Rationality, Rule-Following and Emotions: On the Economics of Moral Preferences

The long-standing critique of the ‘economic model of man’ has gained new impetus not least due to the broadening research in behavioral and experimental economics. Many of the critics have focused on the apparent difficulty of traditional rational choice theory to account for the role of moral or ethical concerns in human conduct, and a number of authors have suggested modifications in the standard model in response to such critique. This paper takes issue with a quite commonly adopted ‘revisionist’ strategy, namely seeking to account for moral concerns by including them as additional preferences in an agent’s utility function. It is argued that this strategy ignores the critical difference between preferences over outcomes and preferences over actions, and that it fails to recognize that ‘moral preferences’ belong into the second category. Preferences over actions, however, cannot be consistently accounted for within a theoretical framework that focuses on the rationality of single actions. They require a shift of perspective, from a theory of rational choice to a theory of rule-following behavior. 1. The Economic Model of Man: Rationality and Self-Interest The model of man that has dominated the neoclassical tradition in economics comprises two separable core assumptions, rationality and self-interest. Agents are assumed to act rationally in pursuit of what they wish to achieve. And what they wish to achieve is assumed to be defined in terms of their own well-being. Technically this notion of rational, self-interested behavior has been specified as the assumption that agents maximize a utility function subject to the constraints they face. In this construction the rationality component of the economic model of man is specified in terms of the maximization assumption, and the self-interest component is specified in terms of the entries that are included in the utility function. In fact, the agents that populate the standard economic models are essentially ‘reduced’ to utility functions (Witt 2005: 4ff.). 1 Sen (2002a: 22f.): “It is the self-interest view of rationality that has been effectively dominant in contemporary economics...(T)he narrow view of rationality simply as intelligent pursuit of self-interest, and the corresponding characterization of the so-called ‘economic man,’ have been very influential in shaping a dominant school of thought in modern economics...Not only is this assumption widely used in economics, but many of the central theorems of modern economics (e.g., the Arrow-Debreu theorem...) significantly depend on it.”