Amartya Sen and Rational Choice

By: Erik Ooms (s0512176) Saskia Pennings (s0308269)

1. Introduction 2. Amartya Sen: life and Works 3. Behavioural decision theory 3.1 Two Examples of behavioural decision theory 3.1.1 Olson’s theorem 3.1.2 Utilitarism 3.2. Rational Choice Theory 3.2.1 Critique on rational choice: prisoner's dilemma 3.2.2 Critique on rational choice: Amartya Sens critique 4. The choice to Migrate 5. Conclusion 6. Bibliography

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1.

Introduction "Can you direct me to the railway station?" asks the stranger. "Certainly," says the local, pointing, in the opposite direction, towards the post office, "and would you post this letter for me on your way?" "Certainly," says the stranger, resolving to open it to see if it contains anything worth stealing. (McQuaig, 2001) This quote, posed from Amartya Sen in the book ‘All you can Eat’ by Linda McQuaig, is one that shows the absurdity of the rational choice. Rational choice is the idea that all behaviour is fundamentally rational in character. People calculate the likely costs and benefits of any action before deciding what to do. They only act from the principle of self-interest and egoism, and not with the idea of what is best for others, the whole society or the environment. The local in the quote is an example of a man fully acting out of self-interest. He is deceiving the stranger and tries to steal his goods, without considering helping the stranger. In the real world, if someone asks you to the railway station, you will never, or hardly ever, get sent to the post-office. You will not be deceived because a local is trying to steal your things. Therefore rational choice and the whole theory that is using rational choice to explain economic or social behaviour is fundamentally wrong. Sen is a scientist, who criticises rational choice behaviour in economic models. In this paper an analysis is made of a well-known paper presented by Sen in 1977: “Rational Fools, a critique of the behavioural foundations of economic theory”. This is not the only paper Sen wrote about Rational Choice. “Rationality and Morality: A Reply”, “Rationality, Interest and Identity” and “The Formulation of Rational Choice” are other papers discussing the same subject. Sen, not only criticizes theories of rational choice, he writes on several subjects, such as the relations, consequences and solutions of food problems, famines and hunger, education and manpower planning. Even the Indian economy is analysed and criticized by him. Crown on the work of Sen was the Nobel-price, which he received in 1998 for his work on Welfare economics. Welfare economics seeks to evaluate economic policies in terms of their effects on the well being of the community 1 . The main question of this paper is: “What are rational fools and what is their relation to contemporary social geography?” To answer this question, first a summary is given about the life and works of Amartya Sen. Secondly, there will be an analysis of the behavioural decision theory, an approach regarding economic behaviour, which is explained in geographical and non-geographical theories. This part will include theories like the rational choice theory. Third, important approaches of the rational choice theory will be analysed. In this part Sen’s critique on rational choice theory, exposed by him in “Rational Fools, a critique on the behavioural foundations of economic theory”, will be explored. The forth part of this paper presents some practical examples of the use of rational choice behaviour in social geography. The last part gives a summary
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http://www.britannica.com/eb/article-9126420/Amartya-Sen retrieved on October 10th, 2006

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and conclusion of Sen’s critique and this part also give a briefly worded answer to our main question. 2. Amartya Sen: his life and works Amartya Sen is probably the most distinguished Indian economist that the country has ever known. He was born in 1933 in Santiniketan, a former Indian territory, and now property of the government of Bangladesh. The name ‘Amartya’ is a Christian name and means ‘immortal’ 2 . The 1940’s were an important period for him. In this decade a lot of violence occurred in India, what resulted in the partition of the county in three new countries: India, Pakistan and Bangladesh. Sen lived with his family on the border of the new Indian and Bangladeshi state; therefore the violence had a direct effect on his life. Not only the violence of the forties affected Sen, in 1943 there was also the great Bengal famine, in which approximately five million people died (ibid.). Sen says about this period in his life: “The experience was devastating for me, and suddenly made me aware of the dangers of narrowly defined identities, and also of the divisiveness that can lie buried in communitarian politics. It also alerted me to the remarkable fact that economic constraints, in the form of extreme poverty, can make a person a helpless prey in the violation of other kinds of freedom 3 .” These two events, the partition of India and the famine, made him probably decide to study economics and certainly “proved the catalyst for a lifetime's interest in, and study of the economics of poverty and famine (ibid.).” The career of Amarty Sen started in the fifties, when he studied at the University of Visva-Bharata, Presidency College and Delhi School of Economics. During this period he got interested in modern economics. Several theories of modern economy were presented all around the world, including theories about rational choice (ibid.). In 1953, Sen moved from Calcutta to Cambridge (UK), to study at Trinity College. Here coexisted three remarkable economists of very different political views: Marxist, neo-classicist, and a view that had comments on all the political views at the time. This university was not, compared to Sen, interested in Rational Choice behaviour, and that made Sen, who also became more curious about India in the time he was in Cambridge, deciding to go back to Calcutta (ibid.). In India Sen studied at and visited several universities, and went after a few years back to Cambridge to study philosophy. After this period he returned to India to study at the Delhi School of economics. Here Sen plunged himself full steam into social choice theory in the dynamic intellectual atmosphere of Delhi University. He wrote several books about this theory, and at the same time taught students at the university (ibid.).

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www.wikipedia.org retrieved on October 10th, 2006 http://www.principalvoices.com/voices/amartya-sen-bio.html retrieved on October 10th, 2006

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“The constructive possibilities that the new literature on social choice produced directed us immediately to making use of available statistics for a variety of economic and social appraisals: measuring economic inequality, judging poverty, evaluating projects, analysing unemployment, investigating the principles and implications of liberty and rights, assessing gender inequality, and so on 4 .” As it says, Sen became more interested in inequality and poverty, then in criticizing rational choice itself. In the mid 1970’s Sen also started work on the causation and prevention of famines. Social choice and welfare economics became the most popular subjects for Sen to write about. Because Sen became more interested in social welfare and prevention of famines he got the interest of different organizations handling food crises and poverty. The policies of many organizations and governments were influenced by the theories and practical examples Sen wrote in his papers and books. The United Nations, for example, got very interested in his ideas, and started to adjust their policy. Sens “views encouraged policy makers to pay attention not only to alleviating immediate suffering but also to finding ways to replace the lost income of the poor, as, for example, through public-works projects, and to maintain stable prices for food 5 .” In 1998 Sen received the Nobel Prize for his works on Welfare Economics. That was the first of several awards he received between 1998 and 2006 for his individual works, his entire oeuvre and his ideas to decrease poverty and famines around the world 6 . 3 Behavioural decision theory The behavioural decision theory played an important role for Sen in most of his works. He tried to explain how countries were able to gain more welfare. The grounding of behavioural decision theory is that choices on several issues are made in consideration of possible opportunities. The choices can be rational or irrational, based on feelings or on implication of others. They can imply morality, rationality or egoism. The main question is what makes people decide to take A over B? Several scientists have proposed their theories on this question. Theories that will be expounded are based on behaviour of individuals and outcomes on collective level.

http://nobelprize.org/nobel_prizes/economics/laureates/1998/sen-autobio.html retrieved on October 23rd, 2006 5 http://www.britannica.com/eb/article-9126420/Amartya-Sen retrieved on October 23rd, 2006 6 http://nobelprize.org/nobel_prizes/economics/laureates/1998/sen-autobio.html retrieved on October 23rd, 2006

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3.1

Two examples of the behavioural decision theory
In this part we shall discuss ‘Olson’s theorem about collective behaviour and ‘free rider behaviour’ and ‘utilitarism’. Utilitarism is an antithesis of rational choice thinking. The former examples are chosen, because Olson’s theorem is about rational choice and the consequences for collective behaviour. Collective behaviour is important, because in a society people cooperate on a daily base. An example of collective behaviour will be given in paragraph 4; the choice to migrate.

3.1.1

Olson’s Theorem about collective action. Mancur Olson writes about collective action in his book The logic of collective action, published in 1965. He criticizes the sociological theory in which is explained that human beings have an instinct towards herding together. The public interest is equal with the private interest. Olson’s argumentations is as follow; if there is a group of people who would like to take action to achieve a general goal, every individual has to make a decision in which to decide to take action or leave it to others. The success of the group action is based on several basic assumptions, according to Olson. First of all, large groups are a fundamental cause of action failure. Because the bigger the group, the smaller the control of individuals. Second of all, the hierarchy in a group can contribute to failure of collective behaviour. In asymmetrical groups, some people would gain more from the action then others (Wolters & De Graaf, 2005). The thoughts of Olson are based on the assumption that every person acts rational for themselves, but if everyone chooses not to act, what in respect to individual costs and benefits would be rational, no collective action would occur. If there is some kind of solidarity then collective action is possible (ibid.). Utilitarism The most famous antithesis of the Rational Choice Theory is utilitarism. This is far from being the only non-egoistic approach (Sen, 1977). Utilitarism is by origin a philosophical approach. It is a moral idea about how to make the world a better place. In utilitarism people always have to act in ways that benefits all of humanity, which produces the greatest overall amount of goods in the world. The emphasis is clearly on consequences, not intentions. People must not act out of self-interest, but always need to consider what is best for society. (Hinman, 2003) To cut a long story short, utilitarianism is a theory, which is about achieving the greatest collective utility. Decisions should be made in accordance with people’s moral preferences, because the individual could best decide what the consequences of his behaviour is. When everybody realizes what is best for society, the common good will eventually emerge.

3.1.2

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3.2.

Rational Choice theory
As it already said in the introduction, rational choice is based on the idea that people only act out of self-interest. Individual people count the costs and benefits of possible actions. They choose to take the action, which has the best results for them. Adam Smith, a Scottish economic of the mid 17th century, already proposed that: “each individual having the power to act in his or her own selfinterest will be led as if by an ‘invisible hand’ to actions that produce the maximum wealth for a society of individuals”, (Wolff & Resnick, 1987: 89). All theories of Adam Smith were based on this principle, the principle of rational choice. Other neo-classic economist took over Smith’s ideas and starting to create their own theories based on this principle. According to Lewin (1988) rational choice theory is defined as a rational political action as a process of choosing between different policies given certain preferences and constraints. These preferences should be ranked, if there are several, according to their varying importance and, if they are contradictory, they should be modified so the become consistent. As to the constraints, they should be assessed by assemble actors and should have consequences for policy making. Decisions are evaluated according their consequences. For the individual the best decision is the one that gives him the greatest utility. Rational choice theory is part of the behavioural decision theory. As Lewin (1988) explains, the choices are made by rational deliberation. Olson and the prisoner's dilemma (the latter will be explained later in this paper) are showing that rational thinking would not always lead to an optimal outcome, because decisions of people are (inter) dependent of others. A century ago, the rational choice theory was purely an economic principle, but in the following centuries it also became a more important view in other social sciences, like psychology, sociology and geography. Some might think, what has rational choice to do with geography? The answer is that geography analyses and describes spatial behaviour. Those actions can be based on several thoughts, as well as the idea of rational choice.

3.2.1

Critique on rational choice: prisoner's dilemma One of the main critiques on rational choice is that individual rationality will not always lead to collective rationality and vice versa, collective rationality does not always imply individual rationality. This can be illustrated by a game, called the prisoners dilemma. To make clear why this game is called the prisoners dilemma, the story about two prisoners who are separately kept in confinement will be told (Wolters & De Graaf, 2005: 385-387). Two prisoners are accused of committing two crimes together, one big and a small one. The police does not have enough evidence to convict them for the big crime, but they can put them behind bars for the small crime. In order to get them convicted for the big crime, they have to get at least a confession from one of the prisoners. A police officer puts both of them in separate rooms, which makes it impossible for the prisoners to communicate. The officer gives them a choice: if they both confess, then they will be convicted for the big

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crime, but because they confessed, they would be convicted for ten years of prison, instead of the twenty years. If neither confessed they will be convicted for the small crime and they will go in prison for only two years. If only one prisoner confesses, he betrays his companion. The consequence is that he will get no punishment, because he helped the police. Instead the other one, who did not confess, will get the maximum punishment, twenty years in jail. The options, which the two prisoners have, are shown in the matrix below. In every box the first number is related to the punishment of prisoner 1 and the second for prisoner 2. Since the numbers refer to punishment and thus represent negative benefits, a minus sign is added in this matrix showing the benefits of the different options for action (ibid.).
Table 1: Matrix of the prisoner’s dilemma. Prisoner 2 Confesses Confesses -10 -10 Prisoner 1 Confesses not -20 0

Confesses not 0 -20 -2 -2

Every prisoner has to decide what the best answer is for him. If both do not confess, they will get the mildest punishment. The worst outcome for prisoner 1 is, that prisoner 2 confesses, and the other way around. If prisoner 1 confesses and 2 does not, he will get out of jail immediately, and the other way around. The structure of stimuli will lead to a confession of both prisoners. So a rational act of an individual would not lead to a collective optimum for both of them together (ibid.). This model has been designed for two people who are not able to communicate. The game can also be used for N-persons. Then the act would not be called betray, but free rider behaviour (ibid.). The situation is very similar to many decision situations in public life, in example the environment. People need to work together in order to gain a healthy environment. A person has two options, acting pro or con the environment. For the former option, he will have to invest time or money. In example, sorting the litter, buying low-energy light bulb or using solar panels are good for the environment. For a person it is rational to do nothing that costs extra time or money, if others are not investing at the same time. Because, one alone is not able to get the environment healthy and his efforts would make little difference. Also in this case a rational act of an individual is not leading towards a rational outcome on the collective level. 3.2.2 Critique on rational choice: Amartya Sens critique Just as we have pointed out at the prisoner's dilemma, Sens critique on rational choice includes the thought that an individual rational action would not lead to a collective rational outcome. Sen demonstrates that an individual rational or egoistic action does not lead to a general equilibrium. Sen argues that if everyone would act upon individual greed and the economy is controlled by a very large number of different agents, the economy would be chaos (Sen,

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1977:321). So, all different agents should not be acting on a basis of greed, but on moral choice, based on the moral interactions with the nearest surroundings. “It can be argued that behaviour based on sympathy is in an important sense egoistic, for one is oneself pleased at others’ pleasure and pained at others’ pain, and the pursuit of one’s own utility may thus be helped by sympathetic action. It is action based on commitment, rather then sympathy that would be non-egoistic in this sense (Sen, 1977).” According to Sen (1977:344), moral choice is not only based on universalised moral systems, neither on pure egoism. The dichotomy between universalised moral systems and egoism is not tenable, but those theories are ends of a continuum. Another critique of Sen is the idea that a person orders his preferences and chooses the best option. But can one person order all the possibilities? A person thus described may be ‘rational’ in the limited sense of revealing no inconsistencies in his choice behaviour, but he would not be able to consider all different options carefully. According to Sen (1977: 336): “The purely economic man is indeed close to being a social moron”. Sen’s ideas have also consequences for the allocation of public goods. Public goods have to be compared with private goods, which have the characteristic that more than one person cannot use them. In contrast, public goods can be used by more than one person, time after time. An example of public good is a road, a park or the environment. The allocation of those public goods is problematic. If it is everybody’s interest to understate the benefit he expects, this understatement may lead to the rejection of a public good which would have been justified if true benefits were know (Lewin, 1988). Another problem that arises is that public goods can be over-indulged. These kind of public goods are also called common pool resource (Wolters & De Graaf, 2005:324). If everyone maximizes his use of the resource, the outcome will be a depletion of the public good. Sen argues that one should not be acting only on maximising his own personal gain, but should act with regard to others and the possibility of indulging of the common pool resources. Thus, one should act with moral consciousness and commitment, not only on rationality (Sen, 1977: 330). 4. The choice to migrate. As it is said before, the principle of rational choice became a more important view in other social sciences, like geography. The rational choice theory is one way to describe spatial action. Practical examples of the critique on the rational choice theory can also be explained by geographical issues. In this paragraph, migration, as a form of spatial action, is explained by the rational choice theory. Expounded will be why this theory failed to describe migration, and therefore also other examples of spatial action. The subject of migration is chosen because it has a direct link to the life of Amartya Sen. Ever since he was a young boy he moved from place to place,

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from country to country. First because of political instability in the region he has been living, in his later live he travelled around the world in purpose for education, teaching, meetings and other factors influencing his life. To describe migration by the rational choice theory, and its critiques, it is first important to explain what migration is. The most used definition of migration is ‘the movement of persons from one country or locality to another 7 ’. Migration is caused by several factors, which can be subdivide in push and pull factors. Both contain environmental, political, economic and social-cultural pillars. The decision of an individual or a group to migrate is based on these factors. Push factors are reasons for one to leave the area, pull factors are reasons to migrate to another area (Knox & Marston, 2004). If we would apply the rational choice theory to migration, the decision of one to migrate to another county is based on what is best for one’s own interest. According to this theory people are consider several countries to move to, which has the best utility. First the person in question would look at all the countries in the world, where it is best to migrate to. The country, which has the most pull factors and the least push factors, is the optimum in this case. The rational choice theory even suggests that if everyone in this world would migrate to the country, which has the best optimum for the individual, it would eventually result in what is best for the whole society. Of course, the critique on the application of the rational choice theory to describe migration is overwhelming. At first, pure theoretically one is not able to analyse all countries, to decide which has the best push and pull factors. To put it in Sens (1977) words: “Can one person order all the possibilities?” Of course this is not possible in the case of migration; one could never have all the information about all the countries in the world. Even if one would do a lot of Internet research, it is still not possible to analyse all the push and pull factors, and therefore it is not possible for one to find the country with the optimum. Secondly, if one purely based his migration to another country by calculating push and pull factors, one would not take morel consequences into account. A person would migrate to another country, because there he will find his optimum. By moving to another country, he probably has to leave his family and friends. To other family members the choice to migrate could be resulting in negative emotions towards the migrant. Another argument of Sen is that individual, rational acting does not lead to a general equilibrium. In the case of migration, if everyone will move to the country, which has the greatest optimum for him or her, an enormous amount of migration will occur in this world. Total chaos will be the only result, because the population density will be too high. Countries, which have the best optimum for a lot of individuals, will decrease their pull factors, mainly by closing borders. The massive migration will also have its consequences on the economy, the environment, the political situation and the social-cultural situation in several countries.

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http://www.wordreference.com/definition/migration

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As mentioned in the above, the rational choice theory is not a way of describing migration. Other spatial action is, like migration, not explicable by the rational choice theory. 5. Conclusion Amartya Sen has been travelling around the globe for many years of his life. In the first years of his career he criticises the rational choice theory. This theory suggests that people only act out of self-interest; they count the costs and benefits of all options and choose to take the action that has the best results for them (the optimum). The theory even suggests that if everybody would use this method, it would be best for the whole society. Sen criticises that humans do not only act by rational thoughts, but humans make decisions in account to others. They act with rationality and commitment. So for example, if a stranger asks the way to the railway station, the local would not send him to the post office, because one should account to one another. Another critique of Sen on rational choice thinking is that rational acting does not lead to a general equilibrium. In the case of migration if everyone chooses the same country to migrate to, because that is the best individual option, the general outcome would be chaos. In supplementary to the latter critique, for an individual it is not possible to consider every possible option. In the case of considering migration, it is not possible to know every possible option and to order them to find the maximum utility.

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6.

Bibliography Barnes, T. & Sheppard, E. (1992) Is there a place for the Rational Actor? A Geographical Critique of the Rational Choice Paradigma. Economic Geography, vol. 68, no. 1, 1-12 Hinman, L.M. (2003) Ethics, a pluralistic approach to moral Theory. Belmont, CA: Wadsworth. Knox, P. & Marston, S. (2004) Human Geography, places and regions in Global Context. Pearson Education, New Jersey, USA Lewin, L. (1988) Utilitatianism and rational choice. European Journal of Political Research, 16, 29-49. McQuaig, L. (2001) All you can eat: Greed, Lust and the New Capitalism. Penguin Books, New York Sen, A. K. (1977) Rational Fools a critique of the behavioural foundations of economic theory. Philosophy and Public Affairs, 6, 4, 317-344. Wolff R. D. & Resnick S. A. (1987) Economics: Marxian versus Neoclassical. Baltimore, MD: Johns Hopkins University Press Wolters, W.G. & De Graaf, N.D. (2005) Maatschappelijke problemen; beschrijvingen en verklaringen. Amsterdam: Boom onderwijs. Internet sources: http://www.britannica.com/eb/article-9126420/Amartya-Sen http://www.wikipedia.org http://www.principalvoices.com/voices/amartya-sen-bio.html http://nobelprize.org/nobel_prizes/economics/laureates/1998/sen-autobio.html http://www.wordreference.com/definition/migration http://www.rationelepolitiek.nl/achtergrond/sociologie/gevangenendilemma.htm

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