Edited by Luigino Bruni and Stefano Zamagni
Chapter 28: Rationality
People usually think that they act for a reason. The dominant model in economics of individual rationality in this sense holds that people act so as to satisfy best their preferences. This is an instrumental model of rationality: reason is cast in the role of selecting the best means to an end, the satisfaction of preferences. The model is also sometimes known as the ‘rational choice’ or ‘utility maximisation’ model. Nothing deep should be read into ‘utility’ here. A ‘utility’ function is simply the device for representing people’s preferences mathematically. The best outcome for that person receives the highest (‘utility’) number, the next best outcome gets the next highest number, and so on, until the least favoured one has the lowest number. As a result when one acts so as to satisfy best one’s preferences, it is the equivalent of selecting the outcome from those available with the highest ‘utility’ number. The rational choice model is usefully quiet about the character of people’s preferences. The preferences themselves can be selfish, altruistic, honourable, admirable, spiteful, etc. All that is required is that they yield a preference ordering over outcomes (otherwise it makes no sense to say that people act so as to satisfy best the preferences). In the next section I sketch how preferences can be specified in ways that produce philanthropic behaviour and reciprocity.
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