Three decades ago Gary Becker wrote a book in which he made extraordinary claims about the usefulness of economic approaches for the understanding of questions in social sciences. In a now-famous introductory essay to The Economic Approach to Human Behavior (1976), Becker succinctly states his views:
I have come to the position that the economic approach is a comprehensive one that is applicable to all human behavior, be it behavior involving money prices or imputed shadow prices, repeated or infrequent decisions, large or minor decisions, emotional or mechanical ends, rich or poor persons, men or women, adults or children, brilliant or stupid persons, patients or therapists, businessmen or politicians, teachers or students.
By "the economic approach" Becker means one in which "all human behavior can be viewed as involving participants who maximize their utility from a stable set of preferences and accumulate an optimal amount of information and other inputs in a variety of markets" (14). He asserts that his approach provides a "unified framework for human behavior" that was sought by but eluded such renowned thinkers as Jeremy Bentham, Auguste Comte, and Karl Marx.
In modified form, the types of analysis advocated by Becker have become increasingly influential in the social sciences. In this book I examine the advantages and disadvantages of this "economic" approach to diverse practical problems involving decision making. I contrast this approach with "anthropological" analyses that focus on the historical changes, cultural norms, and socioeconomic institutions that constrain the choices possible for different groups of people at particular places and times. My principal argument is that the methods of economics alone are insufficient for understanding the complexities of choice.
Economic and Anthropological Approaches to Choice
Becker's book, filled with graphs and equations, was written primarily for economists. His definition of an "economic approach" would be likely to mystify noneconomists unsure about the technical meanings of "utility," "preferences," "inputs," and "markets." Even readers familiar with the language of economics might wonder how anyone could possibly know when utility is being maximized, what it means to say that preferences are "stable," and what exactly is an "optimal" amount of information.
In 1992 Becker won the Nobel Memorial Prize in Economic Sciences "for having extended the domain of microeconomic analysis to a wide range of human behaviour and interaction, including nonmarket behaviour."1 As Becker hoped, economic approaches have become prominent in fields such as political science and are now also of some importance in sociology, geography, and history. Such approaches are often lumped together under the term "rational choice theory," a reference to their assumptions about utility maximization. An enormous scholarly literature (among others, Elster 1989, Gigerenzer 2008, Parsons 2005, Schweers Cook and Levi 1990) describes rational choice theory and debates its merits. There are also numerous books aimed at general readers that popularize the basic ideas of the theory. Some of these books (for example, Becker and Becker 1997; Harford 2005, 2008; Levitt and Dubner 2005) describe insights gained from applications of rational choice theory; others (including Gladwell 2005, Groopman 2007, Lehrer 2009, Thaler and Sunstein 2008) pay more attention to the theory's limitations. Many of the critics of economic approaches in social sciences emphasize findings from experiments in cognitive psychology that show that people often make suboptimal choices.
Rational choice theories have certain features that make them attractive to scholars advocating "scientific" approaches to social phenomena. Their focus on a restricted number of key variables can allow hypotheses to be tested in controlled situations. The mathematical elaboration of these theories provides clear statements of suggested relationships among different variables. Many ethnographically oriented anthropologists, however, are repelled by the very features that make rational choice theories appealing to many economists and political scientists and intriguing—if debatable—for many psychologists. The reliance of rational choice theories on a limited number of assumptions is diametrically opposed to an entrenched holistic anthropological tradition that stresses multiple interrelated influences on cultural practices. The underlying idea that humans everywhere have similar motivations conflicts with anthropologists' longtime emphasis on cultural diversity. The methodological individualism typical of most applications of rational choice theory is unacceptable to both anthropologists focusing on supra-individual characteristics of groups and institutions and those whose research examines how history and political economy influence cultural practices.
The treatment of "preferences" in rational choice theory illustrates why so many anthropologists are uncomfortable with economic approaches. For economists, "preferences" refer to individual (or group) rankings of the desirability of different outcomes. For example, an individual might prefer apples to oranges or spending money on a swimming pool rather than making a charitable donation. Such preferences are ordinarily assumed to be "given," meaning that the analyst is unconcerned about why individuals have them. Becker, as usual, takes an extreme position:
Since economists have little to contribute . . . to the understanding of how preferences are formed, preferences are assumed not to change substantially over time, nor to be very different between wealthy or poor persons, or even between persons in different societies and cultures. (1976b:5)
Almost any anthropologist would be appalled by Becker's casual assumption of cultural uniformity over space and time. I would not argue that all economists share Becker's explicit disinterest in cultural variability and change. But it is clear that most have little professional interest in cultural differences. The description and explanation of such differences, in contrast, are at the heart of most ethnographic work.
Approaches consistent with rational choice theory nonetheless have been influential within varied subfields of anthropology. Anthropologists adopting ideas from evolutionary psychology (such as Bliege Bird and Smith 2005) have argued that diverse aspects of cultural behavior are the result of humans attempting—not necessarily consciously—to maximize their genetic contributions to future generations. Ecological anthropologists studying hunter-gatherers (Winterhalder 1987 and others) use the economistic optimal foraging theory in their efforts to explain food-getting patterns. Demographic anthropologists (such as Nag, White, and Peet 1978) have attributed increases and decreases in fertility patterns to changes in the economic value of child labor.
Rational choice theory might be expected to be especially appealing to anthropologists whose research focuses on the economy. Economic anthropologists, however, have had an uneasy relationship with mainstream economists. This discomfort can be traced in part to the areas where anthropologists have historically done fieldwork. In the first part of the twentieth century, most ethnographic research took place in settings quite different from those usually studied by economists. In many anthropologists' research sites, goods and services were exchanged primarily via kin networks. Anthropologists working with members of tribal societies in the deserts of Africa, the islands of the Pacific, and the forests of Amazonia were understandably skeptical about the general applicability of theories designed to explain decision making in the economic institutions of states.
During the 1950s and 1960s theoretical discussions in economic anthropology were therefore dominated by what came to be called the formalist-substantivist debate. These impassioned arguments focused on the relevance of economic theories and models in societies where markets were either absent or of limited importance. The formalists (Burling 1962, Cook 1966, LeClair 1962, to name a few) argued that economic theory was directly applicable to such places. Their empirical work stressed methodological individualism, made extensive use of quantitative methods, and treated culture primarily as an unanalyzed shaper of preferences. Inspired by the writings of Karl Polanyi (1944, 1957), the substantivists (including Dalton 1961, Sahlins 1972) dismissed the relevance of western economic theory, emphasized institutions rather than individuals, and provided ethnographic descriptions of exchange systems such as reciprocity, redistribution, and markets.
By the 1980s most economic anthropologists regarded the formalist-substantivist debate as a dead end.2 Furthermore, the vast majority of anthropologists were by this time conducting research in societies where markets are important. Nonetheless, there remained a clear divide within economic anthropology between those advocating the use of formal models based on utilitarian assumptions and those emphasizing the importance of history and culture. Model-oriented economic anthropologists examined topics such as demographic influences on household labor allocation (Durrenberger 1984), the effects of risk aversion on decision making (Cancian 1979), and competition over the use of commonly held resources (McCay and Acheson 1987). Such research differed greatly from the many historical studies in the 1970s and 1980s influenced by dependency and world systems theories (for example, Mintz 1985, Roseberry 1983) that examined international trade, inequalities between the rich and poor nations, and the socioeconomic relations associated with commodity chains. Such historically and politically oriented research is today ordinarily framed in the context of globalization. Studies of consumption also have become prominent in economic anthropology (among them Howes 1996, Miller 1998, Orlove 1997, Rutz and Orlove 1989); these often incorporate ideas from cultural studies and postmodernism.
Despite this divide, even model-oriented contemporary economic anthropologists do not ordinarily uncritically accept mainstream economic theory. They often argue that such theories need to be modified to be applicable to many situations in both western and nonwestern settings. The great majority of economic anthropologists—whatever their theoretical position—distance themselves from conventional economic theory.
The Value of Ethnography
My research in Belize, Peru, Mexico, and the United States over the past several decades has focused on the work lives and economic strategies of individuals and households. In my efforts to figure out how and why people in these diverse places make decisions about their livelihoods I have read many models of human behavior consistent with rational choice theory that have been proposed by economists, anthropologists, cognitive psychologists, and evolutionary biologists. These models employ to greater or lesser degrees the economic approach advocated by Gary Becker. Although these models have sometimes helped my understanding of practical issues, I found that they were more often of little use because of their intentional lack of attention to relevant ethnography, history, and political economies. In their efforts to explain everything, they explained very little.
The case studies in this book are intended to show the practical relevance of what can seem to be arcane intellectual debates. They show that the issues examined are not abstruse theoretical conundrums of interest only to scholars; instead, they are essential to our understanding of how and why people around the world make important decisions about their livelihoods and the welfare of their families. The details in the ethnographic examples illustrate what rational choice models leave out.
Economic approaches to decision making have been criticized on both practical and theoretical grounds. Many scholars argue that the expected utility framework underlying such approaches is difficult to apply to real-world situations. Some go further and question the reasoning behind utilitarian explanations of cultural practices.
Expected Utility and Rational Choice
Most contemporary versions of rational choice theories are based on something called "expected utility." This theoretical approach assumes that decision makers are able to make approximations of the expected utilities (payoffs) associated with alternative choices. The idea is that decision makers select the option that provides the greatest expected utility. Writers about expected utility (and more generally rational choice) differ as to whether they consider their theories to be prescriptive or predictive. Those taking a prescriptive approach say that while their methods tell us what decision makers should do, no claims are made that people actually make optimal choices. Those taking a predictive approach argue that much human behavior can be explained by looking at the extent to which various choices maximize decision makers' expected utility (self-interest).
There are several obvious problems associated with attempts to apply an expected utility framework—whether prescriptive or predictive—to on-the-ground decision making. The most important of these difficulties are the following:
1. Expected utility theory assumes that decision makers can assign values (utilities) to alternative outcomes of decisions. "Utility," however, is a murky concept that is almost impossible to define and measure. Although economists often examine monetary returns to alternative choices, people's decision making is often influenced by other goals such happiness, leisure, and risk avoidance. Some goals such as "happiness" can be difficult to measure. Even when outcomes can be quantified, there may be no obvious way to combine the different kinds of payoffs from a particular outcome into a single measure of "utility." How can, for example, the happiness one gets from winning an athletic competition be compared to the monetary rewards from such a championship?3
2. Expected utility models of decision making depend in part on decision makers' views about the probabilities of alternative outcomes when particular choices are made. In many decision-making situations (such as the chances that a new restaurant will be successful), these probabilities are difficult or impossible to estimate. Even when such probabilities can be guessed reasonably well from past experiences (weather records) or statistical theory (state lotteries), decision makers' estimates of the chances of possible outcomes may not be realistic.
3. Estimates of expected outcomes (payoffs) from particular choices must specify what length of time is being considered. Decision makers, however, may have hazy ideas about time frames. This can cause analytic problems when the short-term and long-term consequences of a decision differ. The potential long-term consequences of a decision often differ from those in the short term. Smokers, for example, must weigh the immediate pleasures of a cigarette against their increased chances of getting lung cancer some day. Their decisions about whether to smoke depends on whether the time frame being considered is the next five minutes or the next twenty years. The "rational" decision might well be to smoke if only the next few minutes are considered and to abstain if the next two decades seem relevant.
4. Expected utility models assume that there are no problems in specifying which individual or group is making a particular decision. Although such models usually assume that choices are made by an individual, they sometimes examine decisions made by groups such as families, corporations, labor unions, and political parties. In many situations, however, decision-making units are hard to isolate. Decisions that may seem to be made by individuals are often influenced by the ideas and concerns of many people.
Broader Meanings of Rationality
Many books and articles about "rationality" discuss utilitarian explanations of cultural practices that assume that people are consciously attempting to achieve measurable goals. A brief look at the polemical writings of an advocate and a critic of such explanations shows well how debates over the usefulness of the concept of "rationality" reflect fundamental disagreements about the causes of human behavior. The advocate is Tim Harford, an economist whose books (2005, 2008) aim at making the often-abstruse ideas of his discipline comprehensible for general readers. The critic is the famous anthropologist Marshall Sahlins, a longtime outspoken opponent of economic and ecological explanations of cultural patterns.
In his book The Logic of Life: The Rational Economics of an Irrational World (2008:9), Harford describes his perspective on decision making:
Rational people respond to incentives: When it becomes more costly to do something, they will tend to do it less; when it becomes easier, cheaper, or more beneficial, they will tend to do it more. In weighing their choices, they will bear in mind the overall constraints upon them; not just the costs and benefits of a particular choice, but their total budget. And they will also consider the future consequences of present choices.
Harford's comments are deliberately consistent with the expected utility approach to decision making. Notice, however, the imprecision of words such as "cheap," "easy," "future," and "beneficial." This is in part because Harford is trying to make complicated ideas accessible for readers who may understandably lack the patience to decipher technical definitions of utility and the ability to calculate probability-based expected outcomes. But Harford's use of ordinary language also makes it easy for him to loosely interpret diverse types of behavior as being "rational." He is not attempting to rigorously test hypotheses.
Some years ago Sahlins wrote a book in which he harshly criticized numerous noted anthropologists for their utilitarian explanations of cultural phenomena. In Culture and Practical Reason (1976), Sahlins argues—in language less accessible than Harford's straightforward prose—that such explanations constitute "an epistemology for elimination of culture itself as the proper anthropological object" (83). He goes on to say:
Without distinctive properties in its own right, culture has no title to analysis as a thing-in-itself. Its study degenerates into one or another commonplace naturalisms: the economism of the rationalizing individual (human nature), or the ecologism of selective advantage (external nature). (Ibid.)
Sahlins here is not explicitly criticizing expected utility approaches to rational choice. He is instead generally arguing against what he regards as reductionist explanations of cultural practices that emphasize their usefulness to either individuals or groups. Sahlins is hardly alone in making such critiques (Douglas and Wildavsky 1982, Lupton 1999, and others do as well); the influential postmodern movement in anthropology during the latter part of the twentieth century was based in part on a related rejection of attempts to make anthropology a social science seeking lawful regularities in human behavior.
Although much of this book consists of my criticisms of what I see as the limitations of economic models, I want to be clear than I am not advocating culturalist analyses. My discussions of the shortcomings of rational choice approaches to particular issues in economic anthropology are not intended to be read as rejections of utilitarian explanations of human behavior. I actually think that anthropologists should whenever possible seek such explanations. I agree more with Harford than with Sahlins.
Migration from Mexico to the United States
The problems associated with attempts to apply economic models to real-world situations can be seen by examining closely the decisions that two brothers made about migrating temporarily from Mexico to the United States. Rational choice theory provides an incomplete and in some ways inadequate framework for understanding why the brothers made different choices.
In 2003 Jorge and Oscar Morales began to think seriously about leaving their community near the city of Oaxaca in southern Mexico and migrating temporarily to California.4 The two brothers, both married and in their late twenties, were the youngest of seven children in a hard-working artisan family. Their village of a thousand people had prospered in the 1990s by selling brightly painted wood carvings to tourists and dealers in folk art. Jorge and his wife, Sandra, had three young children; Oscar's wife, Veronica, had just given birth to their second daughter. The two brothers and their families lived in a large compound with Alberto and Alicia, the parents of Jorge and Oscar. Alberto and Alicia sold masks and jewelry that they made at Monte Albán, a nearby archaeological site.
Oscar, three years older than Jorge, was one of the most highly educated artisans in Oaxaca. He excelled in his studies, obtaining a degree in business administration from a local university. For several years Oscar earned a good living by local standards by working as an intermediary for Roger, a large-scale dealer in folk art from Arizona. Roger sent orders to Oscar for particular types of carvings. Oscar arranged with local artisans to make the pieces, which he later collected, packed, and sent to Arizona. Oscar was a decent carver and painter, but his pieces are unremarkable in a place where there are many talented artisans. He stood out instead for his business skills and reliability. Oscar was one of the most respected men in his community. By 2003 he had already served as the (unpaid) treasurer and secretary in the local government.
Although Jorge was a better-than-average student, he enjoyed his studies less than Oscar did and left school after attending prepa (the equivalent of a U.S. high school) for a few years. Jorge had little interest in marketing crafts and did not join Oscar and another brother in their work for Roger. He was, however, a talented artisan who specialized in making meticulous small carvings of animals including goats, cats, and giraffes. Sandra, a skilled painter, helped with the pieces but was limited in what she could do because of child care responsibilities.
The demand for Oaxaca wood carvings began to decline around 2000. Although sales of well-made, relatively expensive pieces remained good, fewer tourists, shop owners, and wholesalers were buying the cheaper carvings that comprised the bulk of the trade. In 2002 Roger decided to stop selling Oaxacan wood carvings and to concentrate instead on other Latin American crafts. Oscar lost his job with Roger and needed immediately to find other ways to support his family. Jorge's income also decreased because of fewer sales of his pieces.
Like many other Mexicans their age, Jorge and Oscar knew that temporary migration to the United States could provide income that could support their families. Several of their older brothers regularly went back and forth to California, where they seemed to have little trouble finding work. Although these brothers migrated without legal documents and worried about the difficult border crossing, they had been able to make their trips without serious difficulties. If Jorge and Oscar went to California, they could stay with family members or friends already there and use these connections to find steady if low-paid employment.
The advantages and disadvantages of such migration are well known in both the United States and Mexico. The wages for unskilled work in the United States are much higher than those for even most professional jobs in Mexico. Because of this discrepancy in wages, remittances (money sent home by migrants) are one of the major sources of income in Mexico. Many migrants hope that they might be able to settle permanently in the United States and make better lives for themselves and their families. Some migrants—whether or not they see their border crossing as permanent—also regard their journeys as exciting opportunities to see another part of the world.
Most migrants, however, are reluctant to leave Mexico. Crossing the border without papers can be dangerous; even those who safely enter the United States live in constant fear of being caught by immigration officials and being jailed or deported. Perhaps the most common reason that people give for disliking migration is the loneliness of being separated from loved ones. Even in an age when telephone and Internet communication is easy and inexpensive, being away from home can be painful (Cohen 2004:7).
Oscar and Jorge reacted differently to the possibility of migrating. For Oscar this was an alternative only to be pursued as a last resort. He was devoted to his family and comfortable in his position in his community. Oscar did what was expected by authorities; living illegally in the United States would be especially uncomfortable for him. Furthermore, Oscar was friendly with many folk art dealers, academics, and tourist agents in both the United States and Mexico. These contacts, he thought, would help him find new sources of income.
Although Jorge was not enthusiastic about leaving Oaxaca, he had fewer reservations about migration than Oscar. Lacking Oscar's education and social networks, Jorge had fewer options if he remained in Mexico. Perhaps also he was not as content as Oscar with his life in Oaxaca. Jorge had never earned as much money as Oscar. While popular, Jorge did not have the deep respect that Oscar had earned through his community service.
The decisions Oscar and Jorge made about migration were not entirely independent. Both brothers thought it best if one remained in their community to help with their elderly parents, their children, and the maintenance of the family compound. While such considerations would not prevent both brothers from migrating if economically necessary, they clearly influenced Oscar's thinking. However, if one brother decided to migrate and send remittances back home, this would help everyone living in the compound.
In 2003 Jorge left for Los Angeles. Although he phoned his family most days, as of 2010 Jorge had not returned to visit even once because of fears about increased vigilance at the border. Jorge, who now speaks good English, works days at an insurance company and nights in a grocery store. He shares living space with an ever-changing cast of relatives. Jorge has done well economically compared to most Mexican migrants; his brothers in Los Angeles, for example, work fewer hours at less well-paid and more physically taxing jobs.
Through his connections with university professors (including me), Oscar was able to legally visit the United States several times to give wood-carving demonstrations and sell pieces. After making several such trips, Oscar obtained a ten-year tourist visa that allows him to enter the United States without problems. His trips to the United States, which ordinarily include visits with Jorge and other relatives, last only a few weeks. Oscar continues to serve in important political positions in his community.
In recent years Oscar has not done as well economically as he had hoped after losing his job with Roger. He has supported his family by making and selling wood carvings, teaching computer skills to local children, and working occasionally for visiting scholars. Wood-carving sales in Oscar's community fell sharply between 2006 and 2008 because political problems in Oaxaca resulted in fewer tourists visiting the state. In reaction to these economic problems, Oscar founded an artisans organization that promotes the cooperative marketing of wood carvings. Although the organization has had some success and tourism in Oaxaca is rebounding, Oscar and many of his neighbors can no longer rely on wood carving as a good source of income.
There is no question that Oscar could have earned more money over the past several years if he had chosen to migrate. But he is content with his life in Mexico and almost certainly would be less happy in Los Angeles away from his family.
When Is Migration "Rational"?
The applicability of rational choice models has been questioned (Gladwell 2005, for example) for the many situations in which people make decisions without consciously and systematically weighing the costs and benefits of alternative actions. The choices Jorge, Oscar, and other Mexicans face about migration, however, involve a careful consideration of the pros and cons of leaving home. Migration is a perennial topic of conversation in Mexican communities; families may discuss for years whether particular members should migrate. Jorge and Oscar's decision-making processes nevertheless illustrate the limitations of rational choice approaches. Although these approaches can help us understand the reasons for variations in the choices made by members of different socioeconomic groups, their intentional downplaying of ethnographic detail leads to thin, unsatisfying analyses.
The basic idea underlying rational choice models is that individuals will pursue actions that are in their self-interest. In the case of Mexican migration, this suggests that individuals who would benefit most from migration are more likely to go to the United States than those who would benefit less. While this appears to be a truism of no explanatory value, rational choice approaches have led researchers to specify the socioeconomic conditions in Mexico and the United States that lead certain groups to be more likely to migrate than others. Much research on this topic (such as Massey, Goldring, and Duran 1994) has therefore consisted of useful examinations of statistical correlations between migration rates and membership in particular demographic and economic groups. Such studies have helped us understand, for example, why most migrants from Oaxaca to the United States are young men. An examination of the migration decisions made by Jorge and Oscar shows what is left out of such analyses. Using an economic model to determine which choices were in their self-interest is difficult to do because of the slipperiness of the concept of "utility," the unpredictable outcomes of different decisions, the differences between short-term and long-term consequences of actions, and the fuzzy nature of decision-making units.
The Uselessness of "Utility"
There are two main reasons Jorge and Oscar made different decisions about migration. First, Oscar had job skills and social connections that might be more useful in Oaxaca. Second, the brothers placed different emphases on the relative importance of the economic and personal consequences of migration for themselves and their families. A researcher focusing on rational choice might attempt to measure the differences in local job opportunities, but such an approach would be of no help in understanding the different weights that Jorge and Oscar placed on economic and psychological considerations. An advocate of rational choice could only make the meaningless observation that Oscar placed higher "utility" than Jorge on the psychological well-being of himself and his family. Although from this perspective both brothers acted "rationally," the concept of "utility" does not aid our understanding of how their psychological make-up influenced their choices.
When Jorge and Oscar discussed going to the United States, they had some idea of what their lives would be like in California. Still, they did not know what kinds of work they would find, whether they would have trouble with the border patrol, and how happy or unhappy they would be away from their community. They could make only vague guesses about what their economic and personal situations would be like over the next several years if they stayed in Mexico. Their migration decisions therefore only partly fit expected utility theory assumptions about the ability of decision makers to specify the probability of alternative outcomes to their choices.
Short Term versus Long Term
When Jorge and Oscar contemplated migration, they were unsure about a time period on which to base their decision. Migration might be short-term if large amounts of money were earned and economic conditions in Oaxaca improved. If the economic situation in Oaxaca worsened (as turned out to be the case), migrants might spend a long time—perhaps even the rest of their lives—in the United States.
Who Makes Choices?
Studies of migration ordinarily implicitly or explicitly assume that decisions are made autonomously by individuals like Jorge and Oscar. This is not always so. Jorge and Oscar, like many other potential migrants, often talked with various members of their families about the possibility of leaving. Jorge might not have left without knowing that Oscar would probably stay; Oscar might not have stayed without knowing that Jorge was leaving. The views of the wives, parents, and siblings of Jorge and Oscar also influenced their decisions.
Ethnography and Rational Choice Models
Economists, political scientists, and sociologists taking rational choice approaches to migration use statistical analyses to compare the relative importance of a small number of key variables thought to influence decisions to stay or leave. While such analyses have provided valuable information about migration patterns, they can be of limited help in understanding particular choices made by individuals. I question the extent to which Jorge's and Oscar's decisions can be analyzed without examining the details of their lives, local family structures, and economic and political developments in the state of Oaxaca.
Economic Theory, Rational Choice, and the Financial Crisis
The recent worldwide financial crisis has led economists to pay more attention to critiques of strict versions of rational choice theory (Cassidy 2009 and Fox 2009 provide good popular overviews). Consumers, investors, bank officials, and policy makers made decisions during the past decade that in retrospect were "irrational" in their underestimation of the possibility of disastrous outcomes. Their choices seemed inconsistent with ideas such as the rational expectations hypothesis, part of an influential theoretical framework proposed by the economists Robert Lucas (1987) and John Muth (1961). John Cassidy nicely summarizes this framework:
Lucas . . . [assumes] that everyone knows exactly how the economy works. People aren't merely aware that unemployment is somehow linked to inflation, which is linked to interest rates; they all have the same (correct) mathematical model of the economy in their heads, which they use to form expectations of wages, prices, and other variables. . . . By invoking the rational expectation hypothesis, Lucas could simply write down some equations to describe how workers, firms, and the government behave, put a mathematical expectation operation in front of them, and derive a solution that was consistent with the decision rules of everybody in the economy. (2009:99–100)
It would be foolish to argue—as anthropologists sometimes do—that until recently almost all economists shared the worldviews of Lucas and Muth. Prominent economists like John Maynard Keynes (1937), Francis Bator (1958), and Richard Thaler (1988) have long questioned the assumption that economic decision makers with complete knowledge of the possible outcomes of alternative actions consciously calculate utilities when making choices. In subsequent chapters I discuss in detail some recent and not-so-recent critiques of this assumption. In order to give readers a feeling for the flavor of these critiques, I briefly present here three ideas offered by economists who question strict versions of rational choice theory.
The "herd mentality" (Scharfstein and Stein 1990) refers to the tendency of economic decision makers such as investors to imitate the often risky choices of others even when their own inclinations and calculations suggest that they should do otherwise. Imitation occurs not only because individuals going along with the crowd doubt their own judgment or fear being mocked for nonconformist behavior. In certain respects it makes economic sense to conform even when doing so appears to be "irrational." When individuals go along with the crowd and things turn out badly, the blame is shared by everybody. If individuals differ from the crowd, they bear sole responsibility when things go wrong. Conservative investors working for banks or Wall Street firms during the heights of the dot-com boom of the late 1990s and the housing bubble of the past decade would have lost substantial bonuses and perhaps their jobs if they declined to follow their peers in making risky allocations of money into Silicon Valley startups and subprime derivatives.
Behavioral economics consists of attempts to apply findings from laboratory experiments to economic decision making in the outside world. Most behavioral economists (including Thaler 1988) have been strongly influenced by research carried out in the 1970s and 1980s by the psychologists Daniel Kahneman and Amos Tversky. Kahneman and Tversky demonstrated in a series of ingenious experiments (1982a) that most people in laboratory settings in western societies are unable to make the calculations required by strict versions of rational choice theory. Instead, they rely on rules of thumb and unsubstantiated beliefs that enable them to make complex decisions quickly. Researchers in behavioral finance have used the ideas of Kahneman and Tversky in their explanations of trend following, speculative bubbles, and poor corporate decision making (Cassidy 2009:198).
Scholars focusing on asymmetric information directly challenge the assumption of rational choice theory that all participants in economic transactions are well informed about the possible consequences of alternative actions. They point out that in many transactions, not all participants have equal access to relevant information. In a classic paper, George Akerlof (1970) gave the example of the market for used cars. Sellers are ordinarily more familiar than buyers with the condition of cars for sale. A buyer, knowing this, often distrusts the claims of a seller about a car's condition and fears being saddled with a lemon. One result is to depress the price of cars that are actually in good shape. Akerlof makes the less obvious argument that another consequence would be that some sellers of good cars would take their vehicles off the market, leading to an increased proportion of lemons for sale. In the past decade, economists have used ideas about asymmetric information in their analyses of problems in the financial sector and the health care industry (Cassidy 2009:156–163).
These economists criticizing rational choice theory have cogently described the empirical difficulties associated with assumptions about omniscient, calculating decision makers. Their often sensible policy recommendations (as in Thaler and Sunstein 2008) usually involve urging institutions to adopt incentives that will lead fallible decision makers to make choices that are more likely to help both themselves and society as a whole. Although I find the work of these critics provocative and insightful, their analytic approaches nonetheless differ from those of most economic anthropologists. Like other economists, these critics rely heavily on mathematical models using only a few variables, assume that decisions are made by either individuals or groups acting as a unit, deemphasize history and ethnography, and separate "economy" and "society" in their analyses. Their examples are almost entirely confined to the decision-making situations and institutions that conventional economic theory was designed to explain. They rarely attempt to apply their ideas—some of which seem relevant—to the kinds of choices that ethnographers typically examine in their fieldwork in western and nonwestern settings alike.
Some economists are truly heterodox in the attention they pay to history and ethnography and their deemphasis of individual decision making. Many such economists are influenced by feminist or Marxist theory. These radical critics of conventional economics are a small and uninfluential minority in academic and policy circles in the United States and many other countries. The generalizations I sometimes make in this book about economists are not meant to apply to these scholars.5
Issues in the Analysis of Choice
The fundamental assumption of mainstream economics is that careful analyses of decision making help us understand human behavior in diverse situations. Because this assumption is not self-evident, the first chapter looks carefully at critiques of studies focusing on choice. Although these critiques highlight certain weaknesses of economic theory, I conclude that decision making is an important aspect of cultural adaptation and change.
The five chapters that follow examine knotty problems in the analysis of decision making. The first of these, chapter 2, considers attempts to calculate monetary values for unpaid labor and production for home consumption. Such calculations are aimed at improving our knowledge of how people make choices between such work and paid labor. Economic analyses of these decisions entail comparisons of the "utility" of paid and unpaid work. Although there are formidable theoretical and practical problems associated with such comparisons and calculations, I conclude that they are necessary for an understanding of many important choices.
Chapter 3 compares approaches taken by economists, cognitive psychologists, and anthropologists in their analyses of decision making in situations of risk and uncertainty. These scholars differ greatly in the extent to which they accept the expected utility assumption that decision makers estimate the probabilities of different outcomes to alternative choices. I argue that this assumption—a fundamental part of strict versions of rational choice theory—is almost always unrealistic. Cognitive psychologists agree, showing in laboratory experiments that participants are often unfamiliar with basic concepts of probability. While I do not dispute these findings, my critique is different from that of the psychologists. I question the extent to which the results of their experiments can be extrapolated to real-world decision making. In my view, there is no substitute for ethnographically rich descriptions of the complexities of decision making in particular risky and uncertain situations.
Chapter 4 takes a critical look at economic experiments in anthropology. In one of the stranger episodes in the history of economic anthropology, in the late 1990s and early 2000s widespread publicity and significant funding were given to experienced ethnographers running carefully designed experiments in their field sites in nonwestern settings. The purpose of these experiments was to test the cross-cultural validity of ideas from evolutionary biology and economics about decisions related to cooperation. The experimenters made the ambitious claim that their results provided important insights about the "nature of human nature." Again, the relevance of experiments in quasi-laboratories to real-life decision making can be questioned. This chapter, more than any of the others, illustrates the dangers of making simplistic assumptions about the motivations for human behavior.
The next two chapters examine situations in which it is difficult to determine whether individuals or groups are making decisions. Chapter 5 examines definitional problems associated with the concept of "households." Economists and anthropologists sometimes treat households as decision-making units. National censuses often provide information at the household level, implicitly assuming that this is a more or less obvious socioeconomic unit. As ethnographers have observed, in many places it is impossible to neatly delineate a group of people as a "household" that shares resources and makes choices together. I nonetheless argue that the advantages of collecting and analyzing data at the household level outweigh the disadvantages brought about by this particular simplification.
Chapter 6 discusses influential theories about what has been called "the tragedy of the commons." According to these theories, communal resources are frequently destroyed by individuals pursuing their self-interests. Ethnographers have shown that such theories do not always accurately depict decision-making situations. In many situations there are cultural rules and social institutions that prevent the untrammeled exploitation of publicly held resources.
The conclusion summarizes the major differences in the ways anthropologists and economists study choice. I conclude that the mathematical models of economists must be complemented by more descriptive, empirical approaches that consider the context within which choices are made.