Friday, September 30, 2011

The Fetish of Rationality

I'm currently reading Jonathan Aldred's book The Skeptical Economist. It's a brilliant exploration of how economic theory is run through at every level with hidden value judgments which often go a long way to  determining its character. For example, the theory generally assumes that more choice always has to be better. This follows more or less automatically from the view that people are rational "utility maximizers" (a phrase that should really be banned for ugliness alone). After all, more available choices can only give a "consumer" the ability to meet their desires more effectively, and can never have negative consequences. Add extra choices and the consumer can always simply ignore them.

As Aldred points out, however, this just isn't how people work. One of the problems is that more choice means more thinking and struggling to decide what to do. As a result, adding more options often has the effect of inhibiting people from choosing anything. In one study he cites, doctors were presented with the case history of a man suffering from osteoarthritis and asked if they would A. refer him to a specialist or B. prescribe a new experimental medicine. Other doctors were presented with the same choice, except they could choose between two experimental medicines. Doctors in the second group made twice as many referrals to a specialist, apparently shying away from the psychological burden of having to deal with the extra choice between medicines.

I'm sure everyone can think of similar examples from their own lives in which too much choice becomes annihilating. Several years ago my wife and I were traveling in Nevada and stopped in for an ice cream at a place offering 200+ flavours and a variety of extra toppings, etc. There were an astronomical number of potential combinations. After thinking for ten minutes, and letting lots of people pass by us in the line, I finally just ordered a mint chocolate chip cone -- to end the suffering, as it were. My wife decided it was all too overwhelming and in the end didn't want anything! If there had only been vanilla and chocolate we'd have ordered in 5 seconds and been very happy with the result.

In discussing this problem of choice, Aldred refers to a beautiful paper I read a few years ago by economist John Conlisk entitled Why Bounded Rationality? The paper gives many reasons why economic theory would be greatly improved if it modeled individuals as having finite rather than infinite mental capacities. But one of the things he considers is a paradoxical contradiction at the very heart of the notion of rational behaviour. A rational person facing any problem will work out the optimal way to solve that problem. However, there are costs associated with deliberation and calculation. The optimal solution to the ice cream choice problem isn't to stand in the shop for 6 years while calculating how to maximize expected utility over all the possible choices. Faced with a difficult problem, therefore, a rational person first has to solve another problem -- for how long should I deliberate before it becomes advantageous to just take a guess?

This is a preliminary problem -- call is P1 -- which has to be solved before the real deliberation over the choice can begin. But, Conlisk pointed out, P1 is itself a difficult problem and a rational individual doesn't want to waste lots of resources thinking about that one too long either. Hence, before working on P1, the rational person first has to decide what is the optimal amount of time to spend on solving P1. This is another problem P2, which is also hard. Of course, it never ends. Take rationality to it's logical conclusion and it ends up destroying itself -- it's simply an inconsistent idea.

Anyone who is not an economist might be quite amazed by Conlisk's paper. It's a great read, but it will dawn on the reader that in a sane world it simply wouldn't be necessary. It's arguing for the obvious and is only required because economic theory has made such a fetish of rationality. The assumption of rationality may in some cases have made it possible to prove theorems by turning the consideration of human behaviour into a mathematical problem. But it has tied the hands of economic theorists in a thousand ways.

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