Rationality lies at the core of economic explanations. This much should be uncontroversial. Yet economists are seldom able to explicate why rationality is so central to economic understanding and what exactly is meant by it. The official dogma is that rationality is just consistency of choice behaviour, but this behaviourist interpretation is hard to square with the passion with which many economists are ready to defend the foundational explanatory role of rationality.

Rationality and Explanation in Economics is a book-length argument in favour of a return to the conception of rationality as reasonability, as found in the writings of the classical economists. This is the idea that economics is based on the folk-psychological hypothesis that people are more or less competent, intentional pursuers of their ends. Or, as Lagueux bluntly puts it, it is the idea that people are not stupid. The first two chapters of the book provide a historical narrative of how and why this basic explanatory principle was first distorted by the marginalist focus on maximization and ultimately lost in the wake of the ideas of revealed preference and the corresponding conception of rationality as consistency of choice behaviour. According to Lagueux, this has been a terrible mistake because it has alienated much of theoretical economics from the core foundational idea that we can only understand economic behaviour when we understand the economic actors, and that we can truly understand economic actors only when we see them like we see ourselves.

The majority of the book is devoted to defending this interpretive, hermeneutic role of the rationality principle against arguments that downplay the explanatory role of the intentional individual. The author admits that the rationality principle implies a modest form of methodological individualism, but argues that this individualism does not amount to any obviously silly and unfashionable form of reductionism. Economic phenomena are not mere aggregates of rational intentional acts, nor can they be reduced to them (whatever this may mean). He also reflects on his understanding of the place of the individual self in economics and compares it to those found in the works of Philip Mirowski, John Davis and Don Ross. Cutting a long story short, human economic selves should not be conceived as algorithms, automata, preference profiles or colonies of sub-personal economic agents, but as the loci of human feeling, agency and intentionality.

Lagueux thinks that one of the biggest conceptual mistakes of economics has been the very idea that rationality could or should be given a precise formulation or analysis in the first place. The alienation of economics from the original rationality principle has been largely driven by the increased mathematical sophistication of the discipline. To counter the pull of the sometimes superficial mathematical sophistry, the author correctly points out that the extreme idealization required by mathematical analysis is not necessarily a good practice just because somebody else (i.e. the physicists) are doing it. He also points out that it is slightly odd to count every change in the preferences of an agent as a replacement of the agent in question with another. Yet, on the whole Lagueux says relatively little about mathematical tractability, which is undoubtedly one of the primary reasons for the extreme idealizations in economic models. Here and there, he mentions tractability considerations as a rationale for the maximizing conception of rationality, but quickly dismisses its legitimacy on the grounds that formal models could be built up in other ways as well. This would have been more persuasive if some actual examples had been given. Simon's ideas of bounded rationality and satisficing are approvingly mentioned in many places as constituting a rationality conception which is better in tune with the rationality principle, but the drastic changes in economic modelling practice required by the adoption of bounded rationality (repercussions of widespread path dependence etc.) are nowhere acknowledged. Herein lies the first shortcoming of the book. One of the major motivating factors for the criticized conceptions of rationality has been largely omitted from the critical discussion, namely the fact that especially the formal methods of optimization and the corresponding solution concepts have provided a convenient way in which to build analytically solvable models without having to worry too much about initial conditions and dynamics.

The third and the beginning of the fourth part of the book discuss two strands of argument for the claim that economic explanations do not really require the rationality principle: Becker's model demonstrating the sufficiency of the budget constraint in creating market equilibrium, and various appeals to selection mechanisms. The main complaint against these lines of reasoning is not that the relevant mechanisms do not exist, but that these explanations eliminate the human component and therefore the possibility of true understanding associated with the rationality principle. Economic equilibrium may be achieved by different algorithms, but any algorithm would replace true human deliberation and intention with a mere mechanism. The same complaint also applies to selection arguments: if an appeal to a selection mechanism displaces the explanatory role of the intentional actions of individuals, then true understanding is lost.

For Lagueux, the greatest threat to the rationality principle comes from Don Ross's redefinition of economics based on Dennettian structural realism. According to Ross, economics, by definition, deals with any system exhibiting behaviour that can be usefully described and predicted as if it is trying to achieve a goal while subjected to constraints. That is to say, if you can apply a strict constrained optimization version of the intentional stance to something, then that something is an economic agent. As Ross acknowledges, the very demanding version of the intentional stance operationalized in orthodox economic analysis rules out most individual human agents from being economic agents. This might be slightly counter-intuitive, but who says that economics should be about individual persons anyway? Yet for Lagueux, this definitional manoeuvre would turn economics into something that it is not (or should not be); if economic explanation does not really refer to individual intentions and consciousness, it is in some sense mechanistic, does not respect the autonomy of the economic agents, and is thus not compatible with the requirement of interpretive intelligibility enshrined in the rationality principle.

It has now become apparent that for Lagueux, the rationality principle requires a rather rich inner life from rational economic agents. Mere applicability of the intentional stance does not satisfy this requirement, if the phenomenology of thinking and feeling human decision-makers is not present. Agents as utility functions, preference orderings, algorithms or thermostats are all ill-equipped for true rationality, since true intentionality and autonomy are replaced by mere mechanistic facsimiles. The final part of the book explores philosophical theories of explanation in search of a rationale for this hermeneutic rationality principle. After meandering through the early history of the theory of explanation, the author settles with a variant of the epistemic conception of understanding, according to which the behaviour of an individual is intelligible if and only if the behaviour was to be expected as an outcome of reasonable intentional action. Thus the hermeneutic intuition of understanding as seeing someone else as we see ourselves is in the end rationalized with Hempel, except that true predictability of the explanandum (the symmetry thesis) is not required, only that the rationalization removes puzzlement post hoc.

So what is to be made of this proposal? Should the image of economics as the mathematics of consistent choice behaviour be replaced by the image of economics as interpretive understanding of the people engaged in economic activities? A shortcoming of the book is that there really is quite little in terms of a convincing argument behind the main claim. The beginning of a book is an overview of the history of the methodological self-understanding of economics, and the rest is philosophical argumentation. There are two problems with this. First, a closer engagement with the current practice of economics would have greatly added to the persuasiveness of the book, especially with respect to an economics audience. Unfortunately the book is short on examples of why and how the alleged misinterpretation of the role of rationality is currently hampering economic modelling and how the return to the original rationality principle would correct these problems.

Second, although there is nothing wrong in abstract philosophical arguments per se, the book is not quite up to date on many of the central philosophical issues it covers, the most important of these being the theory of explanation. A book about explanation is not up to its task if it fails to trace the development of the literature in the last 20 years or so. The most unfortunate omissions are Philip Kitcher's unification account (Reference Kitcher1993) and James Woodward's interventionist account (Reference Woodward2003). The first one is unfortunate because the idea of using a small set of argument patterns to derive a large number of phenomena fits the practice of economic explanation so well, never mind its inadequacies as a general theory of explanation. The second omission is simply inexcusable, because Woodward's theory is currently the most widely accepted philosophical account of explanation and in many ways a major advance in the literature. In general, the chapter on philosophical theories of explanation ends up being a search for a philosophical view which would rationalize the central hermeneutic intuition behind the proposed rationality principle. But it fails to offer convincing independent reasons for why one should accept the underlying hermeneutic intuition in the first place. The book is also peculiarly detached from the vast philosophical literature on the relationship between rationality and interpretation. For example discussing David Henderson's work on the explanatory role of rationality in the social sciences (e.g. Henderson Reference Henderson2010) would have greatly enriched the central argument of the book.

I have other, minor, misgivings about the argumentation in the book. The arguments against selection-based interpretations of the standard behavioural assumptions confuse individual and population-level explananda and would have benefitted from a thorough study of, say, Jack Vromen's Economic Evolution (Reference Vromen1995). Also the treatment of Don Ross's views about the nature of economics would have benefitted from a subtler appreciation of the underlying Dennettian idea. Lagueux's counter-arguments against Ross simply rehearse John Searle's old arguments against Dennett and thus rely on the presupposition that there exists such a thing as primitive, un-analysable intentionality over and above the applicability of the intentional stance. This presupposition is not surprising given the hermeneutic intuition motivating the rationality principle, but it makes the arguments against Ross circular.

Yet despite these faults, Rationality and Explanation in Economics is an extremely valuable book in forcefully pointing out the 800-pound gorilla in the room of the methodological self-understanding of many economists: why exactly is rationality necessary for specifically economic understanding? To an extent, I also agree with the proposed answer: in most cases, the appeal of economic explanations stems from a folk psychological understanding of rational choice. Most (but by no means all) economic explanations explain by citing the individual intentional actions of the agents involved as the causes of economic phenomena and economists would do well by not trying to distance their profession too much from this humble idea. Yet, I also think that Lagueux's proposal goes too far. Lagueux seems to think that such rational explanations are not on a par with other causal explanations, but clearly superior, overriding or final. Lagueux's rationality principle is the expression of a kind of ‘intentional fundamentalism’, according to which a rational, intentional interpretation of social behaviour is the foundational bedrock of all social scientific explanation. Merely pointing out the causes of economic phenomena will not do unless the causes themselves are understandable through our emphatic identification with the beliefs and motivations of the actors involved. But such intentional fundamentalism is incompatible with the idea that the social sciences should be about finding the causes and mechanisms behind social phenomena, regardless of whether or not these causes and mechanisms are described in intentional, sub-personal or macro vocabulary. The fundamentalist stance severs economics from the other sciences, such as psychology, in having a totally different standard of explaining things. If one carries Lagueux's argumentation to its logical conclusion, economics is and should remain a separate science, but one more akin to the humanities than to the rest of the sciences.