The Psychology of Economic Decisions: Volume I: Rationality and Well-Being (The Psychology of Economic Decisions, Volume 1) [Paperback]

Isabelle Brocas (Editor), Juan D. Carrillo (Editor)

Book Description

ISBN-10: 0199251088 | ISBN-13: 978-0199251087 | Publication Date: April 10, 2003

A collection of carefully selected contributions to behavioral economics from some of the leading international scholars in the field. Designed to fully complement Volume One, topics covered include preferences, behavioral game theory, motivated mental states and emotions and decision making.

Editorial Reviews

Review

A fascinating and timely book. Journal of economic Behaviour and Organization --This text refers to the Hardcover edition.

About the Author

Isabelle Brocas is at the Department of Economics, Columbia University. She is also a research affiliate at CEPR, and co-editor of the Annals of the Marie Curie Fellows Association. Juan D. Carrillo is Associate Professor at Columbia University Graduate School of Business. He is also a research affiliate at CEPR, and Associate Editor of the Spanish Economic Review.

Product Details

• Paperback: 360 pages
• Publisher: Oxford University Press, USA (April 10, 2003)
• Language: English
• ISBN-10: 0199251088
• ISBN-13: 978-0199251087
• Product Dimensions: 9.1 x 6.1 x 0.9 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (1 customer review)
• Amazon Best Sellers Rank: #2,319,875 in Books (See Top 100 in Books)

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This review is from: The Psychology of Economic Decisions: Volume I: Rationality and Well-Being (The Psychology of Economic Decisions, Volume 1) (Paperback)

This is the first of two volumes of papers by very prominent economists and psychologists with the aim of developing a better model of the relationship between choice and welfare than either discipline currently possesses. The book is sufficiently important that I will comment separately on the various chapters, returning to this review to edit periodically, as I go through the book.

The first chapter, by Roy F. Baumeister, explains why people make choices that are "irrational," in the sense of not contributing to their well-being. The economist will note that we do not use the term "irrational" for this phenomenon. Rather, "irrational" in economics means lacking consistent preferences. There is a tendency for psychologists to use the term anyway they please, and indeed, economists are generally no more coherent in their use of the term. I have given up on the term "rational" altogether for this reason. For instance, in this review I will refer to the rational actor model as the Beliefs, Preferences, and Constraints (BPC) model. This chapter may be useful for a novice, but it is analytically weak and excessively general. It includes really incorrect assertions, such as "A rational being should by definition pursue enlightened self-interest." (p. 3). This consigns altruistic and virtuous (e.g., truth-telling) activity to irrationality, which is a mistake. Consistent with this, the author suggests that self-destructive activities should emphasize tradeoffs and counterproductive strategies. Aside from the lack of analytical clarity of these phenomena, they again exclude critical choice forms, such as acting out of obligation, keeping promises, and sacrificing for one's family and society.

The second chapter, by Kent C. Berridge, has a fine description of the neurological basis for the difference between "decision" and "experienced" utility, but hooked up to a completely naïve understanding of the economists' BPC model. Like other psychologists in this book, he therefore ends up not adjudicating economics and psychology, but denying economic theory altogether. This, by the way, is common among psychologists, who appear to love to describe behavior as "irrational" as a way to win brownie points in a disciplinary battle with economics. It should not have been tolerated by the editors of this book, because it is destructive of the project of developing a unified model of the individual decision-maker. In this case, Berridge considers and experiment where subjects are given subliminal visual cues that are either "happy" or "angry", verifies that subjects were not aware of the cues and their self-reported emotional state was not effected. However, those shown the "happy" cues preferred more of a sweet soft drink than those shown the "angry" cues. Berridge holds that this is "irrational." It is no such thing. Human choice depends on preferences, beliefs and constraints. Preferences are a function of the state of the individual, and hence are not unchanging. Hunger, thirst, sexual drive, previous consumption history, and a host of other parameters affect choice. Moreover, most of our mental activity is not available to our consciousness, so whether we are aware of our current state or not is quite irrelevant. Burridge's argument is thus symptomatic of the psychologist's inability to deal maturely with economic theory, in a way that could produce a unified model. This is a fine paper if you start with section 3.

The third chapter, by the prominent behavioral economist George Loewenstein and well-known coauthors, argues that the pursuit and assessment of happiness can be self-defeating. This is quite correct, of course. For instance, if I constantly ask myself if the music I'm listening to is good or bad, I cannot really enjoy it. Similarly, hard work, honesty, and self-sacrifice might produce more happiness than attempting always to stimulate the pleasure centers. Much interesting material is presented here. However, the authors go to great lengths to alienate economists, making absurd statements whose sole value is to dump on economic theory. For instance, they hold that "ordinal" utility theory is a mistake, and we should return to Bentham's "cardinal" utility of pleasure and pain. In fact, individual choice deviates consistently and profoundly from pleasure maximization, and it is a great step forward for economics to recognize this over the past half-century. Experienced utility is very important, but it is not a superior theory to the BPC model, which takes the relationship between choice and welfare as an empirical problem to be unraveled. Of course, the authors know this, but they cannot resist making absurd statements whose sole value is to piss off most economists.

More to come...