More on Rational Irrationality

November 12, 2008

In response to may last post on this subject, Abigail very correctly noted that the consequences of rational irrationality are not unique to this past election, nor recurrent to every, but rather universal, reflective of society turning towards statism.  While I do not believe that this observation invalidates my previous argument (and, in fact, even strengthens it), I believe that the relationship between this general ideological shift and rationality bears closer examination.

For clarity, I would like to introduce two definitions of rationality, one practical and the other intellectual, the distinction between which is key to correctly understanding the seeming paradox of rational irrationality. Practical rationality means “pursuing the course of action with the highest expected utility”. Note that this definition does not imply action from perfect knowledge or perfect decision-making, nor does it ignore rational ignorance (intentionally remaining ignorant because expected costs of acquiring additional information exceed expected benefits from that information), but rather that, for a given set of judgements concerning the conditions of action and the expected effects of possible actions, one chooses the action expected to achieve the most-preferred distribution of future states of nature. Thus, choosing an improper means to an end while believing that they are appropriate is not prima facie irrational, while so choosing while aware of a better means is. On the other hand, intellectual rationality means “holding beliefs consistent both among each other and with their respective grounds”. Thus, to hold contradictory beliefs or to derive a belief inconsistent with its ground (in light of one’s other beliefs) manifests intellectual irrationality.

Most confusion regarding rational irrationality seems to arise from this analogical use of rationality within the term; in the first instance practical rationality is meant; in the second, intellectual. Thus, a literal expansion of “rational irrationality” would be “holding inconsistent beliefs as an appropriate means to an end”.

Such behavior is prevalent in modern society. One of my favorite examples is the “environmentally conscious” celebrity who advocates human extinction. I fail to see how someone can reconcile that belief with his own continued life, unless he holds that his life is temporarily necessary to advance the cause of death. Similarly, one frequently finds multi-millionaire celebrities who give little of their own great incomes to the poor advocating income redistribution to the point of equalitarianism, or wealthy private businessmen supporting socialism.1 If one desires socialism, is not the first step to relinquish one’s own property to the state? In each of these cases, the individual is advocating government enforcement of a certain path of behavior, while deliberately refusing to follow that path themselves. It could be argued that these behaviors manifest simple egotism, as the person advocates altruism when others bear the cost and selfishness. But why would an egotist who cares nothing for the welfare of others, or the environment, or socialism, go to any trouble to advocate them publically? And would not someone who sincerely believed such causes suffer terribly from the guilt of fortune, life, or private ownership? It seems to me that these people are sincere both in their public exhortation and private action. But then, as income redistribution and socialism are improper means to nearly all ends, why should so many who desire a certain end choose the same improper means? Thus, we must somehow explain their systematically inconsistent and mistaken beliefs. The most plausible solution I have yet encountered is that such people maintain their (intellectual) rationality because it is (practically) rational, allowing them to derive the satisfaction of altruism and the wealth of egotism.

I agree that society is being consumed by menacing ideologies, by socialism, by equalitarianism: “A spectre is haunting Europe”: the cult of the state. But this spectre is not simple concern for the poor, the environment, or state control; were that the case, the advocates of the poor would donate to charity, the advocates of human extinction would extinct themselves, and the advocates of socialism would become poor. The latter two cases would be regrettable, certainly, but not one of these actions substantially threatens society. Nor is this spectre simple bad judgement; typically, those who judge poorly quickly discover and correct their error. This spectre is terrifying because it claims the terrible power of the state; lasting because it stems from unquestionable rationality.

Rational irrationality has thus supported a rising tide of devastating ideology. What is to be done? To some, the problem seems insurmountable, for rational irrationality is inherent to the process of elections, of divided responsibility and power, of the state itself. But at the same time, the presentation of rational irrationality presents its own solution. Insofar as it is possible, make each decision powerful by itself or powerless as a whole. More generally, ensure that each decision maker reaps as many of the costs and benefits of his action as possible. Elections fail because voters do not suffer any harm, nor do they receive the material benefit, in the vast majority of situations. Political offices fail because the office holder does not benefit, or benefits only in a limited, artificial manner,2 from his good decisions. Only the competition of a free market, where the inefficient businessman suffers certain losses and the efficient gains profits, preserves as much as possible natural consequences. Thus, the lesson I draw from rational irrationality is that as many decisions as possible ought to be determined by free action, with the market coordinating interpersonal transactions.

1 Socialism, strictly speaking, refers to the state ownership of capital, and not to income redistribution. Mere support of income redistribution merits another term, which I cannot at this time remember.

2 I call artificial a consequence of an action made so only by the deliberate action of another. Thus, a performance benefit for beneficial action is an artificial benefit, while a share in the innate benefits is a natural. I do not condemn artificial benefits, as for example the deterrent function of punishment, but I hold it to be inferior to natural benefits, as natural benefit can not be distorted and artificial can.


Rational Irrationality

November 9, 2008

Election day has passed; America has a new president elect. Specifically, America has a president elect who seems completely ignorant of economics. Thus, regardless of whether one agrees with his economic objectives, he is unlikely to be able to realize those goals. Why, then, did so many vote for him?

I see several alternatives. The first is that the voters are simply bad decision makers, unable to tell what lies in their best interests. But this seems inconsistent with what we see elsewhere. The American entrepreneur is the quintessence of the type. Americans are elsewhere condemned not for their naivety, but for their excessive self-interested calculations. So Americans are not bad decision makers normally.

Perhaps Americans are simply ignorant. But how can this be, when we have been bombarded by election propaganda for over a year? There is certainly no lack of information, and one would have to expend great effort to avoid it. But perhaps this information is faulty? Perhaps the candidates are not revealing their true beliefs? But I condemn not some arcane policies of Obama, unknown to any without exhaustive research; instead I condemn that which is held with the greatest pride, his fundamental faith in government and mistrust of the market. The voters know him for whom they vote.

What, then, remains to explain Americans’ bad decisions with regard to politics? Voters are normally good decision makers, and have good knowledge of the issues at stake. Clearly, if both of these factors were true with respect to elections, voters would make a good decision. But they did not. Clearly, then, one must not hold with respect to elections. The second was proven specifically with regard to this elections. So we must change the first, holding that voters, while normally rational, make poor decisions in elections.

But nothing happens without cause. Why do normally rational voters vote poorly in light of available information? Unfortunately, I can see no means of proving one cause to be predominant in an event so complex as elections. But one fact does grab my attention: that while in business and consumption one reaps the full effects of one’s decision, both material and psychic, in voting one does not. Specifically, one’s rewards are divided, into psychic benefit inherent to voting for a candidate, which is guaranteed, and material benefit (what one gains from having the preferred candidate in office) deriving from having a better politician in office, which is achieved only if one’s vote influences the results of the election (for even if one votes for the winning candidate, if that vote was not the decisive vote, then one would have achieved the same material well-being had one voted otherwise). Thus, if psychic and material utility work in opposite directions, one could rationally vote for a candidate with harmful policies, as the low probability of one’s vote being decisive would cause that harm to be an insignificant factor in his decision. So bad voting could be rational. Why, then, should we condemn it? Because the material effects do not go away. Its lack of impact on the voting decision does not mean that people do not care. In fact, I think that most voters would rather have a president with proper policies than have any psychic utility achievable in voting by a substantial margin.1 Thus, in an election, each voter pursuing his own interests can lead to a result extremely harmful to the entirety.

How does this work? The best description I have encountered is Bryan Caplan’s term “rational irrationality”. In pursuing psychic interests, voters are acting rationally to maximize their utility. But at the same time, they are acting irrationally, for this process inevitably involves a suspension of judgements and false views of reality.

What is the general tendency of rational irrationality? Unfortunately, I think that it is towards large government. Government interference with the free market can achieve very few goals (such as the wanton exercise of power, or destruction of the economy); it cannot lead to increases in efficiency, nor can it redistribute wealth without great harm. Thus, almost everyone should want a small government, regardless of whether they wish to help the poor, protect the environment, or enrich themselves. But there is something peculiarly unsatisfying to saying “Help end poverty; vote to end welfare”. Thus, I think that someone truly interested in helping to end poverty would be much more satisfied if given the option of doing something much more concrete, particularly if he could pass off the costs through government (as opposed to doing something on his own initiative). Thus, he would derive greater psychological utility from voting for a candidate who promised to fight poverty than from an advocate of the free market (so long as he actually believes the claim of the first; his irrationality is believing this claim not because it is true but because he derives greater psychic utility from acting on it than from acting on the truth).

Voters are normally rational, but have a fit of temporary insanity in the voting booth. How else are we to account for their persistent bad decisions?

1. This is not an accusation of egotism; I do not assume that voters care only about their own interests. Rather, I am saying that candidates would like to have their goals actually realized. Thus, if one were interested in helping the poor and thus favored policies harmful to one’s private interests that could nevertheless be expected to help the poor, this would exhibit no trace of irrationality.