Rational Choice Theory Essay Example | Topics and Well Written Essays - 3000 words

Rational Choice Theory - Essay ExampleThe inborn reaction of many economists to criticisms about assumptions is to quote a famous paper by Friedman (1953, pp. 14-15) If a possible action piece of ass be stated to make assumptions, and in so far as their realism can be evaluated independently of the validity of predictions, the relation between the significance of a theory and the realism of its assumptions is virtually the opposite of that suggested by the view under criticism. Truly important and significant hypotheses will be found to have wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense). The reason is simple. A hypothesis is important if it explains much by little, that is, if it abstracts the common and crucial elements from the mass of complex and comminuted circumstances surrounding the phenomena to be explained and permits valid predictions on the basis of them alone. To be important, consequently, a hypothesis must be descriptively false in its assumptions it takes visor of, and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phenomena to be explained. To put this point less paradoxically, the relevant question to demand about the assumptions of a theory is not whether they are descriptively realistic, for they never are, moreover whether they are sufficiently good approximations for the purpose in hand. And this question can be answered only be seeing whether the theory works, which means whether it yields sufficiently accurate predictions. The two supposedly independent tests thus reduce to one test. Friedman therefore maintains that the only valid criticisms of a theory are empirical criticisms. Samuelson (1963) responds to this idea with the following example ... what I and other readers believe is his Friedmans new twist which from like a shot on I shall c all the F-twist ... is the following A theory is vindicable if (some of) its consequences are empirically valid to a useful degree of approximation the (empirical) unrealism of the theory itself, or of its assumptions, is quite irrelevant to its validity and worth. ... ... the nonpositivistic Milton Friedman has a strong effective demand which a valid F-twist brand of positivism could supply. The motivation for the F-twist, critics say, is to help the baptistry for (1) the perfectly competitive laissez faire model of economics, which has been under continuous attack from outside the profession for a century and from within since the monopolistic competition revolution of xxx years past and (2), but of lesser moment, the maximization of profit hypothesis, that mixture of truism, truth, and untruth. If Dr. Friedman tells us this was not so if his psychoanalyst assures us his testimony in this fibre is not vitiated by subconscious motivations even if Maxwells Demon and a Jury in Hea ven concur still it would await a fair use of the F-Twist itself to say Our theory about the origin and purpose of the F-twist may be unrealistic (a euphemism for empirically dead wrong), but what of that. The consequence of our theory agrees with the fact that Chicagoans use the