A&E’s weekend links include Craig Lambert’s “Marketplace of Perceptions.” About anyone on here has a better context for his essay, but it combines two approaches we often discuss: a) the importance of free decisions by rational people about matters that affect them coupled with b) our ongoing interest in the effect of biology on such decisions. He concludes:
It’s a question that behavioral economics raises, and, with luck, may also be able to address. The eclipse of hyper-rational Economic Man opens the way for a richer and more realistic model of the human being in the marketplace, where the brain, with all its ancient instincts and vulnerabilities, can be both predator and prey. Our irrationalities, our emotional hot-buttons, are likely to persist, but knowing what they are may allow us to account for them and even, like Odysseus, outwit temptation. The models of behavioral economics could help design a society with more compassion for creatures whose strengths and weaknesses evolved in much simpler conditions. After all, “The world we live in,” Laibson says, “is an institutional response to our biology.”
For one thing, I suspect the tension described in Lambert’s article is one that can help us define “manliness” better than chatter about low voices & feminist equity; we tend to admire objectivity, rationality as manly.
While I like a world that rewards the hyper-rational economic man because it makes sense, I don’t always think too sensibly myself. I often make ridiculous impulsive financial decisions. Lambert’s remarks about zero-sum games is interesting. The belief that this guides everything is behind much that is wrong with the world – whether cleaning off our plates for the starving children of China or assuming that third world poverty is caused by first world luxury. Nonetheless, framing, appealing to our non-rational & biological, leads to seller/buyer moments in which the success of a frame affects the price in just that way. Of course, framing is irritating; it isn’t rational. That is why I absolutely hate bargaining – I’ve always figured there is some Platonic true price. Hell, I think that even after I ran a business for thirteen years and often assessed prices pretty arbitrarily & even though I think Thrift Stores are wonderful places to shop. (Of course, the “frame” then is that this is a different kind of shop with a different “Platonic” price and a place where impulse buying doesn’t screw up your budget.)
And to return to “manliness” – how often in ’50s sitcoms did wives lust after mink coats and their “manly” but “providing” husbands eventually came round, moved to anger at first because, rationally, it was wasted money, but then they came to accept that providing for the little wife just such symbols was the manly (biological) act? These wouldn’t seem funny today; now we are partners and we seldom go through such little dances. We find them demeaning, but I suspect we have other dances that may seem equally strange to future generations.
An interesting article. I fight some of these fights on a daily basis in my business. I sell heating and air conditioning parts and equipment to dealers, who then install them into homes or commercial jobs. Some customers on certain items absolutely will not purchase my brand, although it is exactly the same item as my competitors brand, just labeled differently. And this is on top of the customer paying MORE for that other brand at my competitor’s shop. I think this falls under your comments about behaving irrationally in your personal finances. In my daily travails I call this “fighting the feel good” – it makes my customer feel good to purchase that item over at my competitors shop and I have to either educate them on the item or try to sell the product to THEIR competitors so my business can grow. I am positive that there is a more scientific term for this, but there it is anyway.
I think that the economically rational man should be thought of not as model of individual behavior but rather as a optimum strategy in any particular situation. It is very interesting to me that over time and over large populations, the optimum behavior does begin to spread across the population. Even though individual actors are not optimally rational in every decision they make the population as a whole becomes rationalized over time.
I do think that many optimum behaviors do go against our genetically based behaviors because optimum behaviors focus on long term payouts while genetics is very much of the bird in the hand school.
Shannon,
Sure, pet rocks were not exactly long-term investments. But the framing of such purchases is interesting. And I do think that considering how our gut responses (sometimes quite sensible & sometimes self-defeating) may arise from older instinctive behavior can be interesting. Being cool usually means buying into a lot of really stupid choices, but it also may maximize certain kinds of success.
That the truth can be derived from many, many estimates is one of the most cheering of observations–and that, in the end, rationality generally wins out is heartening.
But it is complicated, as well. In terms of return on investment, my children are expensive – in money, time & trouble. I think they are worth it, but surely my instincts would also say that my genes are being passed on down to the next generation – perhaps a more important feeling to most of us than the expensive salad bowls or early retirement that another couple might get as a trade off. Frankly, as Shakespeare argues throughout his sonnets, that is one of the few paths we have to immortality.
People do what they do (when not driven by hunger, thirst, terror, or exhaustion) in order to maximize endorphins. What appears to be irrational from an economic perspective is a totally rational quest for endorphins. Raising kids provides endorphins – absent endorphins bye-bye kids. Money is only a means for acquiring access to endorphins. There is an old saying; “money can’t buy endorphins”. People get endorphins in weird ways. In the Phillipines at Easter some people pay others to be crucified.
Religious ecstacy, love, happiness cannot be measured but the endorphins that cause these phenomena can be weighed, enumerated, classified and manufactured. Economic theory based on money is doomed to partial success. Endorphins lead to total satisfaction. Endorphins are why you guys enjoy this dismal science.
Remember we are all wired differently, so each person makes endorphins at different rates and for different reasons. This diversity is vital to the survival of the species.
Ginny,
It’s a great pleasure to return after a long period away and to find the quality of posts has remained as it was before I left.
To return to my tried and true, “value added” role… I’d suggest that a lot of what’s confusing about these sorts of discussion is the habit of “experts” to define their terms in vague or questionable ways (which you touch on yourself in your posts). This is especially true in economics discussions, as lay people are expected to accept a whole host of assumptions as axiomatic, not because there’s any obvious logic to said assumptions, but merely because economists are in the habit of doing so themselves. Rational patterns of barter and trade (economics) involve many, many off disciplinary subjects like anthropology or (gasp!) aesthetics in order to define key variables, many of which by nature defy quantification. Yet in the universe most economists seem to inhabit, there rarely seems to be any room to explain all those people working in the marketing department!
So here’s my question. Is the term we’re looking for really “rational economics”? Or are we better off replacing “rational” with “pragmatic” when thinking of sweeping economic concepts? Dan, Shannon, and yourself all point out practical considerations based on experience and observation that seem to defy the notion that economic behavior should be assumed “rational” by default. So… what grounds are there to assume that economic behavior, on average, is necessarily rational?
w sol vason,
You need to do some more readings on endorphins. Endorphins are not the sole or even primary class of neurotransmitters associated with pleasure responses. In fact, they are usually released in response to pain. Most of the stuff you read in the popular press about this or that substances or activity causing a release of endorphins are simplistic to the point of silliness.
While I certainly believe that it would be so much better if humans were more rational in their approach to life, this is another situation in which the academic is divorced from reality.
Just like “pure momopoly” or “perfect market”, the model of the “rational economic man” is simplified for study purposes, and the construction of theoretical economic interactions.
But, as in the nature-nurture tension, real humans are an inexplicable mixture of genes and experiences, and their behaviour a complex mixture of attempted rational thought and planning, spiced with the range of emotions that centuries of artists, poets, dramatists, and song writers have attempted to capture.
My father-in-law is a very, very careful, rational, intelligient man. His approach to all things, large and small, is research, consideration, and planning. He is absolutely frightening in any debate, or even discussion, as he has had a life of world travel, highly placed positions, and successful accomplishment in numerous difficult situations.
And yet, he has a raucous sense of humor, is extremely sentimental, dotes on his children and grandchildren, and is cheerfully planning the trip across the country he and my mother-in-law will make to attend my college aged son’s graduation in a few months.
I fully expect he will make the same effort for his other dozen or so grandchildren, as he is scrupulously fair, just as cheerfully. It is clear the fact that his family is successfully developing into the second generation causes him a level of sheer delight that one would not expect from such a disciplined person.
So, are those expenses rational? Emotional? If the checks for birthdays, Christmases, and graduations have increased significantly over the years, are these rational decisions, or has the urging of my mother-in-law finally overcome his natural caution about money?
Who knows? And, for myself, who cares? He, and the whole lunatic bunch he has brought along these many years, and into which I, bewildered and nervous, married into many years ago, are just very, very, human. (And please, do not imagine I slight my m-i-l, she is the heart and soul of the family, and just as complex)
Each person is like a kalaidascope(sp?), something the toy stores probably don’t even carry any more. Every little twist and turn, a new combination.
Analyze away, you’ll never figure it all out.
One of the few consolations of getting old is the ability to see things in their historical context. This thread is a case in point. Forty years ago it would have been impossible to suggest that there is anything innate about human behavior without pushing multiple hot buttons and drawing infuriated accusations of racism, fascism, and shilling for right-wing conspirators. It had been an article of faith on the left, since the early days of the progressive movements in Europe in the mid-19th century, that human beings were infinitely perfectable. Otherwise, the utopian societies projected by the Marxists and others would not work. Therefore, human behavior could not be innate. As Ashley Montagu, a leftist anthropologist who thrived in the 50’s and 60’s, asserted, human brains were a “tabula rasa,” or white slate at birth, and all behavior was learned and determined by environment/nurture.
In those days a playwright turned popular science writer, Robert Ardrey, wrote a series of books on the effect of innate predispositions on human behavior, such as “African Genesis,” “The Territorial Imperative,” and a couple of others. Ardrey was trained as a statistician. I am a scientist myself, and consider him, despite his background and the popular audience he usually wrote for, one of the best, most thorough, and most original scientists I have ever read. His books are still well worth reading today. He drew furious, venomous attacks from leftist and Marxist academics, who accused him of a litany of right-wing sins. They derided him as a “pop ethologist,” and a shill for right wing causes. A number of remarkably lame attempts to counter him with “serious” works also appeared, such as Lewontin’s “Not in our Genes.”
Having seen all that, it’s remarkable that articles relating to innate and genetically predisposed human behavioral traits now appear regularly on both sides of the Atlantic, and barely an eyebrow is raised. Of course, the scientific evidence keeps mounting, but that’s not the whole story. After all, even in the mid-1800’s and long before that people who hadn’t been swept off their feet by progressive ideology were well aware of what they used to call “human nature.” I think we are also witnessing the final passing of an ideological era. It’s nice to see Ardrey vindicated after all the abuse he took. It’s too bad he didn’t live to see it. I think he, too, was a Chicago Boy.