Review of Bart Engelen ’ s Rationality

The motivating thought behind this volume is that " if one wants to " make up the rules " of the game of life, one has to start from a realistic view of its players " (Engelen 2008, 2). This may seem self evident but it is an idea that rarely achieves the prominence which it deserves—not least in methodological debates. For example, much ink has been spilled around Friedman's famous 1953 essay that brought a form of positivism/behaviourism to economics, but comparatively little around this point. Yet it is really rather important. If a theory is to be used normatively to provide, say, policy advice, then it has to be realistic in important respects. Otherwise the theory cannot hope to provide advice about how to change our world: its advice will apply to some 'other' world (i.e., the one that is in the relevant respects captured by that theory). To be specific, in mainstream economics, guidance is usually based on the Pareto criteria: that is, a policy intervention is warranted when economic theory predicts that some people will become better-off through that intervention without making any worse-off. The judgement about what makes people better or worse off is quite precise for this purpose. It comes from mainstream's theory of what makes people act (i.e., the assumption of individual rationality): people are better-off when they better satisfy their preferences. If it turns out that people are not rational in the sense of being instrumental preference satisfiers, then the theory can still be useful in predicting people's actions (because they could act 'as if' so motivated) but the theory cannot tell us when and if they are better off. The latter depends on the theory of individual rationality being in important respects descriptively accurate on the matter of how we act and how such action affects our well being. This is why Bart Engelen is right to begin his book with a discussion of individual rationality in economics.