Tracing the Origins of Rational Choice Theory

Tracing the Origins of Rational Choice Theory

Catherine Herfeld

Catherine Herfeld Hermann.jpg

John von Neumann (1903–57), founding father of twentieth-century formal decision and game theory and its application to economics. Source: Library of Congress, US.

With the beginning of the Cold War, the "rationality principle" gained extraordinary prominence not only in American social sciences, but also amongst philosophers, mathematicians, and statisticians, computer scientists, and operations researchers. At an unprecedented level of sophistication, human decision-making processes became formally represented by complex algorithms, and individual choice became conceptualized by a very limited number of axioms formulated in set-theoretical language, whose abstract concepts allowed for great flexibility in their interpretation and thereby facilitated the application of 'rational choice theory' (RCT) beyond economics.

RCT has been praised as a universal theory of human behavior that captures the core characteristics of individual choice and thereby allows for explaining and forecasting conduct. Critics, however, have rejected it as being a purely formal framework that reduces the agent to a calculator of predetermined solutions for complex decision-problems. Furthermore, discussions concerning the explanatory potentials and limitations of RCT are repeatedly infiltrated by conceptual confusions and misunderstandings about its actual character and purpose in economic practice.

This project departed from the thesis that, in large parts, Cold War economics appears to have experienced a twofold shift, the elaboration of which might help us to better understand this disagreement. In tracing the origins of RCT since the 1920s, the aim of the project was to shed light on this shift from an epistemologically-informed perspective. The resulting account serves as a basis for subsequently re-evaluating the arguments for and against the empirical usefulness of RCT and for a first attempt to critically appraise the framework with respect to its explanatory potentials in light of seeming "competitors" such as behavioral and experimental economics.