[12 September 2006]
I’m generally sympathetic to the arguments of behavioral economists, who want to broaden economics in efforts to account for humankind’s irrationality, defined as its failure to always maximize utility and make choices that will lead to the most bountiful outcomes. But while reading John Cassidy’s New Yorker story about neuroeconomics I found myself resisting the whole rational/irrational paradigm, which suddenly seemed impoverished. Suddenly the general humility of economics seemed much more appealing than the hubris of the neuroscientists who seem on the verge of suggesting we neutralize certain lobes of our cerebral cortex to make ourselves more “rationally” profit-seeking or to snort oxytocin (a hormone which induces loving feelings toward others) to make ourselves more trusting and therefore more economically efficient in commercial contexts. Rather than respect the different kinds of decision-making processes humans have adapted, it sounds as though some of these econo-scientists would like to modify people so they fit the traditional homo economicus models more comfortably. It seems better to amend the models or limit their applicability than to force humankind to exhibit the remorseless efficiency they presume. By the end of the article Cassidy is citing economist David Laibson pitching a dualistic model that mimics the Cartesian mind-body split: “The modified theories to which Laibson referred assume that people have two warring sides: the first deliberative and forward-looking, the second impulsive and myopic. Under certain circumstances, the impulsive side prevails, and people succumb to things like drug addiction, overeating, and taking wild gambles in the stock market.” If this is so, I wonder whether these sides would have a consistent, predictable influence on the other, or whether they might not work simultaneously and independently. One can overeat while plotting an extremely rational stock portfolio. And a certain amount of pleasure derives from avoiding decisions altogether, from surrendering, from refusing to calculate, from inertia or expediency—Cassidy himself notes he made decisions that were expedient when the machine measuring his brainwaves began to make him claustrophobic. At some point it becomes rational to be irrational; irrationality is not merely a consequence of emotions inappropriately obtruding.
My somewhat paranoid concerns about forced rationalism grew strongest when Cassidy discussed “asymmetric paternalism”:
Reforming 401(k) plans is an example of “asymmetric paternalism,” a new political philosophy based on the idea of saving people from the vagaries of their limbic regions. Warning labels on tobacco and potentially harmful foods are similarly intended to keep subcortical structures in check. Neuroeconomists have suggested additional policies, including warning buyers of lottery tickets that their chances of winning are practically nonexistent and imposing mandatory “cooling off” periods before people make big-ticket purchases, such as cars and boats. “Asymmetric paternalism helps those whose rationality is bounded from making a costly mistake and harms more rational folks very little,” Camerer, Loewenstein, and three colleagues wrote in a 2003 issue of the University of Pennsylvania Law Review. “Such policies should appeal to everyone across the political spectrum.”
You don’t have to work for the Cato Institute to find this dubious. None of these specific policy prescriptions seem problematic, but the logic behind them is worrisome. Some people can’t be trusted to act in their own interest—but who defines what that is, and by what criteria? Who gets to say what a rational person “should” do? Who get sto decide which reasons for acting are “bad” or “wrong”? Here, neuroeconomists fall back on the definition of profit/utility maximization as a defintion of rationality. You can see how this rationality, enforced by paternalistic measures, could easily become a prison, the bureaucratic nightmare Adorno evokes in his critique of Enlightenment positivism. It’s like using an ad to advertise the idea that paying attention to ads is harmful—these kind of measures are designed to bring people “back” to their senses while reinforcing the idea that the there’s no need to return since common sense and rationality are already being retrofitted into the options society presents them. The underlying assumption of asymmetric paternalism is that people are sheep, with no strong reasons for doing what they do, so they may as well be encouraged/forced to do what can be deemed most beneficial socially.
Cassidy quotes Laibson on the nature of this paternalism “The practical implications of the experiment come from obtaining a better understanding of the human taste for instant gratification,” Laibson said. “If we can understand that, we will be in a much better position to design policies that mitigate what can be self-defeating behavior.” I’m not going to make the arguement that “self-defeating” is a contradiction in terms, as some economists sometimes seem to imply (if every choice by definition reveals a preference, then how can you choose what doesn’t suit your own wishes without being coerced?)—but who’s to say what is “self-defeating” and in what circumstances? What sort of policy could cover all the exceptions? Time has a different value to different people in different circumstances—influencing that value is what exploiting convenience is all about. The taste for instant gratification may be impulsive or may be a matter of what an indivdual considers timely—it seems foolish to, say, buy an BluRay DVD player right now, but if you derive all sorts of satisfaction from being the first on the block to have one, you can’t afford to have your gratification delayed. And it seems dumb to buy lottery tickets, but they are licenses for invaluable fantasy for some. So what may seem like poor decision-making to us could just be part of the plan. There’s no sure way of accounting for other people’s notions of utility.
If we are going to institute some of these measures, I’d rather they be sold not as something for my own good but something that is for the social good—you will be defaulted to save in a 401 (k) because it will help prevent sociey from having to support you when you are old and destitute, or spare society the sight of your suffering. You will be discouraged from smoking, because your smoke poisons others and because society doesn’t want to bear the burden of your medical costs. And so on. Leave people with the illusions that they know what is best for themselves and encourage the notion that everyone will be making sacrifices for the common good—this seems better, ideologically speaking, than having the state work to maximize outcomes for individuals.
A side note: I’m a bit puzzled by the ultimatum game:
A good way to illustrate Cohen’s point is to imagine that you and a stranger are sitting on a park bench, when an economist approaches and offers both of you ten dollars. He asks the stranger to suggest how the ten dollars should be divided, and he gives you the right to approve or reject the division. If you accept the stranger’s proposal, the money will be divided between you accordingly; if you refuse it, neither of you gets anything.
How would you react to this situation, which economists refer to as an “ultimatum game,” because one player effectively gives the other an ultimatum? Game theorists say that you should accept any positive offer you receive, even one as low as a dollar, or you will end up with nothing. But most people reject offers of less than three dollars, and some turn down anything less than five dollars.
It seems to me that this game sets up a reference group of you and the other person that makes invidious comparison inevitable. Thus as the other person gets richer, you get poorer by comparison. It seems perfectly rational from that point of view to demand an even split, or have neither of you gain anything. Only by imagining a fictitious reference group—i.e. not the person you are in the game with but people you are theoretically comparable with—can you make the game theorists’ rational choice. Rationality ends up depending on a rich, healthy imagination.