A Random Utility model treats human decision-making as if it has two components - a predictable, deterministic component, and a random component. But if there are a huge jumble of behavioral effects going on, it seems to me that outside of the lab, that's usually just going to be observationally equivalent to randomness in the objective function. Which is exactly a Random Utility model.
So what if Random Utility models are the grand unified theory of behavioral economics? What if the upshot of all of these psychological effects is simply that the random component of utility is partially irreducible - that there must be a random component of utility in almost any theory if that theory is going to have a chance of predicting human behavior accurately? Maybe sometimes the randomness is so negligible that people act like homo economicus, and sometimes the random part dominated so much that their decisions are completely unpredictable with science?
In other words, maybe the Grand Unified Theory of Behavioral Economics was invented and validated more than 40 years ago, and we just didn't recognize it for what it was?Good comments, too. Barkley Rosser weighs in and Noah responds.
I think this could be close to the truth. The problem with rational choice theory is the strength of the assumption, I suspect based on generalizing from a special case to homo economicus as a universally applicable paradigm. But while some types of behavior are highly regular (law-like), therefore predictable, some are not. Treating all behavior as more or less equally regular hence predictable seems to be a hasty generalization. This seems to fit what Keynes was getting at with his "animal spirits." (See John Harvey's Uncertainty And Animal Spirits.)
See also Competing for What? by Econolosophy
It is important to note that when the economist jumps from considering all preferences in his cost-benefit analyses to considering just purified preferences, he has entered the realm of moral philosophy. He can no longer claim to be a liberally neutral policy advocate.[2] He now needs to take a stance on what he thinks constitutes the good life and, as such, argue for policies that lead people in the direction of that life.
Which is wonderful! The beauty of moral philosophy is that everyone can and should be a moral philosopher. Indeed, society is at its best when people with different moral beliefs debate and envision, collectively, what the good life is and how society should be structured so that people can achieve it. Deliberative democracy is at the heart of what makes a modern society thriving and just.
Unfortunately, most economists do not want to debate with the broader public about moral philosophy. They would rather sneakily hide their moral views behind mathematical models, which they falsely claim are non-normative. I’m not sure how they’ve been able to pull off this swindle for so long; but it probably has something to do with the implicit bias we all have to be swayed by fancy physics-looking math, which we incorrectly assume must be grounded in positive empiricism and not moral intuition.
So in this post, let’s look at two policy recommendations that economists have given in recent decades, each of which appears non-normative upon first glance but in fact rests on a certain moral ideal....Noahpinion
