Monday, January 28, 2008

Is Rationality a Fable Agreed Upon?

The Logic Of Life by Tim Harford is reviewed by Michael Sexton (28 January) in the Sydney Morning Herald (here): “Another clinical look at decision-making from the author of The Undercover Economist”.

The great economists, such as Keynes and Adam Smith, were also philosophers who understood that a person's decisions were often influenced by non-financial factors. They would not have been puzzled, for example, by the proliferation of four-wheel-drive vehicles in closely settled urban environments. True, they are more expensive to buy and to run and more difficult to park. But this has to be weighed against the intoxicating image of the fearless hunter and rugged backwoodsman.

Tim Harford, who works for Britain's Financial Times, might, however, be puzzled. The general thesis of his new book is that people generally make rational choices in their lives; that is, they weigh up the costs and benefits of any decision before going ahead.”

I too am reading Tim Harford’s book, of which his comments about Adam Smith not visiting a pin factory, despite his explicit statement that he did in Wealth of Nations, was subjected to scrutiny on Lost Legacy a week or so ago, so I approached Chapter 1 of Tim's with some scepticism.

However, Michael Sexton inn his review touches on nagging doubt about the deployment of rationality in decision making. I can accept that people might make rational decisions on choices as they see them at the time. But I have difficulty with the idea that individuals (except for a very few) make rational choices considering all the circumstances.

The case of people buying 4x4 off-road vehicles for city driving suggests their rationality is limited – it excludes consideration of the urban environment – let alone of the actual need to use them and it may place a higher positive value on the self-worth individuals feel if they drive a 4x4 and others don’t. In short, one person’s rationality may be found lacking in the rational calculus of somebody else.

If two people examine the same choice and come to different conclusions according to their own rationality, then rationality tends to blur into whatever people do is ‘rational’ to them, which seems to weaken the rational point.

However, I shall persevere, bearing in mind a similar use of self-interest as an explanation for most actions.


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