Human beings under some conditions tend to systematically overestimate their possibilities, under others to underestimate what is possible for them. This behaviour can be explained by differentiating between an ipsative possibility set (which includes what individuals consider relevant for themselves) and on objective one. These two possibility sets do not necessarily coincide. The difference may firstly be due to psychologicol processes as well as factors such as tradition and ideology. The difference may secondly be strategically designed by the individuals themselves (...) knowing that they otherwise reach less utility. The approach stresses that it is essential to determine the possibility sets within which individuals rationally decide between alternatives. (shrink)

Social identity poses one of the most important challenges to rational choice theory, but rational choice theorists do not hold a common position regarding identity. On one hand, externalist rational choice ignores the concept of identity or reduces it to revealed preferences. On the other hand, internalist rational choice considers identity as a key concept in explaining social action because it permits expressive motivations to be included in the models. However, internalist theorists tend to reduce identity to desire—the desire of (...) a person to express his or her social being. From an internalist point of view, that is, from a viewpoint in which not only desires but also beliefs play a key role in social explanations as mental entities, this article rejects externalist reductionism and proposes a redefinition of social identity as a net of beliefs about oneself, beliefs that are indexical, robust, and socially shaped. (shrink)

This article reexamines the rational choice or economic approach to human studies. Its adherents claim that its extension beyond its original domain to all human behavior can finally lead to integration of the human studies, especially social theory, and thus their elevation from what they see as a chaotic state. Specifically, they propose grounding human studies on the premise that humans are rational egoists or self-interested utility maximizers. Although this premise has been the conceptual foundation of orthodox economic theory, it (...) has been questioned, and even in part discredited in its heterodox versions. This reexamination casts serious doubts on such claims. (shrink)

Recent interpretations of citizenship are firmly rooted in the value of social membership and social participation. Citizens are described as having a moral right to draw upon the support of the community, but at the same time have a responsibility to contribute to the provision of social services such as health care. In contrast, contemporary health economics has been criticised for taking a narrow and individualistic view of human behaviour. This paper examines the extent to which economic theory and practice (...) have been developed to accommodate a more ‘civic’ view, namely, the notions of mutual concern for community members, social participation and social rights. It is argued that because the provision of health care is often linked to feelings of compassion and social responsibility and not just to individual well-being, this sort of insight may enrich economic analysis and, in turn, provide a way around health economics’ reputed ‘dead end’. (shrink)

The article suggests that in a modern context, where value pluralism is a prevailing and possibly, even ethically desirable interaction condition, institutional economics provides a more viable business ethics than behavioural business ethics, such as Kantianism or religious ethics. The article explains how the institutional economic approach to business ethics analyses morality with regard to an interaction process, and favours non-behavioural, situational intervention with incentive structures and with capital exchange. The article argues that this approach may have to be prioritised (...) over behavioural business ethics, which tends to analyse morality at the level of the individual and favours behavioural intervention with the individual’s value, norm and belief system, e.g. through ethical pedagogy, communicative techniques, etc. Quaker ethics is taken as an example of behavioural ethics. The article concludes that through the conceptual grounding of behavioural ethics in the economic approach, theoretical and practical limitations of behavioural ethics, as encountered in a modern context, can be relaxed. Probably only then can behavioural ethics still contribute to raising moral standards in interactions amongst the members (stakeholders) of a single firm, and equally, amongst (the stakeholders of) different firms. (shrink)

The paper maps out an alternative to a behavioural (economic) approach to business ethics. Special attention is paid to the fundamental philosophical principle that any moral ‘ought’ implies a practical ‘can’, which the paper interprets with regard to the economic viability of moral agency of the firm under the conditions of the market economy, in particular competition. The paper details an economic understanding of business ethics with regard to classical and neo-classical views, on the one hand, and institutional, libertarian thought, (...) on the other hand. Implications are derived regarding unintentional and passive intentional moral agency of the firm. The paper moves on to suggest that moral agency can be economically viable in competitive ‘market’ interactions, which is conventionally disputed by classical/neo-classical and institutional, libertarian economics. The paper here conceptualises active moral agency of the firm as the utilisation of ethical capital in firm--stakeholder interactions. This yields a reinterpretation of instrumental stakeholder theory. (shrink)

This commentary focuses on the parts of psychological game theory dealing with preference, as illustrated by team reasoning, and supports the conclusion that these theoretical notions do not contribute above and beyond existing theory in understanding social interaction. In particular, psychology and games are already bridged by a comprehensive, formal, and inherently psychological theory, interdependence theory (Kelley & Thibaut 1978; Kelley et al. 2003), which has been demonstrated to account for a wide variety of social interaction phenomena.

This article analyzes the problem of preference imputation in rational choice political science. I argue against the well-established practice in political science of assuming selfish preferences for purely methodological reasons, regardless of its empirical plausibility (this I call a preference for selfish preferences). Real motivations are overlooked due to difficulties of imputing preferences to agents in a non-arbitrary way in the political realm. I compare the problem of preference imputation in economic and political markets, and I show the harmful consequences (...) of the preference for selfish preferences in the field of collective action. Key Words: rational choice theory • preference • functionalism • collective action. (shrink)

Many situations in human life present choices between (a) narrowly preferred particular alternatives and (b) narrowly less preferred (or aversive) particular alternatives that nevertheless form part of highly preferred abstract behavioral patterns. Such alternatives characterize problems of self-control. For example, at any given moment, a person may accept alcoholic drinks yet also prefer being sober to being drunk over the next few days. Other situations present choices between (a) alternatives beneficial to an individual and (b) alternatives that are less beneficial (...) (or harmful) to the individual that would nevertheless be beneficial if chosen by many individuals. Such alternatives characterize problems of social cooperation; choices of the latter alternative are generally considered to be altruistic. Altruism, like self-control, is a valuable temporally-extended pattern of behavior. Like self-control, altruism may be learned and maintained over an individual's lifetime. It needs no special inherited mechanism. Individual acts of altruism, each of which may be of no benefit (or of possible harm) to the actor, may nevertheless be beneficial when repeated over time. However, because each selfish decision is individually preferred to each altruistic decision, people can benefit from altruistic behavior only when they are committed to an altruistic pattern of acts and refuse to make decisions on a case-by-case basis. (shrink)

Professional institutions are increasingly confronted by fiscal constraints and political pressures to improve and increase their accountability in a competitive consumer-driven market. Accordingly, the need to ensure efficiency and accountability is of strategic importance. This article reports on a qualitative study of medical professionals that assessed the utility of financial incentives and external control methods derived from agency theory to ensure accountability of professionals. The authors argue that approaches derived from stewardship and institutional theories can extend the principal–agent perspective to (...) sustain greater social and ethical accountability. (shrink)

Being a formal and general as well as the most widely accepted approach to practical rationality, rational decision theory should be crucial for justifying rational morals. In particular, acting morally should also be rational in decision theoretic terms. After defending this thesis, in the critical part of the paper two strategies to develop morals following this insight are criticized: game theoretical ethics of cooperation and ethical intuitionism. The central structural objections to ethics of cooperation are that they too directly aim (...) at the rationality of moral action and that they to do not encompass moral values or a moral desirability function. The constructive half of the paper takes up these criticisms by developing a two-part strategy to bring rationality and morals in line. The first part is to define ‘moral desirability’. This is done, using multi-attribute utility theory, by equating several adequate components of an individual’s comprehensive utility function with the moral desirability function. The second part is to introduce mechanisms, institutions, in particular socially valid moral norms, that provide further motivation for acting in accordance with morals. (shrink)

Rachlin's thought-provoking analysis could be strengthened by greater openness to evolutionary interpretation and the use of the directed attention concept as a component of self-control. His contribution to the understanding of prosocial behavior would also benefit from abandoning the traditional (and excessively restrictive) definition of altruism.

It is central to standard economic theory that people act on their interests. People are interested in a variety of things, so a range of values should influence market behavior. When engaged in commerce, however, people generally act for personal gain; the influence of other values usually just disappears in the marketplace. What is missing from the standard account is that people often act on proper subsets of their interests. Economics can, however, be extended to capture this insight. Key Words: (...) economic theory • attention • self-interest • social responsibility • discrimination. (shrink)

The options that people face are rarely ideal: they are good in some ways and poor in others. People have problems choosing among such options because they don’t know which ends to favor. Multiple objectives pose a problem not only for decision makers, but also for our account of decision making. People act to achieve their ends given their beliefs. In order to handle decisions with multiple objectives, however, this story must be supplemented by an account of which ends are (...) implicated in which decisions (e.g., do individual goals guide particular choices? do different ends jointly pick out courses of action?). Unfortunately, such an account is lacking. As a result, there is a gap (at least) in our most basic account of human behavior. In this paper I explore that gap and examine some proposals for closing it. (shrink)

In this article, I argue that if we challenge some tacit assumptions of narrow rationality that endure in much of entrepreneurial studies, we can elevate entrepreneurial ethics beyond mere external constraints on rational action, and move toward fuller integration of ethics as an intrinsic part of the process of value creation itself. To this end, I propose the concept of practical wisdom as a framework for exploring entrepreneurial decision making and action that can broaden the scope of our research to (...) recognize entrepreneurship as an inherendy normative enterprise. Specifically, I suggest that a framework built upon a concept of practical wisdom enables us to adopt a richer and more complex view of entrepreneurial decision making that is well suited to the dynamic and uncertain context of entrepreneurship. Further, this framework enriches our view of entrepreneurial ethics to include consideration of the personal character, values, and purpose of the entrepreneur. By examining entrepreneurship through a lens of practical wisdom, we can open up new avenues of fruitful inquiry for scholars of entrepreneurship. (shrink)

Rational choice theory enjoys unprecedented popularity and influence in the behavioral and social sciences, but it generates intractable problems when applied to socially interactive decisions. In individual decisions, instrumental rationality is defined in terms of expected utility maximization. This becomes problematic in interactive decisions, when individuals have only partial control over the outcomes, because expected utility maximization is undefined in the absence of assumptions about how the other participants will behave. Game theory therefore incorporates not only rationality but also common (...) knowledge assumptions, enabling players to anticipate their co-players' strategies. Under these assumptions, disparate anomalies emerge. Instrumental rationality, conventionally interpreted, fails to explain intuitively obvious features of human interaction, yields predictions starkly at variance with experimental findings, and breaks down completely in certain cases. In particular, focal point selection in pure coordination games is inexplicable, though it is easily achieved in practice; the intuitively compelling payoff-dominance principle lacks rational justification; rationality in social dilemmas is self-defeating; a key solution concept for cooperative coalition games is frequently inapplicable; and rational choice in certain sequential games generates contradictions. In experiments, human players behave more cooperatively and receive higher payoffs than strict rationality would permit. Orthodox conceptions of rationality are evidently internally deficient and inadequate for explaining human interaction. Psychological game theory, based on nonstandard assumptions, is required to solve these problems, and some suggestions along these lines have already been put forward. Key Words: backward induction; Centipede game; common knowledge; cooperation; epistemic reasoning; game theory; payoff dominance; pure coordination game; rational choice theory; social dilemma. (shrink)

Equity in health and health care is animportant issue. It has been proposed that thepursuit of equity in health care is beinghampered by the dominance of individualism inhealth care practices. This paper explores theway in which communitarian ideals and practicesmight lend themselves to the pursuit of equity.Communitarians acknowledge, respect and fosterthe bonds that unite and identify communities.The paper argues that, to achieve equity inhealth care, these bonds need to be recognisedand harnessed rather than ignored. The notionof individual autonomy in the (...) context of thecommunity is examined. Alternative concepts ofautonomy – social autonomy and communityautonomy – are seen to be more respectful andnurturing of both the individual and thecommunity. Moreover, these concepts appeardesirable for the pursuit of health care equitygoals. The paper concludes with some thoughtsabout how equity in Australia's health caresystem can reasonably progress within acommunitarian vision. Disadvantaged communitiesare discussed throughout, in particular,Australian Aboriginal communities. (shrink)

Cognitive biases that affect decision making may affect the decisions of citizens that influence public policy. To the extent that decisions follow principles other than maximizing utility for all, it is less likely that utility will be maximized, and the citizens will ultimately suffer the results. Here I outline some basic arguments concerning decisions by citizens, using voting as an example. I describe two types of values that may lead to sub-optimal consequences when these values influence political behavior: moralistic values (...) (which people are willing to impose on others regardless of the consequences) and protected values (PVs, values protected from trade-offs). I present evidence against the idea that voting is expressive, i.e., that voters aim to express their moral views rather than to have an effect on outcomes. I show experimentally that PVs are often moralistic. Finally, I present some data that citizens’ think of their duty in a parochial way, neglecting out-groups. I conclude that moral judgments are important determinants of citizen behavior, that these judgments are subject to biases and based on moralistic values, and that, therefore, outcomes are probably less good than they could be. (shrink)

Cognitive biases that affect decision making may affect the decisions of citizens that influence public policy. To the extent that decisions follow principles other than maximizing utility for all, it is less likely that utility will be maximized, and the citizens will ultimately suffer the results. Here I outline some basic arguments concerning decisions by citizens, using voting as an example. I describe two types of values that may lead to sub-optimal consequences when these values influence political behavior: moralistic values (...) (which people are willing to impose on others regardless of the consequences) and protected values (PVs, values protected from trade-offs). I present evidence against the idea that voting is expressive, i.e., that voters aim to express their moral views rather than to have an effect on outcomes. I show experimentally that PVs are often moralistic. Finally, I present some data that citizens’ think of their duty in a parochial way, neglecting out-groups. I conclude that moral judgments are important determinants of citizen behavior, that these judgments are subject to biases and based on moralistic values, and that, therefore, outcomes are probably less good than they could be. (shrink)

This paper investigates the influence that social ties can have on behavior. After defining the concept of social ties that we consider, we introduce an original model of social ties. The impact of such ties on social preferences is studied in a coordination game with outside option. We provide a detailed game theoretical analysis of this game while considering various types of players, i.e., self-interest maximizing, inequity averse, and fair agents. In addition to these approaches that require strategic reasoning in (...) order to reach some equilibrium, we also present an alternative hypothesis that relies on the concept of team reasoning. After having discussed the differences between the latter and our model of social ties, we show how an experiment can be designed so as to discriminate among the models presented in the paper. (shrink)

Most writers on resource management presume that local populations, if they act in their self-interest, seldom conserve or protect natural resources without external intervention or privatization. Using the example of forest management by villagers in the Indian Himalayas, this paper argues that rural populations can often use resources sustainably and successfully, even under assumptions of self-interested rationality. Under a set of specified social and environmental conditions, conditions that prevail in large areas of the Himalayas and may also exist in other (...) mountain regions, community institutions are more efficient in managing resources than either private individuals or the central government. In advancing this argument, the paper undermines the often dogmatic belief in the universal superiority of private forms of ownership and management. (shrink)

This is a comprehensive anthology of works concerning the nature of economics as a science, including classic texts and essays exploring specific branches and schools of economics. Apart from the classics, most of the selections in the third edition are new, as are the introduction and bibliography. No other anthology spans the whole field and offers a comprehensive introduction to questions about economic methodology.