Tuesday, June 9, 2009
They may be right, they may be crazy...
This story, aired on NPR yesterday, was interesting to me for a few reasons. First, I like the fact that the mathematicians and economists profiled have challenged one of the fundamental principles of economics and public policy, that people left to their own devices tend to make rational choices that serve their self-interest. Second, if these guys are right, what are the implications for policy decisions if people cannot be expected to behave rationally. That this new thinking has the ear of the president has me a little concerned. I'm all for government intervention, but if it becomes the norm rather than the exception, based on the premise that we don't know what's best for us (but, presumably, our policy-makers and their economist sidekicks do), we move closer to the totalitarian world that hyperbolic Fox analysts are predicting.
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"You may be wrong, for all I know, but you may be right.... "
ReplyDeleteIn any case, I find a number of this article's claims to be shaky at best.
The opening example (a program to prevent teen pregnancy by paying young women $1.00 for each day they remain "unpregnant," if that's a word) doesn't contradict traditional economic assumptions about human nature; instead, it supports the view that humans act in their self-interest. The women who take the dough without putting a bun in the oven not only receive up to $365 per year more or less for free, but also avoid the costs of pregnancy (lower long term earnings, medical expenses, private school tuition...) that the article itself cites. Sounds like self-interest at work to me.
The second example, about screening Israeli military personnel, is intended to demonstrate the principle of the "illusion of validity." It may do so with respect to leadership recruitment, but not automatically therefore in terms of human nature and the classical economic assumption of enlightened self-interest.
I love the author's admission that one reason why mainstream economists rely on the assumption of self-interest is that it "works" when constructing predictive models. Last time I checked, that's why biologists universally embrace the theory of evolution, which has extraordinary predictive power. The fact that psychologists have demonstrated that individuals don't always act rationally (did we really need them to demonstrate that?) doesn't mean that economic models, which are aggregate, lack validity (or even have just the "illusion of validity").
One final example. I'd be willing to bet that the decision to paint "look right" on the sidewalks adjacent to busy streets in Britain was not made by some bureaucrat who sat around all day dreaming up ways to save people from their irrational selves. Rather, I'd predict (based on my assumptions about self-interested shareholders) that travel insurance companies realized that they were suffering high losses on casualty policies in high traffic areas of London, and subsequently made a push to get the British government to address the problem.
Perhaps these researchers and the author of the article need to paint "look right" on their laptop screens and consult their Adam Smith more often. And I certainly hope that someone in the White House keeps a copy of Milton Friedman's "Free to Choose" handy and raises a skeptical eyebrow when the Council of Economic Advisors starts proposing programs designed to protect us against... ourselves.
I agree with your assessment of the implications of the article, David. As a society based upon rationalist principles, we have to assume an electorate that is free, informed, and deliberative. If America cannot assume the best about her citizens, then there is something fundamentally screwy at play.
ReplyDeleteHowever, I would not be so quick to dismiss the economists' work. If everyone acted in their own best interest all the time, there would be no teen pregnancy, no smokers, and I would be thirty pounds lighter. The benefits of changing behavior in each of these cases is self -evident, yet people to continue o act in ways that will cost them a lot of resources in the long run. What the research shows is that a slight incentive, when tangible, will change behavior more than an appreciation of the long-term benefits of making a change.
That is why I have decided to donate a dollar to the Palin '12 campaign fund every time I fail to go to the gym.