The objective of the course is a thorough engagement with the project of rationality as understood in economics using the methodological perspective of decision theory. Setting up the exercise in decision theoretic terms has the advantage that it disciplines us to make our claims in terms of (in-principle) observable behavior. The course will begin by laying out what the substantive content of rationality in neoclassical economics entails along with an appreciation of the “genealogy” of this concept. Our discussion in this regard will also focus on the Bayesian paradigm and the foundations of subjective probabilities, which are key organizing principles when we talk about rationality in environments featuring uncertainty. Thereafter, we will look at the criticisms of rational choice theory. We will then focus on a set of topics and themes which will be proposed as responses to some of the limitations of rational choice theory. Amongst them prominent themes and questions include:
- Rational choice theory is too narrowly focussed on the outcome of choices and doesn’t pay enough attention to the decision making procedure by which those choices are arrived at. By ignoring these procedural aspects of decision making, the theory ignores important details like cognitive limitations that decision makers are faced with when making choices. We will, therefore, want to think about theories that take these procedural aspects of decision making more seriously.
- In keeping with our search for descriptively richer accounts of behavior, we will delve into the heuristics and biases program of Kahneman and Tversky. In this context we will also discuss dual process theories of cognition.
- We will discuss Kahneman and Tversky’s Prospect theory and the paradigm of reference dependent preferences, more generally. We will ask, just like they did all those years ago, as to what the “true carriers of value are”?
- Neo-classical economics takes individual preferences as exogenous and given. But, in lots of context, aren’t preferences endogenous? Aren’t things like sexist preferences or casteist preferences socially constituted and not exogenous? If so, how should we go about theorizing endogenous preferences? What about social influence and how it shapes our preferences and choices?
- What about decision making in social and political context? Do the same principles with which we think about decision making in a more “private” context carry over seamlessly to them? Are the basic decision theoretic insights with which we analyze people’s consumption decisions adequate when we analyze, say, their voting decisions?
Prerequisites: ECO 2101 (Microeconomic Theory 1), ECO 2102 (Microeconomic Theory 2)