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Pavel Sebastian

ANR 403400

Gaus is stating in his first chapter that economic and instrumental rationality aresimilar in that they are linked by beliefs and that both of them are interested in

actions, or choices. The basic assumption is that beliefs are representing onesmental states and that there is an intrinsic unity between thinking and doing. Evenif economical thought assumed the image of man as a self-interest seeking animaland a utility maximizer, this is hardly an anthropological view, but rather an idealmodel which simplifies economic functions and permits the possibility of calculus inprobabilistic functions and decision theory.

Given this, we can see economics as a theory that already incorporates a certainview over human rationality and which is also the theory of that view. Therefore,economics is a theory of rationality, and its core is the instrumental theory ofrationality. But in the same time it can be seen also as a narrow view overrationality when it tries to be the only paradigm, because its core is the

instrumental theory of rationality, and as such limited to measurable quantities orformalist approaches which ignore anything that is not conscious or expressed assuch. This is how many critics interpret the economic approach to rationality.

This is the reason why economic thought did not expressly affirmed its view overrationality outside its own field from the beginning (in Hobbess time, the languageused for the portrayal of the economic rationality was still indebted to metaphysicsand to notions as human nature and universal rationality), even though it isemployed outside it. Now, economic rationality is interested in the groundedness ofthe beliefs on which the agent acts. These cannot be thoroughly subjective, neitherbased on their effectiveness because even if these may offer an explanation ofones reasons it cannot substitute the requirements of universal intelligibility. Sammight not consider rational that Jim punched that guy because he felt like it. Jimmight offer an explanation, but its rationality is constrained on Jims ownexperiences and perspectives over life. It was the thing to do only for him, and thusoutside any common field of rational behavior. Because rationality must be sharedthrough a common understanding of it to be able to describe the behavior ofagents. As such, economic rationality is about the functions of rationality asobserved in the common behavior: actions as choices - when there are choices tochose from - these implying a decision, which imply beliefs, and preferences, andgoals, able to justify the choice, not in front of a tribunal of rationality, but for theagent itself. The requirement of consistency between choices and beliefs is a logicalnecessity, but also can be viewed as a psychological must for the agent. Rationalitycannot subject itself to a single type of result: instrumentality, effectiveness orsubjective rationality, because that would limit its range of functions and wouldintroduce a complexity factor that is not necessary and would also marginalizeeconomic rationality to its own theory therefore rendering it only as a theoreticalconstrual, denying its factual implications. This is why rationality is thought as ageneral set of relations between actions and beliefs, thus circumscribing theentirety of conscious human action under the assumption that there is acorrespondence between what is visible (event) and what is not visible (intentions,beliefs etc), and that there is a framework of cognitive processes that makes all thatpossible.

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In this point we can affirm that economic rationality is not just about instrumentalreason, because then even desires would be interpreted just as goals which must besatisfied, as constant psychological structures - which is not the case - mechanizingthe psychological processes which are involved. The desire to see a film is not abouthow to get rid of the desire, but about the pleasure involved in it, not a utilitymeasure, but a subjective feeling unrelated to hedonism. The action here is actually

seeing the film, and not an instrumental act of satisfaction.

The second chapter presents what a preference is all about and its connection withthe broader interpretation of utility theory through the axioms of ordinal andcardinal utility. Utility is related with preference because both of them are productsof deliberative processes of rationality. The ordinal and cardinal utility areprescribing that preferences can have degrees, meaning that they are not absoluteand that being based on deliberative processes they can, usually, be modified overtime or replaced entirely. In the same time, a preference is always a subjectiveconstrual of comparative choices, every time a choice is made, there is anopportunity cost reminding us what we have lost by making this or that particularchoice. But ones choices do not constantly and consistently reveal ones

preferences because there is not determinate behavior to be determined throughthe choices made by an agent. As stated above, even if there is in the economicthought the premise of consistency between actions and thoughts (intentions,beliefs etc.), the mental state assigned to a choice or another is not easy todetermine. In other words, even if the actions of the agent are consistent, it is verylikely that they do not have the same meaning every time. The only thing that maybe interpreted as revealed is a deliberative ranking of the options of choice and ofoutcomes (the consequence domain) by the agent. It is not important why theagent is ranking states of the world, but that he is able to rank them. The outcomespreferred by the agent determine the type of action-option the agent will choose (ifthey are stable). Every time an outcome receives a different ranking than before,the agents preferences over action-options change.

We can generate an ordinal utility function for any agent in terms of his preferencerankings for the different outcomes if his rankings satisfy the following standardconditions for a weakordering: the ordering is complete, the agent can always rankoptions in his feasible set and decide between actions; the preference relation canbe asymmetric if a choice is strictly preferred over another - , or symmetric, if theagent is indifferent to the action-option he has to choose for an outcome; reflexivity,that the outcome of a choice is identical with the projected outcome before thechoice was made; and transitivity, where the agents preference rankings betweenaction-options is conserved on a hierarchical mapping of possible choices. Followingthis, utility is not a function in itself; it does not explain preferences, but provides arepresentation of ones preferences.

Cardinal utility theory is designed in such a way to disperse the uncertainties ofpreference ranking through ordinal utility. In the case of the latter, we do not knowthe numerical distance between preferences. Even ifxis preferred overy,yoverz,and x over z through the law of transitivity, we cannot rightfully assume theirconcrete ranking on an agents scale of preferences. Ifx is the highest rankedoption, we cannot say for certain what positionyandzoccupies. As a consequence,additional axioms are needed: the agents preferences must be continuous, thismeaning that for a set of options between x, y, z, where x is the highest ranked

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option, the agent will always trade the other two options for a high probability ofx;the agent must conform to the better prizes outcome - if we suppose a lottery withequal chances of success, the agent will chose the one which conforms to hishighest ranked preference; a corollary of the latter axiom is the better chancesaxiom, which restates the better prizes axiom but in terms of probability, thereforethe agent will choose the option with the highest probability of his highest ranked

preference; and finally, reduction of compound lotteries if the prize is anotherlottery, this can be reduced to a simple lottery between prizes. The ultimateconcern is the prize and not the gambling. If the agent meets these conditions, it ispossible to convert his ordinal utilities into cardinal ones, giving us the size of thedifferences in the payoffs for each where the higher number, the better theoutcome.

Of course, there are exceptions, and these are related to the factual consistency ofthe above axioms and with the indelible complexity of options the agent is facedwith. His choices are not just linked to possible external action-options, but also withoptions of desired subjective mental states resulted in light of the choices the agentmade. What is inviting about cardinal utility is that it can be employed to perform

expected utility calculations, by distinguishing a persons preferences overoutcomes from her preferences over action-options.

Utility theory is not, as often is viewed, a formalization of instrumental rationality.The criteria of ranking ones preferences can be any reason whatsoever. A utilityfunction can be generated any time one can determine which is the best outcome,irrelevant to the criteria of ordering. Also, bestdoes not necessary imply a practicalsatisfaction. Given this, there is no reason for us to believe that the relationbetween ranked actions and outcomes sustain an implicit consequentialism with thetheory of instrumental action. The maximization of ones utility is not the same withthe maximization of ones goals or aims. Last but not least, the justification of onespreferences involves so many psychological factors that it is almost impossible to

circumscribe ones choices to a stable and consistent interpretation over hisactions. Utility theory and decision theory are offering a possibility of rational choicein situations involving risk, and not uncertainty, as such, if something can sustain adegree of probability, is likely to be formalized through utility theory axioms, but arestill independent by the, so much criticized, narrow behavioral view of HomoEconomicus, which is not a complete theory of rational action, but, as I already said,a simplified supposition necessary for the description of functional patterns ofrationality.