Are people “rational”?

Sometimes I wonder if statements like these — “many people pour years of their lives and love into projects which are absurd on the face of it and could be revealed as such within seconds” — describe most human behavior better than appeals to purposeful, optimizing “rationality.”

10 thoughts on “Are people “rational”?”

  1. If all humans followed an “optimal” strategy for a given situation, we’d all act the same in that situation. If we all acted the same every time, we wouldn’t be able to adapt to changes in those situations. Is it possible that localized irrational behavior is a survival strategy for our species?

    If 10% of crazies are actually hidden geniuses, is it worth supporting all crazies? The history of Homo Sapiens seems to say “Yes!”

  2. I think this behavior can be rationalized. I mean it can be described as a policy function from an optimization problem. That rationalization shouldn’t be confused with a description of that behavior, though.

    In fact people are programmed to either follow their bliss (if they’re a “crazy”, swong) or to do what they think they should (because they’re following norms learned from their parents, their friends or in school).

    I think this distinction is important for understanding “out of equilibrium” behavior.

  3. Oh, swong, if people’s preferences are different, (or if wealth is unequally distributed) then their optimal behavior would be different too.

    Geniuses (and crazies) might make people worse off. For every Bill Gates there’s an Neils Bohr. (Yes, I’m trying to be funny.)

  4. Jared Diamond (of Guns, Germs, and Steel fame) among others has asserted that the shift from a hunter/gatherer lifestyle to an agrarian lifestyle has been the worst mistake ever made by our species.

    I’ll agree that “rationality” can vary based on preferences. Place two people with very different sets of norms in identical situations, and they make make opposite choices. Both sets of choices can be called rational, when taken from the viewpoint of the individuals. We declare one of them crazy because their preferences are at a tangent to the majority set of preferences.

    An individual with a long term strategy might ignore short term “bliss” preferences to serve longer goals (I’ll just link this instead of going into a lengthy explanation). Each ridicules the other. As far as survival strategies go, maybe this (heh heh) might have some truth to it.

  5. From the text of your original post, it sounds like you’re using the terms “optimization” and “rationality” with specific, almost mathematical definitions.

  6. Maybe, but I think the important point is does “rationality” describe behavior in fact or does “rationalization” just produce similar descriptive results. Its the positive versus descriptive economics debate.

    Rationalizing behavior is interesting, but it has its limits. When people are in new situations or in situations were learning from mistakes is hard or in situations were norms are especially salient, then rationalization might not work, even positively, to describe behavior.

    I think economists should study these situations, but we shouldn’t expect models of rationalization to help us understand them. At the same time, economists never, ever break out of rationalizing models.

    (BTW, “positive” and “descriptive” are technical terms, but I’m knee-deep in this shit and I’m having a hard time coming up with more intuitive terms. The basic idea is that positive economics doesn’t care about what’s going on in people’s heads; it just cares about predicting behavior correctly. Descriptive economics would have models that mimic peoples actual decision making processes. Milton Friedman famously argued that economists should only care about positive economics.)

  7. It seems as though positive economics would help neutralize any cultural bias on the part of the observer. On the other hand, it seems as though descriptive economics would help more in making policy decisions. Can descriptive models explain things like risk compensation?

  8. Funny that; this is another area I’m interested in. The current so-called rational expectations models are bad at describing behavior and most think it has to do with the way people handle risk.

    I think we’ve pretty much wrapped up my dissertation. Anything else you want to do this afternoon?

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