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SOME
BOUNDS OF BOUNDED RATIONALITY: EMPIRICAL EVIDENCE AND THEORETICAL
CHOICE
André Guimarães Augusto
Profº da Faculdade de Economia (UFF), Brasil
Abstract:
This article illustrates two general propositions about the science based on the contemporary
discussion on the rationality in the economy. The first proposition is that it is not possible to
infer conclusions from empirical evidence without the prior adoption of a conceptual scheme.
This point is illustrated with relation to critiques of bounded rationality to maximizing
behavior. Supporters of behavioral economics infer from the empirical evidence that if agents
do not maximize, their rationality is limited. It is demonstrated that this conclusion is not
inferred directly from empirical evidence but from the adoption of the same conceptual
schema of the neoclassical school, the Classic Model of Rational Action. The second
proposition is that ' being determines consciousness '. This point is illustrated by showing how
the adoption of this model by behavioral economics is rooted in the needs of capitalist society
and by an outline about social determination of rationality.
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SOME BOUNDS OF BOUNDED RATIONALITY: EMPIRICAL EVIDENCE AND THEORETICAL CHOICE
The hypothesis of rationality became the cornerstone of neoclassical economics, even
being identified with economic theory itself. Since the criticism of Veblen (1909), however,
the hypothesis of human behavior described as an enlightened maximization calculus has
been disputed. Identification of rationality with maximizing behavior has been the object of a
long controversy since Hall & Hitch studies demonstrated that entrepreneurs do not take
decisions based on profit maximization rule.
The work of Herbert Simon from the 1940s and the work of Kahneman and Tversky
from the 1970s provided a source of dispute over the assumption of maximizing behavior.
Inspired by the empirical results of cognitive psychology, these authors refute the realism of
the hypothesis of maximizing behavior and propose a concept of bounded rationality. This
proposal have opened an entire branch of Economics which came to be known as ' behavioral
economics ', seen by some as an alternative to the hegemony of neoclassical economics in
economic thought.
The main criticism addressed by behavioral economics to maximizing behavior is its
incompatibility with the empirical evidences. From these empirical evidences Simon and his
followers conclude that rationality is bounded due to the constraints of human cognitive
ability. In the first section of this paper this argument will be recapped.
Simon’s conclusions about the bounded nature of rationality - followed differently by
Kahneman - are not a unique and necessary consequence of empirical evidence. The
conclusions of behavioral economics on rationality and human behavior are inferred from an
interpretation of empirical evidence based on the same conceptual schema about human
action adopted by the neoclassical hypothesis of rationality. The same empirical evidence
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could lead to different conclusions about rationality if interpreted from other conceptual
schema.
In the second section that argument will be presented. The argument is based on the
hypothesis of the post-positivist philosophy of science that one cannot draw conclusions from
empirical evidence without previously adopt, explicitly or implicitly, a theory to interpret
them. Secondly, still in this section the conceptual scheme common to neoclassical
maximizing and bounded rationality is identified with the Classical Model of Rationality
originated from David Hume and systematized critically by the analytical philosopher,
professor of philosophy of mind and language at the University of Berckley, John Searle
(2001).
Finally, it is scrutinized, only initially, the motivations for the adoption of the
conceptual schema about human action on the part of adepts of bounded rationality. It is
argued that such option is based on the understanding of science as an activity that has the
purpose of creating manipulative instruments capable of allowing only the reproduction of
immediate reality. In other words, the interpretation of empirical evidences is given by social
conditioning of science aimed at reproduction of capitalist society.
Before the conclusions is indicated to what extent the Classical Model of Rationality
finds support in the appearance of capitalist society and how rationality can be understood as
a socially determined phenomenon. Thus, the two final sections of this article reaffirm the
Marxian proposition that ' being determines consciousness ' as regards the discussion on the
rationality. The main points of the article are summarized in the final considerations.
The bounded rationality: the empirical critique of maximizing behavior.
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The neoclassical concept of rationality is formally identified with maximizing a goal
function under restriction. In this conception, the rational agent with his purposes, consisting
of well-ordered preferences, will choose the best among all the alternatives that exist to
achieve their purposes. The alternative choosed by rational agent is the one that leads to the
most preferred result with less sacrifice of means. The system of preferences is complete and
well-ordered, the agent has knowledge of all existing alternatives and is able to perform any
calculation that bind the alternatives to the value assigned to purposes (Simon, h. 1976, p. 87).
This procedure is applied by neoclassical economists to the behavior of families in
consumption decision as to the behavior of firms in its decision of production. The only
difference between firms and consumers is the goal function – the profit in the first case, the
utility in the second.
This description of rational behavior has been the object of strong empirical disputes.
The first dispute aroused from direct observations of the behavior of entrepreneurs. Applying
a questionnaire in a sample of 58 companies, Hall & Hitch (1939) concluded that
entrepreneurs do not maximize profit using the rule to equalize marginal costs and revenues,
but define prices adding a margin to the total cost.
At the same time, working in a field study in public administration in Milwakee,
Herbert Simon noted that in decision and allocation of funds, administrators not acted ' as
suggested in the books of Economics ' (Simon, h. 1978, p. 352); this observation became the
basis of his book, Administrative Behaviour (1947). Since them there have been a number of
empirical studies on decision-making in organizations (e.g., Cyert And March, 1963), and
field studies in decision-making. Generally, according to Simon (1978; p. 347), these studies
indicates that there is no direct observations that individuals and firms equalize marginal cost
and revenue.
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The work of Hall and Hitch inaugurated a long controversy in economic theory on the
role of the postulate of maximizing rationality in firms. Firstly the method to ' test ' the
postulate of rationality, direct observation - and more precisely in the case of Hall and Hitch
the application of questionnaires - , was disputed on its validity (Machlup, f.; 1946).
Secondly, it was questioned what could really be tested by empirical observation. According
to this argument, the postulate of rationality would not need to be tested directly in order to be
valid. Only the results of the postulate of rationality, i.e., their empirical predictions, needed
to be tested; that is a summary of the position of Friedman (1953).
As regards the first aspect, as Simon himself acknowledges, case studies and direct
observations about the decision-making process accumulated over the decades from 1930 to
1970 did not allow to derive theoretical results (Simon, h. 1978, p. 363). However Simon
points the computer simulations as a method to extract theoretical information from case
studies (Simon, h. 1978, p. 364).
With respect to the objection of Friedman, Simon noted carefully that empirically
verified aggregates results of neoclassical theory – as the negatively sloped demand curve are independent of the postulate of maximization by individuals. According to him there are
no predictions that follow exclusively from the presumption of maximization, they depend
much more on factual auxiliary hypotheses. Thus the same empirical results observed in the
aggregate would be compatible with a different description of individual behavior (Simon, h.;
1986). As will be developed throughout this work, the structure of this argument - the same
empirical observations can be explained by other conceptual schemas - can be used against
the defense of bounded rationality made by Behavioural Economics.
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In the post-war II, rationality came to be described as the maximization of expected
utility, where agents choose between ' Lotteries ', i.e., between subjective probability
distributions of outcomes, explicitly incorporating beliefs in rational action. With the model
of maximization of expected utility postulated in axiomatic form, maximizing rationality
became a manageable hypothesis for testing in experimental situations.
With the development of controlled experiments on human behavior in the laboratory,
cognitive psychology undertook to empirically verify the hypothesis of maximization of
expected utility. A new wave of opposition to the postulate of maximizing rationality arises in
the 1970s from the work of Kahneman and Tversky.
Kahneman and Tversky describe the result of a mental experiment, in which people
reject participate in a game where one can win with odds equal a larger amount of money than
to lose, but accept participate in a game in which the amount one can lose is greater also with
equal chances, if the alternative is a loss. In other words, not always the agent chooses the
best expected outcome, understood as to gain a larger sum of money in absolute terms
(Kahneman, 2003, pp. 1455-1456), showing ‘loss aversion’. These tests led the authors to
develop the ‘prospecting theory’ as an alternative to maximization of expected utility.
Another result that contests the empirical validity of maximizing rationality is the role
that the form of presentation of a problem has in the choice of the agent. In the ' Asian disease
experiment ' people have to choose the best treatment in terms of outcome. The same result is
described in different ways, leading people to choose one treatment in a case and reject the
same treatment in another (Kahneman, 2003, p. 1458-1459). This result which became known
as ' framing effect ', means that people take into account information that are not relevant to
the use of means in relation to the best result. In this way the optimal alternative is not always
choosed, contesting the hypothesis of maximization.
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Simon summarizes the results of experiments on the maximization of expected utility,
stating: "What has been shown is that they do not even behave as if they had carried out those
calculations, and that result is a direct refutation of the neoclassical assumptions."(Simon, h.,
1978, p. 362); and recommends that "(...) we stop debating whether the theory of substantive
rationality and the assumptions of utility maximization provide a sufficient basis for
explaining and predicting economic behavior. The evidence is overwhelming that they do not
[emphasis added] "(Simon, 1986, p. s223). According to what can be inferred from statements
of Simon, maximizing rationality should be rejected because it did not pass the empirical test.
The purpose of this article is not discussing the validity of empirical testing, as to the
choice of data, or the formulation of the conditions of the experiment and even its validity for
situations outside the experimental one, or the validity of generalization of observations. This
paper focuses on discussion about interpretation of the results of empirical tests on the
understanding of rationality. At this point, the conclusion of Simon and behavioral economics
is not only that agent does not maximize, but that so its rationality is bounded.
To reach this conclusion the absence of maximization is explained primarily by the
existence of cognitive limits that prevent it. Maximizing requires complete knowledge of the
consequences and alternatives of action, as well as the anticipation of the results (Simon, h.,
1976, p. 93; 1978, p. 356). The argument is that the human cognitive apparatus is not able to
absorb and process all that information when the decision refers to complex situations,
particularly when it has to be taken in the short time horizon. Kahneman (2003) argues that
the ability to make the judgments necessary for maximizing is hindered by accessibility
available in our cognitive apparatus: we are not able to absorb all the information or the most
relevant ones.
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Before this, the procedure in decision-making would be in the best use of available
resources according to cognitive ability of agents. So Simon proposes satisfacing instead of
maximization. First agents establish a satisfactory level of aspiration, instead of the full and
coherent planning of all consequences of his action. Then the agents initiate a process of
searching alternatives, since these are not immediately accessible. As a rule the agents end
search as soon as they discover a satisfactory alternative, or when the cost– cognitive and
monetary- of search becomes too high. (Simon, h.; 1972; 1955, 1978)
Kahneman (2003) also points out that decisions are made using the resources
available, that is, the more accessible to mind. The agents decide using a simplifying
procedure, an approximate trial method processing the information available through a
heuristic rule.
The issue is the conclusions of these experiments about rationality. Simon argues that
rationality must be qualified using different adverbs to define it (Simon, h., 1976, p. 85). Thus
he distinguishes not only ' objective ' rationality – that corresponds to the maximization – as
especially the substantive and procedural rationality. While substantive rationality refers to
the results that it produces as “objectively, or substantively, best in terms of the given utility
function" (Simon, h., 1986, p. s211), procedural rationality refers to the procedure that
employs the reason, i.e., rational decision that is "procedurally reasonable in the light of
available knowledge and means of computing "(Simon, h., 1986, p. s211).
According to Simon, the fact that agents do not maximize and seek only satisfactory
solutions means that they are ‘not much’ rational. The difference between substantive
(objective) and procedural rationality is fundamentally a difference of degree; according to
Simon, "(…) human decision makers are as rational as their limited computational capabilities
and their incomplete information permit them to be (…)” (Simon, h., 1978, p. 351).
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Kahneman (2003) arrives at a slightly different conclusion. The author departs from
the existence of two systems of cognition. The system 1 is fast, automatic, associative and
emotionally loaded; it is directed by habit and generates impressions - unintended and not
expressed - of attributes and objects. Another cognitive system is the system 2 that is slow,
serial, deliberately controlled; it is subject to rules and relatively flexible and generates
intentional and explicit judgments. The judgments generated by system 2 can be of two types:
the coming of rational deliberation, whose formulation is the reasoning; and the coming of
impressions, whose formulation is intuition.
Kahneman argues that the findings of empirical work are not that rational system
works so precarious, as in the case of Simon’s bounded rationality. According to Kahneman,
the conclusion is that most of the time decisions are made intuitively; in the words of the
author: "The central characteristic of agents is not that they reason poorly but that they often
act intuitively." (Kahneman, 2003, p. 1469)
Despite the differences the two authors draw the same conclusion with respect to
rationality from the empirical evidence. Both do not conclude that men aren't rational –
although Kahneman approaching this; instead they conclude by a ' lowering ' of rationality. In
Simon rationality should be lowered for being impoverished, unable to function fully; in
Kahneman it is lowered to a secondary position, for the operation in very rare and special
cases. It is the origin of this conclusion and its connection with empirical evidence that will be
the object of examination in the next section.
Empirical evidence and theoretical choice: bounded rationality and the Classical Model
of Rationality
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For neoclassical economists the behavior driven by the satisfaction of preferences is a
mere description of action and maximizing rationality exerts the role of a useful analytical
tool to build models which allow organizing the empirical data and making good predictions
(Samuelson, p., 1983). It is the understanding of science as a mere task of description and
organization of the immediate data of experience with the purpose of forecasting, leaving only
the sterile debate about analytic or synthetic character of the postulate of rationality.
This understanding of science is the same starting point of the bounded rationality
theorists. On the one hand, the rejection of maximization as a descriptive theory results from
the fact that it would have failed in empirical testing; on the other hand, bounded rationality is
supposedly obtained through a generalization of empirical data. In other words, the adherents
of bounded rationality criticized neoclassical for having failed in its own terms, i.e. positivists
terms, and argue its superiority also in these terms. Bounded rationality would be more '
realistic ' where realism is perceived as ' more accurate ' description and better predictability.
It is generally agreed that the experience is a distinctive element of scientific activity;
the central issue in the philosophy of science refers to the role of experience in the
formulation and validation of scientific explanations. According to logical positivism the
content of science should be reduced to the experience, and reason has the role of formal
assistance providing logical rules to generalize and report sensitive data of experience. The
experience would be the only jurisdiction able to validate a theory. Besides, theory never
would come out of the experience: all theoretical terms would be reports of observations to a
greater or lesser degree of generality.
A first problem of exacerbated empirism of logical positivism is that every experience
is unique and scientific laws consist of universal statements. Moreover, the very report of the
experience always presupposes the use of theoretical terms not accessible to explicit
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definition in terms of observable. In other words, in scientific explanations observations are
never merely reported, but interpreted, and this interpretation assumes a ' surplus element '
beyond experience.
The need for that ‘surplus element’ was already felt by Popper. According to Popper
the scientific theories cannot be a "the digest of observations"; hypotheses are not based on
experience (Popper, k.; 1968, p.46). But it is from the Kuhn criticism of positivism that the
need of something beyond simple observation to perform the scientific activity was
recognized in the philosophy of science. Kuhn points out the need for a "conceptual schema",
"paradigm" or "ontological model" before the research so that becomes possible. The
conceptual schema not only guides the implementation of the experiment – what data select,
what method to use - but provides the framework for the interpretation of results. According
to Kuhn "scientific fact and theory are not categorically separable" (Kuhn, t., 1970, p. 7).
For both, Kuhn and Popper, this ‘surplus element’ beyond observation and experience
is the fruit of imagination, so arbitrary, irrational and without existence independent of the
mind of the researcher. For Popper scientific theories are "inventions" (Popper, K., 1968,
p.46) and the process of designing a new idea includes an ‘irrational element’ in scientific
discovery (Popper, k., 2002, p. 8). Similarly, to Kuhn conceptual schemas or paradigms have
arbitrary origin and it is not possible to make a rational comparison between them (Kuhn, t.,
1970, p. 4). ).
Bhaskar’s (2005) Critical Realism goes beyond this point and seeks to define clearly
the source of the conceptual schema and the possibility of reality of entities postulates in it.
For Bhaskar (2005) what characterizes the scientific endeavor is the discovery of the
mechanisms that are beyond the empirical and that produce the facts of experience. To
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transcend the experience and give it sense one must imagine the mechanisms that produce the
data, through analogy with known ones.
According to Critical Realism, the ' surplus element ' beyond observation in scientific
knowledge is not arbitrary but it is the knowledge already established. Science is understood
as a production of knowledge through knowledge (Bhaskar, r., 2005, p. 176). Knowledge is a
social product, contains an element that Bhaskar (2005, p. 179) called transitive, conferring
rationality to education and scientific training.
As an additional element, we must remember that for critical realism the reality of the
conceptual scheme is not arbitrary because its independence of the subject of knowledge can
be checked. The mechanisms and entities in a model may have his real, intransitive, existence
inferred by observing its effects, i.e. by causal criterion (Bhaskar, r.; 2005).
Result from these positions in post-positivist philosophy of science that behavioral
economics conclusions about human rationality are only possible by adopting a ' conceptual
schema ' or a ' model ' of explanation of human action. The conclusions of behavioral
economics on rationality arise primarily from the choice of the Classic Model of Rationality
(Searle, J.; 2001) as the conceptual schema for interpretation of empirical evidence.
The key element of the Classical Model of Rationality is the instrumental conception
of rationality, that is, that the reason is a mere instrument for achieving given purposes and
that, therefore, it has no relation with the contents of the action. Thus, instrumental rationality
has a purely formal character.
According to Searle, the Classical Model of Rationality is characterized by six
elements (Searle, 2001, pp. 7-12). The first is that the rational action is caused by beliefs and
desires; secondly, in this model the rationality is a matter of obeying rules. It is also a
characteristic of the Classical Model that rationality is a separate cognitive faculty. In the
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Classical Model of Rationality action begins with the primary ends - fundamental goals,
desires and purposes – which are not subject to any restrictions aside from its formal
consistency. Finally the model does not explain situations of ' akrasia ' i.e. weakness of will,
where the agent has a desire, but does not implement the action to carry it or acts against it.
The conclusions about bounded rationality, in particular the satisfacing model of
Simon, are very easily fitted in the Classical Model of Rationality. At least in Simon is
explicit the adoption of an instrumental conception of rationality. Already in his seminal
work, Administrative Behaviour, Simon defines rationality as a matter of choice between
alternatives that lead to a result higher on a scale of preferences (Simon, h., 1976, p. 77, 82,
84). According to Simon rationality is "a style of behavior that is appropriate to the
achievement of given goals, within the limits imposed by given conditions and constrains."
(Simon, H.; 1972, p. 161).
The satisfacing model as a criterion of rationality meets the elements of the Classical
Model of Rationality. The agent that not maximizes, but seeks only the satisfactory level, also
has as cause of his action his desires and beliefs, without rational limits for its contents; only
instead of complete preferences are the levels of aspiration. Again the rationality is a matter of
following rules – stop finding alternatives when you find one that is satisfying – and remains
as a separated cognitive faculty of the individual, the absorption and processing of
information in the brain. The fundamental correction of the model is only that these
capabilities do not allow the agent to obtain the best result really possible, but only the best
perceived result. Khaneman results are not very different; although restricting the field of
rational action, his ' system 2 ' works along the same lines as the Classical Model of
Rationality.
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The model adopted by behavioral economics is the same model of neoclassical
economics. It is clear that maximizing expected utility fits to the Classical Model of
Rationality. In this case the rationality is a matter of the best possible use of means for
achieving given ends. The starting point is the preferences of agents – their primary purposes
– which do not have any restrictions on content, just formal consistency: the axioms of
transitivity and completeness of preferences. Be endowed with well-ordered preferences is
enough for the agents to start the process of deliberation about the means and perform their
actions. In a word, the expected utility (desire and belief) works as a cause of action. The
rationality there happens to be the application of a rule – under any circumstances, maximizes
– through the use of cognitive faculties of individuals, a question to absorb and process
information in the brain to perform the calculation for maximization.
Further evidence that the theoretical rationality used by behavioral economics to
interpret the empirical results is the same as that adopted by the neoclassical school, is a
remarkable compatibility between models of bounded rationality and models of
maximization. With bounded rationality the aspiration levels can be modified to the extent
that agents take new decisions and are apprehending new information about possible
alternatives and consequences. So the agents with bounded rationality are in a dynamic
process of learning, which in the long term leads to maximization. It is recognized explicitly
by Simon: "In long run equilibrium it might be the case that choice with dynamically adapting
aspiration levels would be equivalent to optimal choice, taking the costs of search into
account." (Simon, h., 1978, p. 356-357).
As noted by Sontheimer (2006), the selection of new levels of aspiration in a dynamic
learning process with bounded rationality is guided by the maximization of a function under
restriction. Thereby maximization does not disappear, but remains hidden as a ' standard '
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rationality. The conclusion that rationality is bounded means that agents don't maximize due
to the presence of cognitive constraints; in the absence of these constraints, the agents would
maximize (Sontheimer, 2006, p. 240). Kahneman explicitly recognizes this: "three general
conclusions: (i) choices that are governed by rational rules do exist, but (ii) these choices are
restricted to unusual circumstances, and (iii) the activation of the rules depends on the factors
of attention and accessibility "(Kahneman, 2003, p. 1468)
Thus, behavioral economics to conclude by bounded rationality, maintains the same
conceptual schema of the neoclassical school proceding only an empirical correction: "The
issue that separated Simon and colleagues from their neoclassical counterparts was always an
empirical one." (Stontheimer, 2006, p. 252). Before empirical evidence the concept of
instrumental rationality is maintained; maximization remains as a ' standard ' definition of
rationality that is just ‘lowered’.
Just to finish the argument that a conclusion about the bounded character of rationality
stems from the adoption of the Classical Model of Rationality, I will illustrate the possibility
of withdrawing another conclusion about rationality from the same empirical evidence. This
is not about defending exhaustively these other possible conclusions, but only to use them as
an evidence of dependence of conclusions about bounded rationality with respect to a
theoretical choice.
To illustrate this point I will use the conclusions of Kahneman (2003). The author
seeks to differentiate itself not only from neoclassical economics, but also from old behavioral
economics, through these conclusions. According to Kahneman behavioral economics have
maintained the basic structure of the model of rational action (Kahneman, 2003, p. 1469). As
seen before, I agree with the point of view of Kahneman on old behavioral economics.
However, I defend that Kahneman still maintains the same model of rational action, because
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he interprets the empirical results as just restricting the field of action of rationality without
change substantively the understanding of it.
The results obtained by Kahneman would reshape the very concept of rationality if his
theoretical choice was another. Kahneman points out, first, that the agents are not drive for
what they are capable of computing, but for what they are able to perceive at the time
(Kahneman, p. 1469). From this one only withdraws that behavior is intuitive rather than
rational, if rationality is uniquely identified with the ability of abstract calculation. Starting
from the same observation and with the adoption of another conceptual schema one could
conclude that rationality is always situated: what is rational for the agent depends on the
concrete circumstances of his action.
In other words, one would adopt the intuitive reasoning of ordinary adult human as
standard of rationality (Cohen, L. J., 1981). In his response to Cohen, Kahneman (1981,
p.340) argues that this type of judgment could not be taken as rational because of the
existence of conflicting intuitions. But these conflicting intuitions are evidence that could be
interpreted as a characteristic of situated rationality. Ordinary judgments are conflicting
because different agents are posited in conflicting circumstances of actions and sometimes the
same agent are posited in a contradictory circumstance of action (Lawson, T.; 1997, p.187)
The conclusion in behalf of a concrete concept of rationality can be derived also from
the second observation of Kahneman: "What is natural and intuitive in a given situation is not
the same for everyone: different cultural experiences favour different intuitions about the
meaning of situations, and new behaviors become intuitive skills are acquired [emphasis
added] "(Kahneman, 2003, p. 1469). However, from this observation is possible to conclude
that rationality is a matter of cultural context and, therefore is situated.
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It could be concluded from the empirical results pointed to by Kahneman that being
‘rational’ is something that you learn and, therefore somewhat variable according to the
cultural experiences, i.e., that rationality is a historical and social phenomenon. This will
radically opposed to the Classical Model of Rational that sees rationality as an inherent
cognitive faculty reduced to the follow of a logical abstract rule – maximize when possible or
achieve the satisfactory when it is not.
The arguments developed above led to a question: why this model is adopted? This
question does not find satisfactory answer in fact that its ' fits ' to empirical observations. The
answer to the question refers to the social constraints of this theoretical choice, the object of
the following section.
The manipulative orientation of science in bounded rationality.
Bounded rationality hypothesis has been defended not only by being a description of
the behavior that fits to empirical observations, but also because it is more useful than the
assumption of maximization. Simon (1978) argues in favor of bounded rationality explicitly
for this to be able to provide a more manageable technique of decision than the supposed
maximizing rationality.
Simon believes that it is the mission of the theory of decision ‘offering direct advice to
business and governmental decision makers’ (Simon, h., 1978, p. 349). The key objective is to
formulate a technique that is manageable, i.e. that consider the empirical and available
computational capabilities of humans (Simon, h., 1978, p. 350). So if human rationality is
bounded, supplements it with decision-making models to come closer to the ideal of
maximizing rationality, almost the same way that the glasses help us overcome the
deficiencies of perception (Varian, H.; 2005, p. 561).
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This approach of question reveals the orientation of science toward systematization of
immediately given with the purpose of control of occurrence of events, i.e. manipulation, in
behavioral as in neoclassical economics. This approach is that sets goals, self-understanding
and method of science prescribed by positivism.
In positivism the practice of science is supposed to be only – and says should be – to
observed empirical phenomena and capturing regularities of events. Science, according to that
orientation, should stick to the immediately given phenomenon in place of discovering causal
mechanisms not caught directly by the senses. This manipulative orientation of science also
influences its methods. Scientific practice is methodologically oriented, often exclusively, for
the quantification, measurement and prediction of events.
Defined that way, the goal of science is no longer the pursuit of objective truth, but to
intervene in the operation of important facts. The true knowledge no longer matter anymore,
what matters is the useful knowledge (Lukács, g., 1976, p. 20). So under this orientation of
science one can say that it is in the utility to formulate more ' manageable ' models that lays
the superiority of bounded rationality in relation to the maximization, as vindicated by Simon.
This general orientation of science toward manipulation is consolidated in the
capitalism of the 20th century, though it was already present in the beginnings of modern
science with the vision of Cardinal Bellarmine to Galileo's Physics (Lukács, g.; 2004).
Science under the capital is increasingly oriented toward manipulative knowledge. The
neoclassical assumption of maximizing rationality, corrected by bounded rationality
hypothesis, fits well in the general movement of the transformation of capitalist society in the
direction of manipulation, transformation marked by Lukács (2004, p. 119). Not a chance,
Simon refers to Taylor - founder of ' scientific ' management, i.e. the application of science in
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the manipulation of the workforce in the process of production - as one of the pioneers of the
normative approach of decision theory (Simon, h., 1978, p. 350).
The orientation of science for manipulative knowledge has a very precise social
meaning: it means that science should be restricted to provide the knowledge necessary for
reproduction within the limits of capitalist society. Thus, science increasingly becomes a
means for the purposes of capitalist reproduction (Meszaros, i. 2002). This growing role of
the needs of capitalist reproduction on the orientation of scientific activity states itself not
only by targeting and selection of the objects of scientific research but also by theoretical
choices that drive these researches, so unconscious most of the time. This is the case of choice
of the Classical Model of Rationality by behavioral economics for the interpretation of
empirical evidence.
The Classical Model of Rationality fits into the manipulative orientation of science,
i.e. knowledge sufficiently suitable for reproduction of capitalist society, in at least two
senses: epistemological and normative. The first is linked to the predictability and the second
with the behavior compatible with efficiency.
Firstly, the Classical Model of Rationality allows defining a predictable behavior and
accordingly a ' manageable ' one. The idea is that the agent, if rational, will always be framed,
even partially, into a single hypothesis of behavior: the search for the best means to achieve
ends or, as Simon prefers, the best alternative to reach the preferred consequence.
This means that the model of instrumental rationality is a model that enables to create
an abstract form of a closed system. A closed system is one in which occurs regularities of
event (Bhaskar, r., 2005, p. 60), as in controlled experiments in laboratories. In the case of the
Classical Model of Rationality this regularity is obtained with the supposition that to each
agent desire always will follow only one course of action – be it the optimum or merely
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satisfactory. That way, in the Classical Model of Rationality the behavior of the agent is
always predictable and, consequently, manageable.
Simon is explicit to bind the rationality, in its more general sense as instrumental
rationality, to the existence of empirical regularities and therefore to a closed system:
"Fortunately, the problem of choice is usually greatly
simplified by the tendency of the empirical laws that describe the
regularities of nature to arrange themselves in relatively isolated
subsets (...)".(Simon, 1976, p. 79).
And later, Simon describes how this closed system serves to rationality and
consequently to the manipulation:
"The fact that consequences usually form" isolated "systems
provides both scientist and practitioner with a powerful aid to
rationality, for the scientist can isolate these closed systems in his
experimental laboratory, and study their behavior, while the
practitioner may use the laws discovered by the scientist to vary
certain environmental conditions without significantly disturbing the
remainder of the situation."[emphasis added](Simon, h., 1976, p. 79)
The Classic Model of Rationality serves to the manipulative orientation of science in
capitalism also in a normative sense. The Classic Model of Rationality describes the behavior
ideally suited to the needs of the capital, the efficient behavior. In affirming the instrumental
nature of reason, the Classical Model of Rationality is apparently ‘value neutral’ for the
rational agent, in this model, “it is not contrary to reason to prefer the destruction of the whole
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world to the scratching of my finger” (Hume, D.; 1852, p. 167). However, the Model
describes the action as one in which the agent will always follow a rule that permits to reach
the end with the use of the best means available, i.e., to pursue his ends efficiently and thus
affirm the efficiency as a value.
It is not possible to develop completely in this text the argument about efficiency as a
value rooted in capitalist society. I must point out that if the producer of commodities in
capitalist society does not use resources efficiently, the result can be its disappearance as a
producer, unable to sell their commodities or sell them at a price below their cost in terms of
working time. This way, the good action for each commodity producer is one in which he
performs a precise calculation of ends and means; "the period of time necessary for work to
be accomplished ( (...) forms the basis of rational calculation (...)) " (Lukács, G., 1971, p. 88)
Efficiency is necessary as a standard of behavior in capitalist society not only for the
reproduction of the producer of commodities, but also in the production of surplus-value. The
methods that make the work more efficient take advantage of each capitalist in relation to its
competitors, enabling them to take ownership of an extraordinary surplus-value (Marx, k.,
2010, ch. 12) and producing the relative surplus-value to total capital as an unintentional
result.
The ideal behavior is one that exactly uses means without any waste and achieves the
ends – whatever they are – with the lowest cost. Thus, maximizing stays as the standard, the
ideal of rationality to be achieved. All the research of bounded rationality refers to how the '
real ' behavior differs from that ‘standard of rationality ' (Simon, h., 1976, p. 92). See here the
link between the manipulative science and the Classical Model of Rationality. The Classical
Model of Rationality offers a guide to achieving the standard of rationality desirable for
reproduction of capitalist society represented by the maximization of expected utility.
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On the one hand, if the ' real ' behavior differs from the standard one must create
instruments that allow this approach as much as possible; doesn't seem to be other the intent
of Simon to describe administrative instruments of organizations that would ' satisfy ' the
limitations of rationality of individuals (Simon, h., 1976, cap. V), or even, the way we ' learns
' how to reach or approach this ideal standard of rationality in schools of economics.
On the other hand, we can understand well the choice of the Classical Model of
Rationality as a conceptual schema to interpret the empirical evidence for behavioral
economics. It is only by measuring the results of the empirical investigations against the ideal
standard that one can know how to adapt the observed behavior of individuals to efficient
behavior. For this measure in relation to the standard be possible it is necessary to use the
common theoretical language of Classical Model of Rationality.
But if the Classical Model of Rationality and bounded rationality meets the requisites
of manipulative science in the capital when formulating models for predictability and define
standards of behavior, this can only be achieved if, somehow, this model is rooted in reality of
capitalist society, even if only in its apparent aspects. It is under this issue that holds the
following section.
The Classical Model of Rationality and social determination of rationality
The orientation of knowledge for practical manipulation does not prevent the
discovery of real connections and properties of the world. Manipulative knowledge should
have the character of objectivity, discovery of connections that can be passible of
generalization and correction. These are criteria needed including for their most immediate
practical use. Even based on false ontological conceptions, this knowledge ensure its
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correction on what it is delimited – the immediately given. Even useful orientation in place of
true one assumes that to be effective the knowledge must be true, even if only partially.
The Classical Model of Rationality in all its variants is not just an epistemological
resource invented to enable forecasts or a 'merely' normative principle. This is not a mere
mental ' creation ' – what that is in many other senses – but is something deeply rooted in the
needs of capitalist society and, moreover, in its immediate appearance.
If the Classical Model of Rationality shows the need of a model of rational behavior
for the capitalist society in its normative aspect, the operations by which the reality of
capitalist society in its apparent aspects is transformed into a universal model of explanation
of the action of individuals are of two types.
Firstly, the Classical Model of Rationality duplicates the logic of valorization of
capital. In the Classical Model of Rationality, instrumental reason is an analogue of the logic
of self-expansion of value, which is purely formal, abstract and is independent of content, that
is, specific use values.
But, why this instrumental logic of self-expansion of capital is taken as subjective
property of individuals? At the root of this transfer operation is the appearance of the
mercantile society in which there are only individuals free and autonomous, apparently
lacking any social determination. Thus, social/objective logic appears only as a cognitive
property of isolated individuals, such as instrumental rationality. More than that, it can only
appear like this, since social determinations in capitalism are opaque and only appear for
individuals in the market as a "thing", i.e. as money. This way, the instrumental logic of
capital appears as an exclusively biological property embedded in the human cognitive
apparatus independent from their historical circumstances.
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But show this rootedness in the apparent reality of capitalist society does not mean that
the Classical Model of Rationality, especially in the version of maximizing behavior, is a
correct explanation of human behavior in capitalism. To keep the appearance of capitalist
society the Classical Model of Rationality omits the contradictory character of human
rationality and, in particular, its historic and social determination, thus providing a misguided
explanation from the ontological point of view. Let me briefly expose the arguments in this
direction.
Certainly there is a contradiction between the requested, learned behavior to
reproduction in capitalist society and the actual, spontaneous behavior. This contradiction is
observed, in other terms, by adherents of bounded rationality. But this contradiction rests, at
least in part, in contradiction of the own production of commodities. If on one hand the valueoriented behavior requires a kind of abstract, formal and instrumental rationality, by another,
behavior driven by the use value have a substantive, concrete and located feature.
Orientation to the use value is directly related to spontaneous behavior, since this is
rooted in our needs, in final instance in biological socially transformed ones. So one can
identify as rational behavior one that leads to material reproduction of the species; in the
words of Gardner "(…) the kinds of induction and deduction individuals habitually (and even
reflexively) make are most likely to lead to survival. And so they are rational in this absolute
sense, even if they appear irrational in the light of certain textbook principles." (Gardner,
1985, p. 376).
The seeming irrationality of this behavior ‘in the light of the certain textbooks
principles’ derives from the contradiction between the behavior oriented to the use value and
value-oriented. Orientation for use value and its corresponding rationality is often in direct
opposition to the behavior driven by the logic of capital valorization. As everyone in capitalist
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society are oriented in this contradictory direction - primarily through the work that in
capitalism holds this dual nature, abstract and concrete - such contradiction is embedded into
the behavior of individuals. This contradictory character of behavior and rationality in
capitalist societies is clearly omitted in the Classical Model of Rationality.
An example can illustrate this contradictory feature of rationality and its link with
value and use value. Cohen (1981) considers the situation that is object of experiments, in
which someone has to decide the proper treatment for a disease. The person could be with the
disease A or B, but the prior probability of occurrence of A is very larger in respect to
occurrence of B. The test, that has 80% of probability to be correct, results that the person has
the diseased B. If the agent maximizes his expected utility with Bayesian probability he will
opt for treatment for diseased A, because the chance with the prior probability that he has
disease B is very low, irrespective of the result of the test. But the agents in experiments opt
to treatment of disease B with the information of test result.
In the Classical Model of Rationality, the decision of the agents to opt for the
treatment of B ignoring the prior probabilities would be interpreted as non-rational resulting
from the limited capacity of the agent for processing probabilities. But Cohen argues that the
agent is interested in the solution of his concrete case and, from this point of view his decision
is rational. Instead, form the point of view of the administrator of the hospital, interested in
the maximum success with minimum cost, rational decision would be in accord with the
maximization of expected utility (Cohen, 1981, p.329).
Although Cohen does not take this conclusion, this example can be taken as an
illustration of the situated rationality: the rationality of different decisions depends on the
concrete situation of the patient and the administrator of hospital. But besides that, these
different situations can be considered as different orientations towards value –in the case of
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hospital administrator that has the valorization of the hospital profits as objective – and usevalue – in the case of patient who has his health as objective.
The instrumental explanation of the rationality concept remains at the level of
appearance also because it omits the fact that all rationality is the result of the historical
conditions of man. When putting the rationality as a property of individuals, something which
would be contained exclusively in its organic structure, the Classical Model of Rationality
makes the processuality and social determinations of human behavior disappear.
This is a naturalization of social determinations appearing as exclusive and insulated
biological properties of isolated individuals. Here the mind is treated as "monadas selfsufficient, limited by their physical receptacle (usually the brain)" (Donald. D.; 2007, p. 215).
If it is correct to say that social structures do not have consciousness and therefore a mind,
and decisions – rational or not – are taken through the brain of individuals, there is evidence
that rationality is socially determined, as well as other cognitive properties of individuals.
Firstly there are many evidence of neuroplasticity, that is, the ability of the brain to
change its architecture and to create new neuronal connections from changes in the
environment (Doidge, m., 2007). This property can be observed not only in cases of accidents
that alters the functions of the brain but also on physiological changes resulting from the
acquisition of a skill – as, for example, in the case of musicians or taxi drivers (Dodge, m.,
2007, p. 289) – and the acquisition of spoken language and especially writing.
The plasticity of the brain is a result of biological evolution which allows the human
neurological apparatus to evolve independent of processes of selection, and genetic mutation
(Dodge, m., 2007 p. 293). Thus, cognitive abilities, the manners how we understand the world
and make decisions to act on it are not strictly individual, but are the result of the action of the
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society or culture on the formation of our brain - and this from biological point of view.
According to the psychologist and cognitivist neuroscientist Donald Merlin, institutions and
artifacts socially created form a cognitive system external to the brains influencing the
decisions of individuals:
"Human decision making is most commonly the culturally
determined process in which many basic cognitive operations play a
part, and the mechanisms of such decisions must be regarded as
hybrid systems in which both brain and culture play a role. When the
individual ' makes ' the decision, that decision has usually been made
within the wider framework of distributed cognition, and, in many
instances, it is fair to ask whether the decision was really made by the
distributed cognitive system itself, with the individual reduced to a
subsidiary role.[emphasis added] "(Donald, m.., 2008, p. 202).
Of course, the evidence of neuroplasticity could be interpreted in others ways. As
argued here the interpretation of evidences depends on the conceptual scheme adopted. But
the conceptual scheme that admits rationality as a situated, historical and social capacity is
not only compatible with the evidences of neuroplasticity and the results of experiments of
cognitive psychology, but also is capable to explain the rationality of the adoption of an
instrumental concept of rationality by the adepts of neoclassical and behavioral economics. In
this sense, besides the evidences, the conception of a socially determined rationality can be
defended mainly on the bases of its explanatory power.
Final considerations
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In this article were illustrated two general propositions about the science, based on the
contemporary discussion on the rationality in economics. Firstly, the discussion about the
bounded character of rationality in economics was an attempt to illustrate a fundamental point
of philosophy of science: the relationship between the empirical evidences and conceptual
scheme. Through examination of the findings of behavioral economics on the bounded
rationality supported in empirical evidence, I sought to demonstrate a more general point: the
impossibility to draw conclusions solely from empirical evidence without the adoption of a
conceptual schema. The debate between bounded and maximizing rationality is restricted to a
single conceptual schema, the Classical Model of Rationality, figuring the differences only in
smaller or larger adherence to operational data or in the formulation of techniques for decision
making.
The last two sections also seek to illustrate a general point, the assertion of marxian
materialism that ' being determines consciousness '. I tried to accomplish this in two ways.
First, I explained that the behavioral economics’ choice of the same conceptual schema on
human behavior that the neoclassical it’s rooted in the needs of the reproduction of the
capitalist society. Secondly, as just a stub for future research, I indicated the social roots and
socially determined character of human cognitive capacities, including rationality, in place of
one of an 'isolated' mind.
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