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Give this some serious consideration, August 13, 2007
The idea that good decision making is a highly logical and rational process is just common sense. Our rationality-based concepts are simple, understandable, and implicitly satisfying. Yet, there is something wrong. In the book Decision Making: Alternatives to Rational Choice Models, Zey brings us to a new party. She introduces us to scholars who propose a primarily social basis for decision making while thoroughly challenging the so-called rational and reasoned choice theories (RCT). Zey's book is divided into three parts. Part 1 provides an introduction and makes the case for the complexity of decision making in general and describes accepted fallacies of RCT. These essays are written by scholars from such broad fields as mathematics, economics, and sociology. Part 2 provides a "microemphasis" on individuals and their ability to cope with complex and multifaceted components of the decision making process. Part 3 moves the discussion to a "macroemphasis" on organizations and institutions. The seven essays in this section develop a persuasive argument that organizational decision making is no more rational than individual decision making and also suffers from a number of additional constraints.
In part 1, Zey critiques seven taken-for-granted assumptions which economists and "rational choicers" use to explain how people "do" decision making. These are foundational to understanding the remainder of the book. In short, Zey's seven assumptions can be described as three types of deficiencies of rational and reasoned choice models. First, people act in concert with others. They are motivated and rewarded socially, and do not make decisions in isolation. Second, individuals often satisfice, have bounded rationality, and limited resources (i.e. information & knowledge) for decision making. This greatly strains the concept of rationality. Finally, individuals are usually part of a larger social organization. Not only is this seen as a more appropriate unit of analysis, but organizations have even more complex decision-making behaviors.
Zey supports her criticism of rational choice models with an excellent description of the paradox of rational choice. That is, economic trades only take place when individuals perceive different values for the same object. Yet, this very fact indicates that uncertainty thrives in the process of valuation. And this uncertainty is a primary constraint on rational choice.
The other contributors to Part 1 provide additional support for the limitations of rational choice. For example, Simon argues that factors such as problem definition, representation, and agenda setting, are not included in either the traditional RCT or the more modern subjective expected utility (SEU) theory. This observation should not be understated. To the extent that rational models don't include or account for problem framing, goal setting, or considerations of alternatives, they are a problematic explanation for decision making behaviors. In addition, Brennan makes a strong argument that RCT fails as a predictive device. He notes that rational choice is often demonstrated through the `revealed preference[s]' (p. 60) of an actor, which is equivalent to prediction by observing behavioral patterns. The outside observer can never tell if someone chose the optimum utility solution or know if there were other optimal solutions. Finally, Arrow identifies how the paucity of information regarding future and contingent pricing (or value) prohibits an actor from establishing a rational decision regarding current choices. That is, to make a rational choice, not only would one need to know all the pricing structures in existing markets, but also respond to the changing equilibrium as multiple actors simultaneously adjust their pricing to changing conditions. His argument is that such analysis is far beyond the cognitive ability of an individual in ordinary situations.
Part II focuses on three individual characteristics that affect decision making; values, emotions, and habits. In Chapter 5, Etzioni describes individuals as normative-affective actors. His claim is that most individual decision-making is based on "emotional involvements and value commitments" (p. 89) not rational choice. By normative, he means the values that one holds (e.g. equality, justice, freedom). His view of individual decision making behavior goes beyond just the decision itself, but also includes the information that is obtained, the way information is processed, the meaning of the information, and the options that are deemed plausible.
In Chapter 7, Flam continues the theme of affect or emotion in decision making by describing how corporate members are both emotion motivated and emotion managed. She argues that many of the legally based restraints and rules in organizations are evidence of emotion management and control. In addition, the informal rules and norms in organizations create and maintain both prescribed and proscribed emotions.
Emotion as a basis for the decision to commit a crime is beautifully described by Katz in his chapter on Seductions and Repulsions of Crime. Katz asks us to rethink our materialistic, economically based perceptions of criminal action as he describes the "delight in deviance" (p. 142) of street gangs or the feelings of shame exuded by white-collar criminals once they're exposed. As further evidence, he identifies how even a hardened criminal is subject to emotional decision making when faced with a humiliating circumstance.
Habit is the third alternative characteristic to rationality that is claimed as a factor in individual decision making. Camic outlines how the concept of habit has been investigated and then put aside in sociology literature, and therefore how habit has been understated as a motivational source. The traditional view of habit was more than an idiosyncratic pattern. It was perceived as being shaped by the individual to correlate with social peer group norms. In that way, this automated behavior provided a social alignment function that determined acceptable behavior. A compelling idea here is how the sociological construct of habit might be incorporated into schema and script theory, and perhaps social comparison theory, to offer a modern communication based explanation of this decision making motivation.
Part III moves the discussion of alternative motivations for decision making to the organizational context. The theme of "social embeddedness" provides the backdrop for organizational decision making processes. The authors successfully argue that organizational decision making strategies are frequently more concerned with the culture of the organization, its routines and values, and its legal constraints, than with the market driven rationality factors. The chapters in this section include both theoretical discussions and several specific examples.
In Chapter 12, Coleman asks us to consider a significant deficiency in rational economic theory. That is, its inability to consider how a "system" of individuals might affect a market should a sudden change occur. He uses the simple concept of "trust" to illustrate how collective thinking (e.g. sudden change in trust) might alter an entire market, counter to the normative assumption of an individual independent actor making independent decisions. He argues that not incorporating social organization into economic theory seriously diminishes its efficacy.
March and Shapira (Chapter 13) continue the discussion of organizational decision making by comparing behavioral and organizational decision theories and relating their commonalties. They begin their chapter with a literature review describing specific judgment errors that individuals are prone to make when evaluating risk and uncertainty (e.g. overestimating low probabilities). Next, they integrate organizational theory by listing several shortcomings in organizational processes. These include management focusing more on copying solutions than fixing problems, creating and using biased information, the generally poor quality of highly regarded advise, and the manipulation of information along with its inappropriate uses.
While there are several other powerful arguments in this book to diminish the prestige of RCT in organizations, Zey uses a case study (Chapter 17) to emphasize the power of social embeddedness as an underlying driver for decision making. Her example is the reform of the RICO law and its ongoing consequences. In this case, elite business and political leaders acting in concert benefited from their social embeddedness. These leaders are shown to have interdependent interests and working together distorted the legal process to their advantage. Their ability to form and maintain dense networks of influential members enhanced their ability to control and constrain other organizations.
While Zey has put together powerful arguments that discredit RCT, she avoids any discussion of how some aspects of rational choice might interplay with factors such as emotion or values. This is unfortunate, since many examples could be cited where rational choice is certainly the intent and perhaps a component of the process, even if limited by bounded cognition or resources. In the final analysis, it is clear that Zey doesn't intend for her readers to substitute any single new model of decision-making for rational-choice models, nor does she provide an exhaustive list of alternatives. Rather, she asks her readers to accept several new guests at the party. This may be disturbing to traditional decision making researchers for at least two reasons. First, the time-tested economic theories of deterministic demand curves and Pareto-efficiency are no longer foundational constructs that we can rely on. Second, the new guests to our party are not only economists and...
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by Gary Klein
