Table of Contents

Handbook of Economics and Ethics

Handbook of Economics and Ethics

Elgar original reference

Edited by Jan Peil and Irene van Staveren

The Handbook of Economics and Ethics portrays an understanding of economic methodology in which facts and values, though distinct, are closely interconnected in a variety of ways. From theory building to data collection, and from modelling to policy evaluation, this encyclopaedic Handbook is at the intersection of economics and ethics.

Chapter 54: Rationality

Shaun P. Hargreaves Heap

Subjects: economics and finance, behavioural and experimental economics, history of economic thought


Shaun P. Hargreaves Heap I The dominant model of individual rationality in economics, sometimes known as the rational choice model, identifies individuals with their preferences and casts reason in the role of deciding how best to satisfy them. This is a calculative, instrumental sense of reason. Its task, much as David Hume suggested when famously averring reason as ‘slave of the passions’, is to work out the means to given ends. A person’s preferences are often represented in this tradition by a mathematical device called a ‘utility’ function. Some care is required with the term ‘utility’. It reflects the historical association of this model with the moral philosophy of utilitarianism, yet that connection has long been lost. The utility function now simply assigns numbers to outcomes such that the highest number goes to the outcome that best satisfies a person’s preferences, the second highest number goes to the next best, and so on until the least valued outcome gets the lowest number. This mapping enables simple mathematics to be used in the analysis of choice, because acting so as to best satisfy preferences is now the equivalent of choosing to maximize utility. To re-create the connection with the moral philosophy of utilitarianism would require in addition that these ‘utility’ numbers be interpersonally comparable, whereas they are entirely personal devices for representing preferences (and so by themselves are only likely to license a condition like Pareto optimality). Little is said about a person’s preferences on this account. They must satisfy certain...

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