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American Economic Association

The Formulation of Rational ChoiceAuthor(s): Amartya SenSource: The American Economic Review, Vol. 84, No. 2, Papers and Proceedings of theHundred and Sixth Annual Meeting of the American Economic Association (May, 1994), pp.385-390Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/2117864 .

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386 AEA PAPERSAND PROCEEDINGS MAY1994

as maximizationbased on that preferenceordering). I will call it the choice-salienceinterpretationf preference.But as the term

payoff suggests, there is also some pre-

sumptionthat the preference relatesto theperson's own gain from the outcome inquestion.In economic theory,in particular,the goal to be maximized,reflected in thepreferenceordering,hasbeen typically eenas the person's own well-being.I will call itthe well-being interpretation of preference.

Both interpretations-based respectivelyon choice-salience and well-being-havesome plausibility, ut theyare not the same.To take them to be the same involves asubstantive mpirical ssumption hata per-son's choices must be governedby the maxi-mization of her own well-being. Manycen-tral results in economic theory depend onthe presumedcongruenceof well-beingandchoice-salience,such as the Arrow-Debreu

fundamental theorem of welfare eco-nomics (Kenneth Arrow, 1951; GerardDebreu, 1959), which relates competitiveequilibria (seeing preference in terms ofchoice salience)with Pareto efficiency see-ing preference in terms of individualwel-

fares).2A divergencebetween choice and well-being can easily arise when behavior is in-fluencedby some motivationother than thepursuit of one's own interest or welfare(e.g., through a sense of commitment,orrespect for duty). The issue here is not thatof altruismas such. Individualwell-beingcan certainlytake good note of a person'ssympathy or antipathy) or others(see e.g.,GaryBecker, 1976, 1981). Rather,the ques-tion is whether the influence of other-

regardingconcerns is restrictedonly to theextent to whichtheyenterthe person'sownwelfare function, either directly (e.g., suf-fering at others' pain) or indirectly (e.g.,feeling disappointedor dejected when at-temptsto helpothers-for whatevermotive-are frustrated).3

Can people havereasonto act otherthanthe extent to which their own well-being sdirectly or indirectly enhanced by it? Thebelief that individuals,as free and rational

agents, are capable of going beyond theexclusive pursuit of their respective well-being was stronglyasserted by classical au-thors such as Adam Smith (1759, 1776).Smith, in particular, distinguished actionsmotivated by prudence (taking into ac-count indirect as well as direct advantages)from those influenced by sympathy,

generosity, nd publicspirit, o each ofwhich he gave a distinct and differentiatedrole.4 The variability f motivationswas ex-plicitly accepted also by the pioneers ofutility theory in economics (such as JohnStuartMill,WilliamStanleyJevons,FrancisY. Edgeworth,andAlfredMarshall), houghthis issue is rarely addressed in moderneconomictheory.

III. Action Ethics and Behavioral Norms

Another importantqualification oncernsthe relationshipbetween the evaluationofactions and the assessment of consequences.

In game-theoretic formulations,a personhas a set of clearlydefined ndividual trate-gies, and the exerciseof maximization on-cerns pickinga maximalstrategy rom thatset (including randomizationover thesestrategies).There may, of course,be com-plicated strategicconsiderationsrelated tosuch behavior, which can be particularlyimportantwhen the game is repeated (seeDavid Kreps, 1990; Myerson, 1991; DrewFudenbergand JeanTirole, 1992).But thereis, in this framework, o furtherethical con-

sideration in the choice of actions andstrategies(i.e., further o what is alreadyincorporatedn the person'sobjective unc-tion). Giventhe feasibilityof a strategy, heonly issue that influences its choice by apersonis its direct andindirecteffectivenessin promotingher objective unction.

2However,by usingthe choice-salience nterpreta-tion only, competitive equilibriacan be seen to be

weaklyefficient n freedoms, rather than welfares(Sen, 1993b).

3The questionhere corresponds o the distinctionbetween sympathy nd commitment n Sen(1977).

4See Smith 1790 [SectionIV, Chapter2]);in D. D.Raphaeland P. L. Macfie's 1975) edition,pp. 187-93.On Smith'sconcernssee, amongothers,RaphaelandMacfie'sintroduction,Sen (1987), PatriciaWerhane(1991),and EmmaRothschild 1992).

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VOL. 84 NO. 2 MOTIVATIONAND MONITORING 387

This formulationof the choice problemcontrastswithAdamSmith'sanalysisof ap-propriateactions in the context of publicpolicy: In these and in all other cases of

this kind, our admiration is not so muchfoundedupon the utility,as upon the unex-pected, and on that account the great, thenoble, and the exalted property of such ac-tions. 5 There is, in this view, a distinctassessment of actions that is not identifiedwith the evaluation of the useful conse-quences (what Smith calls the utility )ofthat action seen on its own (though Smithdoes discuss the good consequencesof peo-ple in generalfollowingsuch rulesof behav-ior).

An important case of such action-judg-mentsconcernssituationsof social interde-pendence such that every member of thegroupdoesbetterbytreatingas the unit ofchoice their joint strategy.An exampleisthe unrepeatedprisoner'sdilemma. Choos-ing to be cooperative n such a situation(i.e., not confessing)wouldinvolveselectingan individualstrategythat is strictly domi-nated, and it would entail a violation ofstandard ormulationsof individualrational

choice.Yet if some action-ethic, ike the one thatSmith describes(he relates it, incidentally,to actingaccording o the view of an im-partial spectator ),makes the people in-volved impose restraints on their own in-strumentalchoice, they could all end uphavingmore fulfilmentof their unmodifiedpreferences.6This line of reasoningrelatesalso to the Kantianrequirementsof actionmorality; or example, Act alwayson sucha maximas thou canst at the same time will

to be a universal aw. 7Obviously, onfess-ing oneself is not such an act in the pris-oner'sdilemma, inceneitherprisonerwantsthatbehavior o be universal. The Smith-

ian-Kantian self-imposed restraints differfromconstraintsgivenfromoutside.8

IV. Work Motivation and Behavioral Modes

Howdoes all this relate to the problemofmonitoringworkperformance?One of thegeneral ssues to emergefromthe precedingdiscussion s the need to take whatone maycall a parametric iew of rationalchoice.Do the possibilitiesexplored in earlier sec-tions relate to any observedregularities nwork, motivation,and monitoring? Thereare some suggestiveempirical data in thatdirection.

First, there is considerableevidence thatthe view that is taken of workresponsibili-ties varies greatlyfrom one society to an-other. These cross-sectioncomparisonscanbe supplementedby evidence of intertem-poral change as a result of movements ofsocialtradition,an old subjectdiscussed, orexample, by Karl Marx, Richard Henry

Tawney,and MaxWeber,amongmanyoth-ers. Socialtraditionscan indeed be relevantin the formationof objectivefunctions aswell as in the specificsof actionethics.

Recently,attentionhas been drawn o thespecial sense of collectiveresponsibilityhat

5Smith (1790 [Section IV, Chapter 2]); in Raphaeland Macfie's (1975) edition, p. 192; italics added.

6The problem being discussed here, which arisesmost unambiguously in the case of unrepeated pris-oner's dilemma (though it can coexist with some typesof repetitions as well), must be distinguished from theissue of cooperation in repeated prisoner's dilemma.An incentive for cooperation can be directly derivedjust from the pursuit of one's own objective function ifthe prisoner's dilemma is repeated indefinitely, and tosome extent, even when the repetitions are finite butcombined with some specific epistemic conditions (seeFudenberg and Tirole, 1992).

7Immanuel Kant (1785); in T. K. Abbott's (1907)translation, p. 66. For discussions of this and relatedissues, see Sen (1973, 1977, 1987), Derek Parfit (1984),

and Susan Hurley (1989). On connected matters, seealso John Harsanyi (1976), Albert Hirschman (1982),George Akerlof (1984), and Robert Frank (1985),among many other contributions.

8It is, of course, possible to translate the impact ofinstrumental constraints-even self-imposed ones-into reconstructed objective functions through suchdevices as Lagrangean multipliers. But then the inter-pretation of the objectives would have to be corre-spondingly different and contingent (in the way thevalues of Lagrangean multipliers must be). The crucialissue here is not whether the maximizing format cancontinue to work in the Smithian-Kantian case (it cer-tainly can), but whether there are reasonable argu-ments that support self-imposition of action norms,with a deliberate restriction of instrumental possibili-ties.

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388 AEA PAPERS AND PROCEEDINGS MAY1994

apparently prevails more abundantly inJapanese industrial relations than in theWest, thoughthe explanationgivenfor thisagreed phenomenon has varied between

distinct theories (see e.g., Michio Mor-ishima, 1982;Ronald Dore, 1987;MasahikoAoki, 1989).These theories include alterna-tive attemptsat explainingwhy, as The WallStreet Joumal put it (stretching a pointsomewhat), Japan is the only communistnation that works (30 January1989, p. 1).

Second,one of the observed phenomenain behavioralnorms is the tendency to imi-tate others, much commentedon recently nthe context of explanationsofferedfor cor-rupt activities in business and politics inItaly: I was not alone in doing it (seeCamera dei deputati, Roma, 1993). Thistype of reasoning,on the one hand, pointsto the need to bring in the influence ofestablishednorms of behavior n explainingwhat actions will or will not be chosen,andon the other, it indicates that individualchoices may often take a menu-dependentform(similar o not pickingthe last apple).A person mayrefrain romseizinga uniqueopportunityof breakingan implicit moral

code and yet be willing enough to breakthat code if there are manysuchopportuni-ties (either because the departures mightthen seem more usual, or because theperson expectsthat some others wouldpos-sibly grab one or more of the remainingopportunities).

Third,based on a widely observedphe-nomenon in both rich and poor countries,indicating he coexistence of relativelyhighwages and involuntary unemploymentatthose wages, there has been an extensive

literature on efficiency-wagemodels. AsAkerlof and Janet Yellen (1986 p. 2) havediscussed, the benefitsof higher wage pay-ments(above market-clearing ages) can beof different ypes, including reducedshirk-ing of work due to a highercost of job loss,lowerturnover, mprovementn the averagequality of job applicants, and improvedmorale. These are very diverse benefits.9

Whereasconnectingthe highercost of jobloss to reduced shirkingmay be fairly ade-quately done through the presumption ofself-interested behavior, there would be a

more complexconnectionbetween moraleand actualwork effort.10

On the basis of a cross-national tudyof monitoring and supervision, DavidGordon(1994)has presentedan interestingempiricalanalysisof variations n the bu-reaucratic burden among 16 advancedeconomies in the OECD. He defines that

burden as the.relative proportion ofadministrativeand managerial workers

among total employeesin nonfarmoccupa-tions (thoughhe also considersvariationsofthis measure). That burden, for 1980,ranges between 2.5 percent in Sweden to11.5 percent in the United States,which isthe highest in the list (with the next threepositions being takenby the other English-speakingcountries, o wit, the United King-dom, CanadaandAustralia).In the longer,unpublished version of Gordon's paper(availablefrom Gordon upon request), heconsiders possible explanations of thesevariations,andwhilehe findsa generalcon-

nection here with the use of higher ef-ficiencywages as an alternative o supervi-sion, he also notes that the differencesinlabor relations appear to reflect structur-al differences in institutions, norms, andculture. 1

90n this and related issues, see also Akerlof (1982,1984).

10lIndeed, as Robert Solow (1990 p. 22) has ob-

served, wage rates and jobs are not exactly like other

prices and quantities, and they are much more deeply

involved in the way people see themselves, think abouttheir social status, and evaluate whether they are get-ting a fair shake out of society.

1To comment on a particular issue, the position of

Japan in Gordon's (1994) study fits uneasily with thewide literature on the hold of work ethics and shared

responsibilities in that country. Japan's burden of

4.4 percent is closer to Sweden's (2.5 percent) than tothat of the United States (11.5 percent), but it is still a

very middling performer (with the tenth lowest

burden in a list of 16). It appears, however, that

given the nature of life-long employment relations in

Japan, a significant proportion of workers, as they

mature in the respective firms, are rewarded by beinggiven administrative and managerial positions with-

out their being actually involved in monitoring or su-

pervising other employees (on this see Dore [1993]).

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VOL. 84 NO. 2 MOTIVATIONAND MONITORING 389

The wide intercountryvariationsin be-haviorpatternsand in the need for monitor-ing certainlydo suggest the case for moreparametric ormulationsof rationalchoice,

with varying relationships (i) betweenchoice-salientobjectivesand personal well-being and (ii) betweenindividualand socialinstrumentalities.2

V. Concluding Remarks

While the reformulations of rationalchoice discussed here tend to make moreroomfor less self-centered iews of ratio-nality,I should avoidgiving the impressionthat more social behaviormustinvariablybe more conduciveto identifiablerequire-ments of socialjustice.Some of the nastiestthings in the world happen as a result of

selfless pursuit of objectives ar removedfromone's ownwell-beingbut also fromthewell-being and freedoms of others (such ascommunalriotingor racistviolence).13

.Also, while social behavior may con-tribute to groupcooperation n such classiccases of atomistic failure as the prisoner'sdilemma, hat dilemma s very limitedin its

formulation, in that there is a uniquelyPareto-superior utcomeover the atomisticresult, so that the questionof justicein thedivisionof gainsbetween the parties is sim-ply avoided.Whenthere are alternativedi-visionalarrangements,ome could be takento be acceptableon grounds hatmaybe farremoved from justice (such as historicalconvention). 14

In those circumstances, he formulationof selfless objectives and adherence to

cohesive action-ethicscan, in manycases,help to sustain extensive nequities.For ex-

ample, there is much evidence that valuingthe cohesion of the familyin manygender-unequal societies can actuallyserve to per-petuate the unequal positionof women, bymakingwomen themselves give priority tothe alleged interest of the family over per-sonal well-being, and also by inducing aview of jointness of efforts within thefamilyto sustainunequalprovisions.15imi-lar problems arise in many other areas ofgroup cooperation, even in industrialrela-tions.

The need for making more room forother-regarding oncerns n the formulationof rationalchoice would seem to be strongon groundsof betterdescriptionandgreaterexplanatoryand predictivepower. Despitetheir ethical origin,however,the social ef-fects of these concernsneed not necessarilybe conducive to equity or justice, in anyobvioussense. That is a separate ssue whichcalls for a more context-dependentanswer.

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