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On this topic: It's always bugged me when behavioral economists start going on about "irrational human behavior." Many times they are simply not accounting for

• ggm 8y ago
  I think "rational" and "irrational" have taken on domain-specific meaning in economics. This is not unusual. Ontologies and DSL are kind-of a way of life now, in any information-theoretic field. In my space, we refer to some things as "portable" or "non-portable" which has very specific intent, which doesn't relate to if you can pick them up or not. I think loan-words which have close analogies in a few minds rapidly diverge. So a "rational" actor in economics seem (to me at least) to mean the typical selfish bastard who only acts to maximise their own profit outcome, no matter how its defined, and excludes a green warrior buying a good or chattel to NOT use it, or somebody buying it to give to charity, or buying it to round up another charge to get north of a shipping fee but its a nonce purchase and has no intent or purpose.. its a narrow, domain-specific meaning. I think that word doesn't mean what you think it means inconceivable
  • ssivark 8y ago
    Even such a domain specific definition is borderline useless because there is no way to constrain the "utility" which rational agents are supposed to maximize -- which makes the concept of a rational agent tautological, and not at all predictive. ("People behave that way because they behave that way". I might encode my observations in a utility function but that doesn't suddenly help me generalize to other situations) The other thing is that the limited situations which psychologists/economists measure people in are very artificial, and there's no reason for people to ace the experimenter's metric. Responding to grandparent: It's not just that project are efficient and not quite correct -- they're probably more correct and scientists have no way to tell. "If you judge a fish by it's ability to climb trees, it will live it's whole life thinking it is stupid."
    • phowon 8y ago
      Put another way, even if you take the strict definition of a rational (optimal) agent, in probably any non-trivial or non-contrived corner case, for any arbitrary set of actions, there exists some utility function and information constraint that can justify that set of arbitrary functions. Have a set of "irrational actions"? Add in information and computational constraints and the necessity for heuristics, the exact right kind of risk-aversion / novelty-seeking behavior, (or play with the second or higher derivatives of your utility function), add in social dynamics like signaling, repeated games (or incorporate mental burdens that negate the impact of repeated games) etc. There exists some formalized universe where your agent is indeed rational.
    • hopler 8y ago
      It's really quite simple. Have you ever made a decision and then later thought "even without knowing what I know now, I made a bad choice"? That's irrationality-- given the same information, making two different choices.
  • sullyj3 8y ago
    Appropriate that you're talking about idiosyncratic domain specific usage of terminology, I'm not sure what you mean by "information theoretic" here. I've always heard it used to refer specifically to the information theory of Claude Shannon.
    • ggm 8y ago
      I probably randomly misused a term I overheard in some bar some time. (I have a great picture of Claude Shannon's hand holding a literal mechanical mouse: not a modern computer mouse, a simple robot mouse he built do do maze-solving. I wish I could find it, its such a nice example of dropping words and names into another context: "Claude Shannon's mechanical mouse" means probably something completely different to what many people think. https://www.google.com/search?q=claude+shannons+mechanical+mouse https://www.google.com/search?q=claude+shannons+mechanical+m... shows things I think it was taken from. Its a kids book on computing from the 1960s)
  • logicchains 8y ago
    >So a "rational" actor in economics seem (to me at least) to mean the typical selfish bastard who only acts to maximise their own profit outcome, no matter how its defined, and excludes a green warrior buying a good or chattel to NOT use it, or somebody buying it to give to charity, or buying it to round up another charge to get north of a shipping fee but its a nonce purchase and has no intent or purpose.. That's not true at all. Rational is defined as someone acting to maximise their utility (roughly satisfaction), which is capable of encompassing "a green warrior buying a good or chattel to NOT use it, or somebody buying it to give to charity, or buying it to round up another charge to get north of a shipping fee but its a nonce purchase and has no intent or purpose" perfectly fine.
    • nickcoury 8y ago
      I’ve always thought (or have been unaware of) a formal economic way of talking about this. Years ago I came up with my own definitions. “Altruism” can be defined as the part of your utility that increases because someone else’s utility increases. If you get no personal satisfaction out of something intrinsically but get satisfaction because someone else is happier, that is 100% altruistic. If you get some satisfaction but also some from the external benefit, you could tease out where it lies between 0 and 100%. This also leads to another concept of “Malice” which would be the positive utility you get from others losing utility. The crux to me is that often utility is talked about as only what you intrinsically get. Doing selfless things isn’t without benefit, it’s just without direct benefit and I have seen little ability to quantify it in economic terms.
      • thfuran 8y ago
        >“Altruism” can be defined as the part of your utility that increases because someone else’s utility increases. If you get no personal satisfaction out of something intrinsically but get satisfaction because someone else is happier, that is 100% altruistic. Wouldn't altruism be getting no satisfaction from increasing someone else's utility but doing it anyways?
        • ml_basics 8y ago
  • thaumasiotes 8y ago
    > So a "rational" actor in economics seem (to me at least) to mean the typical selfish bastard who only acts to maximise their own profit outcome, no matter how its defined, and excludes a green warrior buying a good or chattel to NOT use it, or somebody buying it to give to charity, or buying it to round up another charge to get north of a shipping fee but its a nonce purchase and has no intent or purpose. This is completely unrelated to what economics means by referring to a rational actor. A rational actor is just one who, given a choice, will take the action that produces the all-inclusive result they most prefer. You're talking about someone whose only preference is having the greatest amount of money, but economics contemplates all possible preference sets, which is why it measures benefit in "utils".
    • ggm 8y ago
      So what you're saying is, that in the domain of study it means something which in common parlance, nobody understands. Because when any politician gets on their hind legs to bray about rational actors and efficient markets, they sure as hell aren't talking about "utils" to the taxpayer, are they? Let me ask you a question. Do you think the word "rational" in rational actor, rational investor and rational market, has exactly the same meaning? Do you think as people commonly understand these terms (I don't mean economists) the answer would be the same?
      • thaumasiotes 8y ago
        > Do you think the word "rational" in rational actor, rational investor and rational market, has exactly the same meaning? Rational actor and rational investor, the same. Rational market, different. But I only know the term "rational market" through its use in the fixed expression "the market can stay irrational longer than you can stay solvent". > Do you think as people commonly understand these terms (I don't mean economists) the answer would be the same? I guess I can't really speak to this.
      • jerf 8y ago
        "Because when any politician gets on their hind legs to bray about rational actors and efficient markets, they sure as hell aren't talking about "utils" to the taxpayer, are they?" Do you even mean this as a serious argument? Can your favorite field survive politician's (politician, from "polis", city, and "-tician", "person": 1. professional liar 2. scumbag 3. one who professionally holds office) handling of their terminology? Nor can I find it a terribly serious argument that "common people", i.e., people who aren't in the field and don't know the definition, don't know the definition. That's just shy of begging the question, except there's a small sliver of people "in the field" who don't yet know the definitions, called students. I'm trying my best to unpack your words into some sort of actual argument but I can't find it.
  • roenxi 8y ago
    > So a "rational" actor in economics seem (to me at least) to mean the typical selfish bastard Well, a rational actor works to maximise their personal preferences effectively. You've accidentally slipped an assumption in that all people are fundamentally typical selfish bastard's with a corresponding set of preferences, but I suspect you don't actually assume that personally because of the invoking of green warriors. A green warrior or charitable giver is still a rational actor, and adequately modeled as a normal source of demand. It just happens they need to be acting rationally in context of a larger system to themselves or basic law-of-the-jungle style effect will optimise them out. Green warriors themselves often talk about preserving the planet so people can live on it, which is clearly a personally rational goal. Charitable people will often say similar things.
• hcs 8y ago
  "Bounded rationality" is the subject of an earlier movement in economics, Herb Simon won a Nobel for it in 1978.
• lynal 8y ago
  One shortcoming in economics is the inability to model cognitive costs. This is best visible in game theory - no model of cognitive costs has gained traction in the last few decades despite the desire for one. The closest that I recall is representing strategies with finite state machine and having a preference for strategies requiring fewer states. A main difficulty there is mapping strategies to FSA.
  • nerdponx 8y ago
    inability to model cognitive costs. Read: "unwilling to sacrifice theoretical purity in order to build actually realistic models"
  • hopler 8y ago
    Transaction costs and cost/benefit analysis of information are a thoroughly studied part of economics. I'm not even an econ major and it was covered in my college CS education
• SubiculumCode 8y ago
  This reminds me about the supposed irrationality of emotion. An old popular view pits rationality against emotion: The more rational you are, the less emotion rules decisions, the better. The fallacy I see in this is that a rational human would acknowledge her/his humanity, and judge in agreement with empirical evidence that systematically suppressing emotion leads to certain psychoses and emotional disorders that will, ultimately, make her/him less rational. That is, to be more rational, one must allow herself to be a little irrational once in a while. In agreement, the cognitive cost of being rational all the time is too high, and is, after all is done, irrational.
• edanm 8y ago
  > It's always bugged me when behavioral economists start going on about "irrational human behavior." Using your precious energy on too many system 2 calculations will not help you live a good life. So compromises are made. Thinking is hard work. It is entirely reasonable to minimize hard work. I think you're missing the value in finding that some things are irrational. Of course no one assumes people make perfect decisions 100% of the time, and of course there are cases where making the better decisions isn't worth it - but it's incredibly useful to know in which cases people usually make "wrong" decisions, in order to, when necessary, find antidotes. Wrong is a synonym for irrational here, and is a placeholder for "contrary to what the person would have chosen to do, had they had all the information". Take the "planning fallacy" - a pretty well known bias in which people underestimate how long things projects will take. Knowing that it exists is what leads people who want to get the correct answer to use "tricks" to get a more real answer (like taking the so-called "outside view", and estimating how long a project will take based on how long similar projects took in the past).
  • a1369209993 8y ago
    > Of course no one assumes people make perfect decisions 100% of the time Actually, a lot of economists assume exactly that, call it "revealed preference"[0] and then claim that people are lying when they complain about it. 0: https://en.wikipedia.org/wiki/Revealed_preference https://en.wikipedia.org/wiki/Revealed_preference
    • edanm 8y ago
      That's something a bit different and doesn't mean that. A revealed preference means that, if you say you never eat donuts, but when observing your behavior we see you buying and eating donuts, then we know that you actually do eat donuts. A bias, on the other hand, is if we ask sometime if you want to eat 2 or 3 donuts, and you answer 2, but then after further studies, we see that the amount you eat depends on, say, the size of the plate in front of you, then we know that there's something influencing your decision which you may not be aware of and which theoretically speaking "shouldn't" influence your decision. Revealed preferences don't mean that everyone makes perfect decisions all the time. It just means that, if you want to find out what people actually want, then the best way to do it is to observe what they actually do.
• agent008t 8y ago
  Behavioral economists recognize two kinds of biases: cognitive and emotional. Cognitive are the kinds of biases you refer to - when someone makes a suboptimal decision because of failing to do proper research, properly take on new information, etc. But then there are emotional biases, for example the loss aversion bias. Investors tend to hold on to their losing investments to avoid realizing a loss and sell their winning investments to lock in a profit. This is irrational - investors achieve subpar returns because of this - and often cannot be resolved with education. Accounting for cognitive or longterm costs - using the concept of bounded rationality - would not make emotional biases disappear or make them invalid.
• MarkMc 8y ago
  Carried to extreme this could lead a behavioral economist to report, "the subject made the perfectly rational decision not to peform any mental effort, and so was eaten by a shark". You say, "Many times they are simply not accounting for cognitive or longterm costs." How do distinguish those times from the other times when a person is being rational?
• pdpi 8y ago
  It's a global vs local thing. The capacity to make rational decisions is a limited resource, so making locally slightly irrational decisions is, globally, the rational strategy. There's a number of predictable ways we make locally irrational decisions, though, and there's a lot of value to be extracted from studying those.
• mcguire 8y ago
  This is one of my major criticisms of *Thinking, Fast and Slow." It assumes irrationality rather than that "rationality" is nuanced.
• Lucadg 8y ago
  Which makes a case for outsourcing these calculations to machines. I wonder if when we'll be able to do that through better human-machine interfaces we will become more rational decision makers.