rationality

Irrational Rationality

Economists have given “rationality” a bad name. Mario Rizzo explains:

[T]he axioms of rational choice were supposed to shed light on how people actually made choices. Then a sleight of hand occurred. It was claimed that they shed light on how rational individuals would choose – without addressing the issue of whether people were in fact rational in the sense of the axioms. Finally, it was alleged – in the face of empirical evidence that people often did not choose rationally – that the axioms defined the norms of choice. They told us how rational individuals should choose. More than that. Since being rational is taken as “good,” they show us how people should behave – full stop….

The behavioralists may well be correct that people do not act in accordance with … rationality axioms. But they are surely wrong in claiming that they ought to behave in this way. The problem is not with deficient individuals. It is a problem of deficient rationality standards.

It is an old story. Pseudo-scientific economists, suffering from physics envy, strive to reduce the complexity of human behavior to simple-minded metrics, according to which they judge human rationality. When humans fail to hew to the simple-minded preferences of economistic thinkers, it is evident (to those thinkers) that humans must be nudged toward “doing the right thing.”

When economists cross the line from theorizing about economic behavior to judging it, they put themselves on the same low plain as “liberals.” The latter, at least, are honest about wanting their own way … just because … and do not resort to cheap, pseudo-scientific tricks. They simply enforce their preferences through statutes and regulations. Why “nudge” when you can coerce?

Related posts:
Why I Don’t Hang Around with Economists
The Rationality Fallacy
Greed, Cosmic Justice, and Social Welfare
Positive Rights and Cosmic Justice
Inventing “Liberalism”
Utilitarianism, “Liberalism,” and Omniscience
Utilitarianism vs. Liberty
Beware of Libertarian Paternalists
Landsburg Is Half-Right
Negative Rights, Social Norms, and the Constitution
Rights, Liberty, the Golden Rule, and the Legitimate State
The Mind of a Paternalist
Accountants of the Soul
Physics Envy
Rawls Meets Bentham
Enough of “Social Welfare”
The Case of the Purblind Economist
The Arrogance of (Some) Economists
Extreme Economism

Extreme Economism

Economism is a theory

that regards economics as the main factor in society, ignoring or reducing to simplistic economic terms other factors such as culture, nationality, etc. (definition 1.a, here)

The “etc.” encompasses family and friendship, in the eyes of the economistic economists who advise the giving of cash instead of items that the recipient is meant to enjoy. Economistic economists are the kind who mistake wealth-maximization for rational behavior.

What is irrational behavior? Whatever does not lead to the accumulation of wealth, in the view of these money-besotted economists. In that respect they are much like leftists in their condemnation of behavior of which they disapprove. Maverick Philosopher captures the mindset:

Suppose one genuinely enjoys smoking and is willing to run the risk of disease and perhaps shorten one’s life by say five or ten years in order to secure certain benefits in the present. There is nothing irrational about such a course of action. One acts rationally — in one sense of ‘rational’ — if one chooses means conducive to the ends one has in view. If your end in view is to live as long as possible, then don’t smoke. If that is not your end, if you are willing to trade some highly uncertain future years of life for some certain pleasures here and now, and if you enjoy smoking, then smoke.

The epithet ‘irrational’ is attached with more justice to the fascists of the Left, the loon-brained tobacco wackos, who, in the grip of their misplaced moral enthusiasm, demonize the acolytes of the noble weed. The church of liberalism must have its demon, and his name is tobacco. I should also point out that smoking, like keeping and bearing arms, is a liberty issue. Is liberty a value? I’d say it is. Yet another reason to oppose the liberty-bashing loons of the Left and the abomination of Obamacare with its individual mandate….

Smoking and drinking can bring you to death’s door betimes. Ask Bogie who died at 56 of the synergistic effects of weed and hooch. Life’s a gamble. A crap shoot no matter how you slice it. Hear the Hitch:

Writing is what’s important to me, and anything that helps me do that — or enhances and prolongs and deepens and sometimes intensifies argument and conversation — is worth it to me. So I was knowingly taking a risk. I wouldn’t recommend it to others.

Exactly right.

(Bill Vallicella, “Cigarettes, Rationality, and Hitchens,” December 28, 2011)

Returning to economistic economists, I note that they are also the kind who write about gift-giving at Christmas in this vein:

I am not sure why people give each other store-bought gifts instead of cash, which is never the wrong size or color. Some say that we give gifts because it shows that we took the time to shop. But we could accomplish the same thing by giving the cash value of our shopping time, showing that we took the time to earn the money. (Steven Landsburg, The Armchair Economist, .pdf version here)

Similarly:

A potentially important microeconomic aspect of gift-giving is that gifts may be mismatched with the recipients’ preferences. In the standard microeconomic framework of consumer choice, the best a gift-giver can do with, say, $10 is to duplicate the choice that the recipient would have made. While it is possible for a giver to choose a gift which the recipient ultimately values above its price — for example, if the recipient is not perfectly informed — it is more likely that the gift will leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash. In short, gift-giving is a potential source of deadweight loss….

Estimates in this paper indicate that between a tenth and a third of the value of holiday gifts is destroyed by gift-giving. Because average losses of at leas 10 percent hold for all gift price ranges in the sample, the lower-bound proportional loss estimates may be reasonably applied to other populations. While the generality of these results is not settled, the deadweight losses arising from holiday gift-giving may well be large: holiday expenditures in 1992 totaled $38 billion according to one estimate.

If between a tenth and a third of this spending was wasted, then the deadweight loss of 1992 holiday gift-giving was between $4 billion and $$13 billion. (Joel Waldfogel, “The Deadweight Loss of Christmas,” The American Economic Review, Volume 83, Issue 5 [December 1993])

A current estimate of the deadweight loss of holiday gift-giving is “$46-$152 billion worth of holiday wastage, potentially equivalent to an entire year’s worth of output from Iowa,” according to Matthew Yglesias (“Do Not Buy Dad a Tie,” Slate, December 20, 2011).

The foregoing analyses and estimates hinge on a model of gift-giving that assumes away (a) the value derived by the giver of a gift — the pleasure of giving. — and (b) the value derived from the recipient over and above any value that he derives from the gift itself — namely, appreciation for the gift-giver’s thoughtfulness and effort. Moreover, the conclusion that holiday gift-giving is wasteful rests on a false premise, namely, that the devaluation of gifts by some recipients negates the added value attributed to gifts by other recipients. In other words, the condemnation of holiday gift-giving on economistic grounds manifests a belief in a social-welfare function, wherein A’s unhappiness can be weighed against B’s happiness. Once again, we see a strong resemblance between economistic economists and leftists. (In fact, I have written before about Landsburg’s misguided embrace of the social-welfare function.)

But let us take economistic economist’s view of the world and see where it leads. Imagine five persons who are mutually acquainted or related, and assume that they have taken the advice to give each other cash. Part A of the following table depicts the result of their exchanges of cash. Everyone gives everyone else some amount of money, but the amounts vary in total and detail from person to person.

Now, an economistic economist would look at the result and consider it irrational because there were 10 instances in which reciprocal gifts of cash exactly offset each other (e.g., A gave B $10 and B gave A $10). That would lead the economistic economist to suggest that the trouble and expense of giving offsetting gifts should be eliminated. The result, shown in Part B, yields the same bottom line for each person, but only 10 gifts of cash are given.

But wait, there are still unnecessary exchanges; for example, A gives C $10 and C, in effect, give $5 of that back to A. So, the next step, shown in Part C, is to reduce exchanges to their net amounts; for example A gives C $5 and C gives A nothing. This further reduces the trouble and expense of gift-giving because the number of transactions has been halved again — from 10 to 5.

A. Initial exchanges — 20 gifts:

Givers

A

B

    C

D

E

Receivers

A

10

5

10

15

B

10

5

5

15

C

10

5

15

10

D

10

15

15

5

E

10

20

15

5

Given

40

50

40

35

45

Received

40

35

40

45

50

Net

0

-15

0

10

5

*******  ************** **** ***** ********* ********* *********
B. After eliminating identical exchanges — 10 gifts:

Givers

A

B

C

D

E

Receivers

A

5

15

B

5

15

C

10

10

D

15

E

10

20

15

Given

20

35

20

5

40

Received

20

20

20

15

45

Net

0

-15

0

10

5

 ******* *************** **** ***** ********* ********* *********
C. After reducing exchanges to net amounts — 5 gifts:

Givers

A

B

C

D

E

Receivers

A

5

B

C

5

D

10

E

5

5

Given

5

15

5

0

5

Received

5

0

5

10

10

Net

0

-15

0

10

5

In the beginning, before the exchanges of cash depicted in Part A, there was an occasion that was filled with anticipation and much happiness. The “logic” of economism has reduced it to a cold, joyless exercise in computation. Bah, humbug!

Finally, I must note that — in my experience — most economists are economistic. This is from a post that I wrote more than seven years ago:

The idea of going to lunch with colleagues is to have some laughs, some good conversation (not about economics), and a few beers to help you coast through the afternoon. With economists, however, lunch always went something like this: Carping at the waiter about what’s not on the menu, followed by carping at the waiter about whether he brought the right orders to the table, followed by carefully dissecting the bill to ensure that everyone pays for precisely what he ordered, followed by computing the tip down to the last red cent instead of rounding up to the nearest dollar out of consideration for the beleaguered waiter. I’d rather have lunch with undertakers.

*   *   *

Related posts:
Why I Don’t Hang Around with Economists
The Rationality Fallacy
Greed, Cosmic Justice, and Social Welfare
Positive Rights and Cosmic Justice
Inventing “Liberalism”
Utilitarianism, “Liberalism,” and Omniscience
Utilitarianism vs. Liberty
Beware of Libertarian Paternalists
Landsburg Is Half-Right
Negative Rights, Social Norms, and the Constitution
Rights, Liberty, the Golden Rule, and the Legitimate State
The Mind of a Paternalist
Accountants of the Soul
Rawls Meets Bentham
Enough of “Social Welfare”
The Case of the Purblind Economist
The Arrogance of (Some) Economists