Assume a rational consumer... much like Assume a spherical cow.

But isn't the feeling of doing the right thing also a personal benefit with value?

I don't believe people are being less rational when they "do the right thing", even when it costs them. I believe that they are simply valuing some things more than money, like the feeling of doing the right thing and also not having to see oneself as a "bad" person.

Well, the sign with the $50 reward seems to be haunted. I probably wouldn't want to get involved with that one.

Also of note here; I first saw this picture at Failblog or something of the sort, where they always cover up telephone numbers and other personal information in pictures in some way (as in the first, green sign). However, they did not cover up the phone number in the second, white sign.

Was this a conscious choice? Were they hoping people would possibly call the white sign number and be mad at them for being a jerk? Or was it just random chance?

Maybe it's just me but the first thing I noticed was that whoever edited the photo erased the phone number for the (assumed) real owner but not the number of the (assumed) scammer. Which is interesting I think all by itself. That person is an asshole therefore they get no right to privacy, I guess is the logic. *shrug* Just thought that was weird since someone obviously took some time to edit it...

You're sort-of presupposing that the only value that's being considered when a person makes a 'rational choice' is monetary. It seems to me that the social and personal benefits of doing the 'right thing' probably far outweigh the extra dollar -- and choosing honesty is, therefore, still the rational thing to do.

I also think you add a contradiction (or at least, a confusion) when you say, "what is 'rational' is socially constructed and, further, humans value many things beyond pure strategic economic gain". If you combine this with your later phrase: "it just means that we’re rational", it suggests that there is something to being rational - i.e. that rationality exists apriori. The contradiction, of course, is that, as you've mentioned it is a social construct. Thus, depending on the varieties of social existence (now and throughout history), the concept of rationality will change depending on the type and variety of social existence. So, in a capitalist society 'rational' may mean making more logical economic choices that increase our own benefit, while in a pre-modern pagan society, it may have been 'rational' to spill the blood of an ox to appease the gods.

I think we will both agree, however, that rational choice theory is garbage.

People who call the first number are being just as rational as people who call the second. All it means is that the value they place on helping the rightful owner is great than the value they place on $1.

What kind of economics are you talking about, anyway? I've only ever heard of these models in the context of discussing why they're wrong. The whole idea of the purely rational human seems like a strawman massacre to me.

As far as I know, economics generally defines humans as being "rational" only in the sense that they act purposefully to attain certain ends, and that they will choose alternatives that they believe will bring them closest to their ends. What those ends actually are or should be is a question outside of economics. In this way, sociology and economics are not at all incompatible.

I don't believe rational choice theory would say we'd call the scammer for only one extra buck: it will say only that we maximize our utility. (and that utility can be counted in "utility points".) Rational choice theory, however, does not say that utilities are objective- on the contrary, many rational choice theory authors emphasise the fact that they are subjective. Now let's say one extra buck would bring X 1 utility point (and Y, who needs the money more, 2 utility points, but that's beside the point), whereas the guilt caused by calling the scammer would cost him 100 utility points. Rational choice theory would say that, in these circumstances, the rational thing to do for X would be to call Caroline. It would only be rational to call the scammer, given X's preferences, if he offered 150 bucks. For another subject, with more "hardcore" moral belief, it may be rational to only call the scammer if he offers one million dollars; while for someone who does not believe in moral standards at all calling the scammer for one extra buck would be equally rational.
To assume that rational choice theory would say everyone would call the scammer for the extra buck involves the assumption that this buck is the only standard by which we calculate utility; an assumption that, as far as I know, rational choice theory does not make.

I might be misinterpreting things but I don't think this case is much about rationality.

Though I did learn something interesting: if I want to get someone else's lost valuable, I craft a better looking flyer with little less reward money, but in a rounded value. This way, my sign will appear to be the legit one.

The rational scammer, on seeing a sign offering a $50 reward, should post a sign offering a $45 reward.

If I found a lot iPod Touch, I'd try to get it back to the owner without expecting a reward. I'd probably refuse a reward if offered, unless I spent a considerable amount of time or resources getting the object to its rightful owner. Does that make me irrational? I'd benefit by the positive feeling from the good deed, but maybe I'd be stupid not to take the cash.

“Pure rational choice theory, though, would have us calling the scammer every time, even if only for a buck, as if nothing else matters.”

I’m not so sure…

Rational choice theory suggests that individuals weigh a known set of choices in an attempt to maximize personal benefits and minimize personal costs. An individual will select the preferred choice that they perceive will best help them achieve their objective.

In this hypothetical situation, there are more than just two choices from which an individual can select: call the person offering the $50 reward, call the person offering the $51 reward, keep the iPod Touch for themselves, turn over the iPod Touch to a third party (such as a friend, the police, or a building’s lost and found), or simply do nothing. Depending on an individual’s circumstances (constraints, level of uncertainty, etc.) the final choice may not always be the option to call the person offering the $51 reward (or the larger reward).

I agree with all of the above posters who pointed out your very restricted version of rational choice theory. If our hypothetically rational individual believes that the $50 sign is legit, then calling for that reward has an expected pay-out of $50. If the rational individual thinks the $51 sign is a scam -- either meaning that the $51 reward will never be received or that the scammer will somehow steal something of value -- then the expected pay-out from calling the scammer is less than $51, maybe even a lot less. So, actually, a rational choice model could easily predict that someone would call the number on the $50 sign.

So the naive model constructed in this post doesn't match reality, but a better rational choice model might. Rational choice theory has its limitations. This is not a good example of them.

In addition to the comments pointing out that a rational person can maximize "utility" beyond some dollar amount I think you're criticism of rational choice theory is too general.

Economists know that the rational choice assumption is an approximation to reality. Economists use it because, empirically, it gives results that match reality. Even if some individuals sometimes act irrationally, it turns out that in aggregate people act rationally. The corrections to economic theory that involve taking into account people's tendency to act irrationally in certain situations are usually unimportant.

To use an analogy, everyone knows that Newton's law of gravity is wrong and that Einstein's is (more) correct. Very few scientists or engineers actually use Einstein's law of gravity. Newton's is good enough for almost everything. The same kind of thing is true in economics.

Theories aren't "right" or "wrong," but are more or less useful. Every testable social theory encounters cases it cannot accommodate. In principle, rational choice theory can be adjusted to justify calling the rightful owner for a smaller monetary reward. But rational choice theory is not very useful when the motivations of agents are many and unknown. The claim against rational choice theory, in this case, is that an economist armed with rational choice theory would not make a better prediction about the proportion of people who would have called the number in the $50 ad than a layperson armed with the heuristic that lost items should be returned to their rightful owner.

"Theories aren’t “right” or “wrong,” but are more or less useful."

I think theories can be demonstrated to be wrong. I also think completely wrong theories could be useful, and completely correct theories could be functionally useless.

As a scientist, I disagree in general, though think there are specific exceptions for which you statement is correct.

Certain kinds of theories may not be accurately described as right and wrong, but even within sociology I think theories can be shown to be absolutely wrong, or functionally correct. (Consider an anthropologist who states a religious theory for why a tribe carries out a certain ritual. Now imagine a psychologist who determines they all have Tourette's syndrome, and are incredibly relieved to be medicated so their bodies no longer force them to act out this ritual. The anthropologist's theory has been demonstrated to be completely wrong, and it was useful only insomuch that it led to a psychologist investigating the tribe.)

Look, I'm no rational choice theorist, and I've invested substantial time and written word makin this same basic argument about the flaws in rational choice theory, but your example severely oversimplifies and underestimates rational choice theory. An economist/rational choice theorist will tell you that they do indeed include the concept of value, and recognize that (in this example) humans value honesty and fairness, more over they will tell your example clearly shows that such values can be assigned a monetary value. That monetary value is simply not $1, and what that monetary value is will vary from individuals, but as the reward offered by the second poster gets increasingly higher, more and more people will be willing to put aside their uneasiness about the honesty of the second poster and call that number. You are incorrect -- pure rational choice theory does NOT predict that humans will always choose the $51 number over the $50 number, what pure rational choice theory says is that it is possible based on research to assertain what dollar value will cause the average person to compromise their values of honesty and fairness. My point is that your essential criticism of rational choice theory is correct, but you have exaggerated and trivilized the theory in a way that is demonstrably incorrect, and in doing so make it easier for proponents to trivialize your criticism of that theory.

One thing to note if you're just looking at financial optimisation - the reward value is less than the value of the item whether you add $1 or not, so the financially optimised route is to ignore both and sell the iPod.

Another interesting thing is that in most cases it's tricky to tell which is the real one - $50 and $51 is obvious, but what about if the numbers are $40 and $60. Did the scammer put a higher reward to make it more likely that they'd be picked, or a lower reward to make it look like they were the original.

Several people have to some extent defended rational choice here, noting the example of the extra dollar is a bit overly simplistic (though I'm sure Lisa would agree and was just using it as an illustration). And while I get that there is an argument to be made for including more than /just/ economic gain in a rational choice model, I think rational choice theorists are trying to have it both ways in these arguments some times. As soon as people point out a problem like this with rational choice, its defenders tend to say something along the lines of "well, it depends on how you define rational..."

And yeah, there's always some room for how we define things, but if you try hard enough, you can find a way to describe anything as rational. So when someone points to an obvious flaw in the logic, you just quickly re-define what "rational" is and no longer have to address the holes in the theory.

Or maybe I'm just way off base. Thoughts?

I agree with some of the previous comments that this analysis oversimplifies RCT, but I also agree with Woz. Here, the problem is made out to be that RCT assumes people only want material gain and ignore values, morals, culture, and so forth. Really, I think the problem is quite the opposite -- some forms of RCT bracket values entirely, then simply say that people act towards those (stable, ranked) preferences.

There are other problems here too, as others have pointed out (e.g. can people predict outcomes with any real degree of success?) but it's always bothered me that some RCTists will just expand the definition of rationality in response to criticism of this type. Expanding boundaries and definitions to incorporate criticism doesn't usually make a theory stronger, it just dilutes it.

This made me think of a recent ted talk.
Elizabeth Pisani: Sex, drugs and HIV -- let's get rational
http://www.youtube.com/watch?v=LoXAAEy6YQU&playnext_from=TL&videos=KX6iSfG-EK4
Enjoy

The "experiment" didn't make sense because I had no idea how I was supposed to determine which was real other than your say-so. In addition, a dollar difference isn't terribly compelling.

The RCT example that I always find unconvincing is the one in which an individual is asked to choose between two work situations. In one, s/he will make $80K but everyone else will make $100K. In the other, s/he will make $60K but everyone else will make $40K. Many people choose the second, which is supposedly "irrational" because it's less money. But it's never seemed irrational to me as self-esteem and well-being go into a person's decision to take a job and being underpaid relative to others might mean one will be less well treated.

Too simplistic! Rational choice theory cannot be proven True or False. Rather, it can be shown to be helpful or unhelpful in understanding aspects of human interaction. See my blog post for more:

http://permut.wordpress.com/2009/11/10/forced-to-defend-rational-choice-theory/

I think this has taught me to place an ad with a reward less than that of the original ad. People will assume Im the legit poster..and ... it wont cost me as much.

Thanks

This whole example is fundamentally flawed in that it's irrational to return a $300 iPod to the wrong person for a $51 reward. Returning the iPod to the wrong person is just as morally skewed as keeping it for yourself; not only is it immoral, it is also stupid. In fact there is no way to make this experiment work, because the rational subject is essentially faced with two decisions: either to do the moral thing and return the iPod to the person they consider the rightful owner, or do the immoral thing and keep the iPod to themselves. The in-between option of returning the iPod to the wrong person is only worth it if the scammer offers a significantly higher reward, in which case this decision would be the equivalent of selling the iPod (the material gain decision). So, sorry author, nobody would call the scammer unless, for some reason, they believed that the person offering the $51 reward was the owner of the iPod, they would either keep the iPod or call the rightful owner.

You know, I might just have put up a sign for a $40 reward... Think about it, it would cost less, and would seem genuine, would it not? Sorry if someone already took this angle.

I would feel obligated to offer sexual favors for the itouch. Everyone goes for that stuff

Pure rational choice would certainly not have us always call the individual who offered the greater reward. The theory suggests we would make a calculated decision based on the outcomes we believe would follow from either decision. After making that calculation, we would perform the action that we believed yielded a maximal return upon investment (which may mean not making any call at all!)