Tuesday, July 29, 2014

The Rational Minority?

I have recently read an interesting paper, which was just published in Psych Science called In Search of Homo Economicus. The paper takes an individual difference approach to the concept of rationality and demonstrates consistent behavioral differences among people across various behavioral and personality measures. While the classical approach to the study of rationality is aimed at finding the situations in which people deviate from what rational choice approach would predict, the described paper attempts to identify who are the people who deviate from rationality and who are the people who follow the prediction of rational choice.

The researchers have used a combination of dictator and prisoner dilemma games, as well as various personality, intelligence and demographic measures on a sample of Tokyo residents (which is not argued to be representative). They found that 7% of their sampled participants are Homo Economicus (HE) who have kept all of their endowment in the dictator game, and that 8.7% of the participants are quasi–Homo economicus (qHE) who gave away only 15% of their endowment. Moreover, the HE participants were found to be smarter, more individualistic and more likely to engage in long-term investments.


As suggested in some of my previous posts, this approach holds a very promising direction for the law and behavioral science movement. One example, is the idea of differential regulation regarding the usage of monetary measures vs. non-monetary measures [see for example my paper on Intrinsic and Extrinsic Compliance Motivations]. One can speculate that in some legal contexts we might expect a higher ratio of HE and qHE (e.g. corporate taxation) who might then receive a different treatment relative to regulatory contexts with lower ratio of HE and qHE (e.g. Transportation law, Labor law). Naturally, these last examples require further empirical investigation and are not part of the described paper, however, they definitely show potential advantages of an individual difference approach to bounded rationality, an approach which is definitely not common within the legal scholarship.

At the same time, a word of caution is required when moving from theory to policy in the context of individual difference. In contrast to what is sometimes being understood, even very stable differences between people do not mean that these types of people care only about money while others don’t care about it at all. We need to recognize that the differences are of magnitude and hence the policy requirements that followed are important but still relatively limited.  


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