Rational Choice :: Economics

Rational Choice---------------In the past century, philosophers and social scientists have giventheories of individual and interactive decision making a rigorousfoundation. Indeed, contemporary decision and game theory haverevolutionized our understanding of rational choice in ways thatparallel the concurrent revolution in philosophical logic. CarnegieMellons philosophy department is recognized as one of the foremostdepartments in the world in decision and game theory. Primary researchat Carnegie Mellon in decision and game theory focuses on thefoundations of Bayesian decision theory, interactive knowledgeconcepts and their applications in game theory and equilibriumselection in games.Decision theory is motivated to a large extent by theconsequentialist, and especially the utilitarian, traditions in moralphilosophy. To bring about the best consequences, one moldiness know whatthey are. From the beginning, both critics and defenders of moralconsequentialism raised skeptical doubts abo ut the possibility of everderiving a satisfactory procedure for rank ordering alternatives so asto identify the best choice. In the special case of utilitarianism,the great 19th century utilitarians John Stuart Mill and HenrySidgwick themselves thought that an exact calculus of utility thatwould enable societys members to know precisely how to produce thegreatest overall welfare might not be possible. Any final cause for autilitarian calculus raises two fundamental questions (1) How arequantities of utility to be ascribed to alternatives in a nonarbitraryway?, and (2) How are likelihoods to be ascribed to alternatives in anonarbitrary way? A decision theory based upon utility is intimatelyrelated to theories of probability, which are needed for thecalculation of expected consequences. In 1926, Frank Ramsey presenteda monumental essay Truth and Probability, which laid the cornerstonesof contemporary decision theory. Ramsey proved a representationtheorem that enables one to derive b oth numeric utilities andprobabilities over alternatives that uniquely cohere with onesqualitative preferences over these alternatives. The work of Ramseyand his successors, most notably Leonard Savage, has resulted inmodern Bayesian decision theory, which provides a precise bill ofhow to choose so as to maximize expected utility. This work has alsosparked a great flowering of alternative decision theories, rough ofwhich generalize Ramseys and Savages treatments and some of whichconstitute alternatives to standard Bayesian decision theory.Game theory considers cases in which decision problems interact. Themathematician John von Neumann and the economist Oskar Morgensternestablished game theory as an important branch of social science in1944 with the publication of their treatise Theory of Games andEconomic Behavior. Von Neumann and Morgenstern presented a precisemathematical account of situations in which agents beget interdependentdecisions. To be sure, von Neumann and Morgenst ern had intellectualprecursors. In the 1910s and 1920s, the mathematicians Ernst Zermelo