Ž .Journal of Risk and Uncertainty, 19:1]3; 109]110 1999Q 1999 Kluwer Academic Publishers. Manufactured in The Netherlands.

What’s the Problem?: A Commentary on‘‘Rationality for Economists?’’JONATHAN BARON baron@psych.upenn.edu

Department of Psychology, Uni ersity of Pennsyl ania, 3815 Walnut St., Philadelphia, PA 19104-6196

Daniel McFadden’s article raises many interesting questions about the implicationsof psychology experiments for economic theory. How serious is the problem? Istand roughly with McFadden on the continuum of answers to that question.Specifically, people’s decisions are often systematically inconsistent with rationality,but not so much as to force to abandon the assumption that people do have‘‘preferences,’’ which I interpret to mean objectives, or criteria for evaluating

Žoutcomes. The term could also mean ‘‘tendencies to choose one thing over.another,’’ which is not the same. Economic theory speaks with many voices about

the requirements of rationality, but most of them echo the utilitarian foundationsof the field: what is rational is to maximize the all-things-considered achievementof goals or objectives, i.e., to maximize utility. People are systematically irrational,and it is meaningful to say so. That is, we need not give up the idea that people aredeviating from something real.

What are the most serious deviations from rationality? McFadden speaks of allsorts of different deviations, from consumer choices to investments to surveyresponses. I suggest that the deviations are most serious in survey responses and,

Ž .more generally, in political behavior both action and inaction . I include here allbehavior directed at influencing policy choices that affect many others aside fromthe decision maker. The reason for this is that such behavior is motivated largelyby moral intuitions. Compared to investing and consumer behavior, politicaldecisions do not benefit from feedback. Each person’s influence is small, andactors almost never attribute outcomes to their own decisions. All decisions areinfluenced by the kind of intuitive responses that McFadden describes.

If people were thoughtful utilitarians, they would engage in political behaviorout of an understanding that the small size of their effect is compensated by the

Ž .large population affected Baron, 1997 . But political behavior seems to be moti-vated by the desire to express moral opinion, or, we might say, moralistic opinionŽ . ŽBrennan and Lomasky, 1993 . Moralistic opinion concerns effects on others,

.regardless of their own self-interest.Perhaps most serious of all the effects McFadden describes is the status-quo

effect, which is explained in terms of loss aversion. People are unwilling to endorsechanges that involve both losses and gains even when the gains clearly outweigh

Ž .the losses Baron, 1998 . Since almost all reforms, from changes in environmental

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protection to changes in trade protection, involve losses as well as gains, thestatus-quo wins, over and over. Almost all negotiation among interest groupsinvolves such trades of gains and losses, so the same effect makes political

Žnegotiation break down. In commercial negotiation, the prospect of a breakdown.focuses the mind because self-interest is more involved.

An additional impediment to political agreement is the feeling that the values onŽ .one’s own side are absolute Baron and Spranca, 1996 .

References

Ž .Baron, Jonathan. 1997 . Political action vs. voluntarism in social dilemmas and aid for the needy.Rationality and Society 9, 307]326.

Ž .Baron, Jonathan. 1998 . Judgment Misguided: Intuition and Error in Public Decision Making. New York:Oxford University Press.

Ž .Brennan, Geoffrey, and Loren Lomasky. 1993 . Democracy and Decision: The Pure Theory of ElectoralPolitics. Cambridge, UK: Cambridge University Press.

Ž .Baron, Jonathan, and Mark Spranca. 1997 . Protected values. Organizational Beha¨ior and HumanDecision Processes 70, 1]16.