Malcolm Bull writes:
Thanks to the work of behavioural economists there is a lot of experimental evidence to show what many of us would have suspected anyway: that people are not the rational, utility-maximisers of neoclassical economics, but loss-averse sentimentalists who, faced with even the simplest cognitive problem, prefer dodgy short cuts to careful analysis.
No! There’s a fallacy here, and it’s an important one. Bull considers two alternatives:
1. “Rational utility-maximizers”
2. “Loss-averse sentimentalists”
What he’s missing here is an intermediate category, which we might call “Everyday rationalism.” We make rational (dictionary definition: “based on or in accordance with reason or logic”) decisions all the time without breaking out the utilities.
I have no quarrel with utility-based decision analysis—it’s a fine protocol, and we devote an entire chapter of BDA to it—but we should recognize that it’s just one strategy for rational decision making. There are lots of ways to be rational without specifying utility or maximizing anything. For example, you can sit down, list your goals, consider possible ways of attaining them, and then assess potential benefits and drawbacks of each possible action you are considering. Following such a plan does not make you a “loss-averse sentimentalist”!
I’m guessing that, in writing the above, Bull was engaging in some exaggeration, so I’m not saying he holds the view that people must be either “Rational utility-maximizers” or “Loss-averse sentimentalists”—but I do feel that this dichotomy presents problems.
On one hand, we have proponents of formal utility theory who grip that theory like a vise, in the impression that if they let go, there’s nothing but the void of sentiment. On the other, we have opponents of utility theory who are all to ready to abandon rationalism entirely, as here. In the middle is a big gap.
I think both Gigerenzer and Kahneman would agree with me on this one.