Amartya Sen - Rational Fools: A Critique of the Behavioural Foundations of Economic Theory
● Edgeworth’s principle of man as self-interested animal is persistent in economic models and
foundational in economic theory
○ in Edgeworth’s time egoism and utilitarianism were seen as the exhaustive approaches to
action
■ this is narrow - between the claims of the self (egoism) and the claims of all
(utilitarianism) lie intermediate groups - families, friends, communities, classes
etc
○ Edgeworth’s model, based on egoistic behaviour, led to a correspondence between
exchange equilibria in competitive markets and ‘the core’ of the economy
■ ‘the core’ - outcomes which are Pareto efficient, in which nobody is worse off
than he could be without trade, and no group of individuals could improve their
position by altering the trade amongst themselves
● yet these outcomes are not necessarily impressive in terms of social
welfare
○ often this question has been posed in terms of ‘what good outcomes can egoistic
behaviour achieve?’
■ this often assumes egoism, and hence avoids the issue at hand
■ first we should consider what egoistic behaviour consists in, and whether it is
realistic (correct)
● One reason we might use the concept of a self-seeking egoist in economic models is because it is
possible to formulate all behaviour so that no matter what is chosen, it represents the agent’s
interests
○ this is if we define interests or preferences as revealed/residing exclusively in action
■ e.g. if I eat a banana rather than an apple, I was acting self-interestedly, and
revealed a preference
○ one constraint on this is consistency
■ if I make inconsistent choices then for that to be rational I must be either be
inconsistent or have changing preferences
○ this seems like an evasion of the issue
○ the rationale of this approach is that we can only understand someone’s preferences
through the actual choices that they make
○ without preference and welfare the egoist approach presumes both too little and too
much: too little because there are non-choice sources of information on preference and
welfare, and too much because choice may reflect a compromise between various
considerations, with personal welfare being just one
● The rational choice theory may appear circular, because behaviour is explained by preferences,
which in turn are defined by behaviour
○ in spite of this circularity, the thesis is not meaningless, because it can be falsified -
where choice is inconsistent
■ but this still doesn’t answer the question of whether the choices people make are
self-interested; of whether egoism is accurate
● In considering apparent deviations from egoism, we might distinguish between two concepts:
● Edgeworth’s principle of man as self-interested animal is persistent in economic models and
foundational in economic theory
○ in Edgeworth’s time egoism and utilitarianism were seen as the exhaustive approaches to
action
■ this is narrow - between the claims of the self (egoism) and the claims of all
(utilitarianism) lie intermediate groups - families, friends, communities, classes
etc
○ Edgeworth’s model, based on egoistic behaviour, led to a correspondence between
exchange equilibria in competitive markets and ‘the core’ of the economy
■ ‘the core’ - outcomes which are Pareto efficient, in which nobody is worse off
than he could be without trade, and no group of individuals could improve their
position by altering the trade amongst themselves
● yet these outcomes are not necessarily impressive in terms of social
welfare
○ often this question has been posed in terms of ‘what good outcomes can egoistic
behaviour achieve?’
■ this often assumes egoism, and hence avoids the issue at hand
■ first we should consider what egoistic behaviour consists in, and whether it is
realistic (correct)
● One reason we might use the concept of a self-seeking egoist in economic models is because it is
possible to formulate all behaviour so that no matter what is chosen, it represents the agent’s
interests
○ this is if we define interests or preferences as revealed/residing exclusively in action
■ e.g. if I eat a banana rather than an apple, I was acting self-interestedly, and
revealed a preference
○ one constraint on this is consistency
■ if I make inconsistent choices then for that to be rational I must be either be
inconsistent or have changing preferences
○ this seems like an evasion of the issue
○ the rationale of this approach is that we can only understand someone’s preferences
through the actual choices that they make
○ without preference and welfare the egoist approach presumes both too little and too
much: too little because there are non-choice sources of information on preference and
welfare, and too much because choice may reflect a compromise between various
considerations, with personal welfare being just one
● The rational choice theory may appear circular, because behaviour is explained by preferences,
which in turn are defined by behaviour
○ in spite of this circularity, the thesis is not meaningless, because it can be falsified -
where choice is inconsistent
■ but this still doesn’t answer the question of whether the choices people make are
self-interested; of whether egoism is accurate
● In considering apparent deviations from egoism, we might distinguish between two concepts:
