of Abraham and Isaac. Although he spared him in the end, Abraham’s willingness to sacrifice his only son Isaac appears inexplicable until you know the aim of his intended action. The same can also often be said of seemingly perverse or insane behavior like the mass sacrifices that were so common in pre-Columbian Mesoamerica. These sacrifices had complex political and social functions, aside from the obvious religious explanations, and cannot be explained as merely irrational bloodlust.

What these examples should highlight is that rationality is a pretty capacious standard. Even if we know a choice is rational, there are a number of other questions we can ask about it, like whether it was a sensible or morally right. One might also think that rationality is so expansive a notion that it doesn’t rule out any choices except the truly random, but this would not be correct. To get a fuller sense of what a norm of rationality amounts to, we need to look more closely at different possibilities for how to specify such a standard.

Rationality as Effectiveness

One question we might ask at the outset is why we can’t just judge choices and decisions by their fruits. In other words, if your choice has a good outcome, it was a good choice and vice versa. This is probably the simplest way to think about rationality; so much so that we might even think of it as a “folk theory” of rationality. We can call this view Rationality as Effectiveness.

Rationality as Effectiveness

An agent A’s choice to φ is rational if and only if φ-ing is an effective way to achieve A’s desire, goals, end, or taste G.

Certainly, this makes sense; if choice is an instrument for achieving one’s goals, then it would seem a choice is rational if it is effective in that end. Simple, right?

Ah, philosop...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Preface
• Introduction
• 1. Rationality
• 2. Ordinal Utility Theory
• 3. Cardinal Utility
• 4. Efficiency and Contract
• 5. Foundations of Game Theory
• 6. Advanced Topics in Game Theory
• 7. Conventions, Norms, and Institutions
• 8. Social Choice Theory
• 9. Public Choice and Democracy
• Bibliography
• Index