Psychology’s Behavioral Decision Research: Two Origins

It is widely held that psychology’s postwar critique of rationality theory constitutes a fundamental challenge to economics. I argue that this challenge must ultimately be understood in terms of the connection between rationality theory and its underlying Homo economicus conception of the individual. In fact, psychology offers two different critiques of standard rationality theory associated with two different underlying conceptions of the individual, one that largely takes over and revises economics’ atomistic individual conception and one that clearly rejects it. This chapter is devoted to the first of these critiques; Chapter 7 discusses the second. Both arise with the emergence of the postwar psychology field of Behavioral Decision Research (BDR) that produced first an “old” and then later a “new” behavioral economics (Sent 2004; Angner and Loewenstein, forthcoming). The “old” behavioral economics, associated with Herbert Simon, Reinhard Selten, and Gerd Gigerenzer, takes the stronger position, develops a view of rationality as bounded, and rejects economics’ atomistic individual conception, offering in its place a more evolutionary type of view that effectively supports an ecological conception of rationality combined with what can be characterized as an ecological conception of individuality. The “new” behavioral economics, associated with Daniel Kahneman and Amos Tversky, also essentially develops a view of rationality as bounded but basically retains economics’ atomistic individual conception, revising it in ways that lightly embed individuals in the world in an essentially ahistorical nondevelopmental way. Most commentators have focused on the differences between these two behavioral economics in terms of their differences regarding the critique of rationality theory, but my view is that these differences need to be understood in terms of their differences regarding the nature of individuality and how it is bounded as well. This chapter begins to defend this conclusion by examining the individual conceptions that underlie the two currents in postwar BDR, one of which lays the individual foundations for the “new” behavioral economics.