Summary
Preferences and Rational Choice: New Perspectives and Legal Implications
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Will as international bargaining: implications for rationality.
Rationality has been understood as conducting yourself according to reason rather than passion. In modern times this endeavor has become synonymous with maximizing your expected goods, with the value of expected but delayed goods discounted exponentially. However, behavioral research has found a robust tendency for delayed goods to be discounted hyperbolically, that is, for their value to be divided by their delay. This finding supplies a simple hypothesis about the origin of irrationality, but greatly complicates the problem of rationality, since it depicts a limited warfare relationship among interests within an individual. Recent research on the combining properties of hyperbolically discounted rewards supports the hypothesis that a person's will arises from a prisoner's-dilemma-like relationship among successive motivational states. This picoeconomic hypothesis provides a mechanism for both the strength and "freedom" of the will, and predicts pathologies of overcontrol that make strength of will something very different from pure rationality. This approach offers insights into current puzzles about criminal responsibility and the disease model of addiction.
INTRODUCTION Rationality is an ancient concept, one that Plato contrasted with passion to form a dichotomy of choice principles. (1) Through the ages rationality has meant the good way to make choices, the way that will maximize your satisfaction with the outcome. As such, it has been a norm rather than a description of actual behavior. However, since utility theory has postulated that people always maximize their expected utility, rationality has acquired a descriptive implication: the rational is what anyone inevitably will do whenever she is aware of the true contingencies she faces. Irrationality then is merely error, the product of some fallacious valuation process. Modern rational choice theory (RCT) thus aims not only at normative optimality but also at factual accuracy; it consists of "a series of assumptions about how people respond to incentives." (2) Yet it inevitably retains a normative implication as well, the implied contrast with the phenomenon of irrationality. As a descriptive theory, RCT has come under attack from two disparate directions. People wary of reductionist science complain that it under-recognizes empathic transactions; they claim that it depicts as natural--and thus promulgates--a selfish, money-grubbing society. (3) At the same time, empirical researchers find that it fails to predict important examples of behavior exhibited by well-informed subjects in experiments within behavioral science. (4) Furthermore, the examples documented by systematic analysis are only a small proportion of the behavior patterns that people say they do not want but seem unable to give up. Seemingly free choice has led not only to alcoholism and drug abuse in a significant minority of people, but also to an epidemic of overeating, credit card abuse, overconsumption of passive entertainment, and other bad habits too widespread to be diagnosed as pathological. (5) RCT arose not so much from empirical research as from a theoretical analysis of what decision strategies will dominate in marketplaces. (6) To prevail over any significant period of time, an intention must be stable, and stability requires the standard properties of rationality--particularly commensurability, transitivity, and invariance across contexts. (7) However, this approach makes rational choice theory a set of rules for winning play--a normative model--rather than a description of how choice actually works. Even in the far simpler world of game theory, human subjects in experiments notoriously fail to follow obvious strategies that would increase their success. (8) Psychologist Daniel Kahneman and his collaborators have directly studied human utility maximization. They estimated "objective happiness" by taking subjects' numeric self-reports of happiness moment by moment and calculating the area under the resulting curve over time. (9) According to the researchers, "[l]ogical analysis suggests" that the utility that a person derives from a particular event should be equal to the integral of all the instants that make up that event. (10) The integral that the researchers derived from this experiment did not reflect the way that the same subjects chose between the very experiences that they had evaluated this way. Subjects did not prefer those experiences with the greatest summed happiness (or least summed unhappiness), but displayed various perceptual distortions, particularly overvaluation of the greatest momentary reading and the latest reading. (11) These experiments demonstrate that real world utilities, as evaluated by RCT, fail tests for transitivity and invariance and, therefore, that conventional RCT is flawed as a descriptive theory. In this Article, we present a utility-based model that fixes the major p...See the full content of this document
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