The Curious Culture of Economic Theory by Ran Spiegler

Author:Ran Spiegler
Language: eng
Format: epub, pdf
Tags: Economic theory; modern economic thought; game theory; rhetoric of economics; style of economics; culture of economics; behavioral economics
Publisher: MIT Press

The Power of Rational X

The list of examples in this chapter is not exhaustive. I have deliberately focused on some of the most famous examples in the rational X tradition. One prominent example I left out is Bayesian persuasion (Kamenica and Gentzkow 2011), which we already encountered in chapter 3. This model (which is conceptually and technically related to rational inattention) reduces the phenomenon of persuasion to simple Bayesian updating.

Most of economic theory can be viewed as one big “rational explanation” campaign, trying to conquer more and more areas of human behavior and bring them under the wings of the maximizing paradigm. What I referred to as “rational X” are simply the most daring instances of this program. They take types of behavior that people usually assign to the irrationality category and find a way to reconcile them with maximizing behavior of some sort. Yet, as I concluded from the examples, the reconciliation is partial: it leaves important aspects of the phenomenon out of the theory’s reach, and it also has to compromise the rationality of the behavior it attributes to the decision-maker. The blanket of utility maximization is not as wide as we imagine it to be.

The “imperialism” of the rational X program is an important reason for its success. Consider the behavioral and social phenomena we have covered in this chapter: ethnic discrimination, wishful thinking, addiction, attention deficit. These are such important and fascinating objects of study. If we look at wishful thinking alone, it seems relevant to voter behavior, provision of health information, media consumption, managerial behavior, and other social and economic arenas. The rational X approach gives us a sense that we’ve got these phenomena “figured out,” and that we’re carrying the great tradition of economics forward rather than undermining it. It lets us play with models that deviate from the norm far enough to make the problem novel and nontrivial, but not too far to deter most theorists from joining the endeavor.

Interestingly, the models I have discussed here were originally proposed by authors who are not card-carrying or full-time microeconomic theorists. Were these economists more comfortable juggling the elements of maximizing models without feeling inhibited by the traditional revealed-preference methodology, which would have exposed the tensions between these models and normatively rational choice behavior?

My description of several highly successful examples of the rational X genre may create the impression that there is a recipe for writing a successful rational X paper. First, identify a problematic or pathological type of individual or group behavior—ideally, one that has been studied by another academic discipline. Next, formulate a maximizing model to describe the phenomenon. Make the utility function mathematically nontrivial yet tractable. If the behavior that comes out of your model isn’t exactly rational, be ambiguous about whether you intend this to be a proper rationalization of the phenomenon. If the model is silent over a key aspect of the phenomenon in question, be silent, too.

This impression would be wrong: sorry, there is no surefire recipe. Observe the

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