Individual rationality is the wrong starting point
from Bruce Edmonds
Many economists used to assume that Economic Rationality (each actor evaluating possible actions in terms of predictions about resulting utility and choosing the optimal) is the right model for human decision making. After Simon and others, this was moderated with various variations on that basic model (e.g. satisficing), or the introduction of various biases or noise. However this is surely starting at the wrong place – it is like saying bicycle wheels should be square just with slightly rounded corners to make them work. Surely, much better is to either (a) try to start from a model of rationality that more reflects how people actually behave or (b) try a wider variety of behavioural models. Here, instead of taking an economic base, I consider what might be an evolutionary basis – what kinds of rationality we might expect given the evolution of homo sapiens.
The “Social Intelligence Hypothesis” (Humphrey’s 1976, Kummer et al 1997 in this) tries to answer the question of exactly what selective advantage do our physiologically expensive brains give us. In other words, why would a big brain (rather than, say, an ability to run fast or having big claws) allow one to survive rather than another entity. The answer they suggest is that the crucial advantage it gives us is the ability to socially organise and act. Thus a group of people can develop knowledge, technologies, ways of coordinating, social structures etc. that may allow them to survive within their own environment, such as the people of the Kalahari, or the Inuit nations in the North of Canada. In other words a group’s culture (in the widest sense) allows them to inhabit different, specific niches (Reader 1980). The ultimate survival value of inhabiting many different kinds of niche comes from the resistance this gives from unexpected catastrophes (such as an Ice age). This hypothesis explains many of our characteristics: face recognition, a sophisticated imitation ability, language, fine tuned in/out group recognition, sensitivity to social context, social norms, etc.
If this view is correct then our social abilities are more basic to our cognition, and any individual ‘general’ intelligence a by-product of these. In fact it means that any model of human behaviour that consists just of an individual and its environment is missing the point – it is not just Economic Rationality that is wrong but any model that looks at human behaviour from an over-individualistic standpoint. It may well be that we have inherited simple learning and reasoning abilities from distant ancestors based upon feedback in terms of pleasure, pain or other simple indicators, but what is added in humans, our ‘higher’ abilities, has a social origin and scope.
[This view thus goes beyond Simon's comments in the preface to "Models of Man; social and rational' (1957) which said in the preface that his essays “are concerned with laying foundations for a science of man that will comfortably accommodate his dual nature as a social and as a rational animal”. It is also beyond what is usually meant by 'Social Intelligence' (which just means an individual's ability to navigate the social realm). However it is very similar to others, including: Paul Omerod's vew of networked rationality (see talk on this but he is uncharacteristically polite about economics here), that of 'homo socialis' (Lindenberg, Helbing), and Vygotsy's view of intelligence.]
Clearly, we do not yet know what the best model of human thought and decision-making is – neither psychology nor neuroscience has yet determined this. However, rather than clinging to a model that is clearly inadequate, insisting that it merely needs some adjustments, look to a variety of models with different bases. Making models of economic phenomena when one is starting with the wrong basis is, at best, a huge waste of much research time and, at worst, misleading to all these policy makers who still take any notice of what their models say. Let us start to look for the right shape of wheel to make our bicycles go.
[Appendum in the light of many of the comments below making clear a couple of things I might have just assumed. (1) the model of "economic rationality" has comprehensively empirically failed - the trouble is, it is more a "way of thinking" than a testable theory so that it can always be adjusted to make it seem right, but this is the point - Ptolemy's theory of epi-cycles could always have been elaborated to fit observed data about planetary orbits, but ellipses are a much better starting point. Contrary to the comments, cognition has not been examined to discover a "currency" of utility in our brains - again this is fitting facts to a flexible framework. (2) of course individuals make decisions and learn as individuals, but using machinery evolved for a social purpose. There is no such thing as a "general" intelligence, just intelligence adapted to particular situations, ours is well adapted for social coordination. It is poorly adapted for individual intelligence, although does include a whole "rag bag" of abilities. Following this, we did not evolve a general intelligence to cope with social life, but some quite specific abilities - hence the need for a rethink about the model of cognition used in economic (and other social) models.]