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Saturday Rat Choice Blogging

Good magazine, which, one hopes, is aptly named, recently featured a profile of Bruce Bueno de Mesquita, one of the progenitors of the application of rational choice theory to political science, who at one time was laughed out of a … Read More

By / December 1, 2007

Good magazine, which, one hopes, is aptly named, recently featured a profile of Bruce Bueno de Mesquita, one of the progenitors of the application of rational choice theory to political science, who at one time was laughed out of a meeting of the American Political Science Association, but now commands a directorship at NYU, a fellowship at the Hoover Institution, and a lucrative management consulting business.

Rat choice is an offshoot of game theory consisting in a set of axioms by which one can quantitatively predict behavior. It is most obviously applicable to instances of economic behavior among individuals, but — and this is the controversial part — it can also be applied to group behavior and to non-economic activity ('economic' here in a narrow sense; if the broadest visions of rat choice turn out right, all activity is economic activity). The way it works, in a nutshell, is this (with the steps I find contentious in italics): For any decision and for any decision-maker A, there is an exhaustive set of alternative actions A can take. Assuming the transitivity of action preferences — i.e., if A prefers X to Y and Y to Z, then A prefers X to Z — and given a probability distribution for the various outcomes of the undetermined event in question, it is possible to calculate (with simple arithmetic, actually), a strict ranking of action choices in terms of expected utility. Assuming decision-makers are all narrow utility-maximizers, and assuming decision-makers operate with sufficient knowledge of the relevant expected utilities, rational choice theory can predict how a decision-maker will behave.

In an area such as microeconomics, in which utility is measurable in units of currency and in which agents have no conceivable goal other than utility-maximization, rat choice is natural fit as a forecasting method. Two very simple examples from (if you like) everyday life illustrate how it can be applied outside economics.

More below the fold, including criticism of Walt & Mearsheimer (it's relevant, I promise).

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