Economics and Philosophy

Essays

The Failure of Expected-Utility Theory as a Theory of Reason

Jean Hamptona1

a1 University of Arizona

Expected-utility (EU) theory has been a popular and influential theory in philosophy, law, and the social sciences. While its original developers, von Neumann and Morgenstern, presented it as a purely predictive theory useful to the practitioners of economic science, many subsequent theorists, particularly those outside of economics, have come to endorse EU theory as providing us with a representation of reason. But precisely in what sense does EU theory portray reason? And does it do so successfully?

There are two strikingly different answers to these questions in the literature. On the one hand, there is the view of people such as David Gauthier that EU theory is an implementation of the idea that reason's only role is instrumental. On the other hand, there is the view suggested by Leonard Savage (1954/1972; and see Anderson, 1993) that the theory is a “formal” and noninstrumental characterization of our reasoning process.

Professor of Philosophy at the University of Arizona. She is the author of Hobbes and the Social Contract Tradition (1986) and (with Jeffrie Murphy) Forgiveness and Mercy (1988). She has published many articles in moral and political theory and in rational choice theory, including “Free Rider Problems in the Production of Collective Goods” (1987).