"On Behalf Of Steve Kurtz" wrote (quoting Nicholas D. Kristof):
SK:NDK> Third, threats get our attention when they are imminent, while
SK:NDK> our brain circuitry is often cavalier about the future. That's
SK:NDK> why we are so bad at saving for retirement. Economists tear
SK:NDK> their hair out at a puzzlingly irrational behavior called
SK:NDK> hyperbolic discounting: people's preference for money now
SK:NDK> rather than much larger payments later.
Not to mention the phenomenon described by Warren McCulloch as
"heterogeneity of preference" in which someone prefers A to B and B to
C but also prefers C to A.
SK:NDK> For example, in studies, most Americans prefer $50 now to $100
SK:NDK> in six months, even though that represents a 100 percent
SK:NDK> return.
As a rule, if you have a hundred grand or so lying around that you
want to invest, you're not going to find an investment vehicle that
will pay you 100% semiannually. But 50 bucks? If you're on the
downside of adequate food, clothing and shelter, $50 is a life saver
*right now*. On the upper side of the destitution divide, you can *do*
something with fifty bucks *right now* -- say, entertain a prospective
customer, lunch with a potential lover or buy a productive tool --
that offers a ROI far greater than $100 two seasons from now.
It's curious that Ed should mention Akerlof just now. I have a friend
who works for CIFAR. Consequently, I was browsing their web site and
spotted Akerlof's name just the day before Ed's post.
His ground-breaking "market in lemons" paper is relevant here. In his
paper, he suggests that the used car buyer, having far less information
about the quality -- ergo value -- of a car than the vendor and having
no reasonable way to rectify that imbalance, will attribute to the car
an *average* value. That is held out as "rational" behavior. But
AFAICS that's only "rational" in the sense that if a statistically
large number of people behaved so, then (given some assumptions such as
a non-pathological value distribution, inter alia) the *average* of
their evaluations would be approximately correct. That makes the
attribution of average value "rational" only in the context of buying
many used cars. Most people (those not in the automotive trade) may
make such decisions years apart, perhaps a dozen or so such occasions
in a lifetime.
Ed> About the only people who still see people as rational are (some)
Ed> economists. Akerlof's and Shiller's "Animal Spirits" deals with
Ed> irrationality in the market economy. I could only read about half
Ed> of it after concluding, many times, that they were telling us
Ed> things that most of us already knew.
In the real world, what we rather cavalierly call "intuition" is (at
best, anyhow) an application of one of our greatest innate cognitive
assets: pattern recognition. If we exercise rationality -- one of our
greatest *cultural* assets -- insofar as possible, in many or even
most situations, we run solidly into the wall of inadequate knowledge.
While it might be "rational" to develop and apply a Theory of Outcomes
Under Incomplete Information, most of us have neither the math skills
nor the data nor the time nor the inclination to do that. What we do,
if we're being rational in any practical sense is:
+ Think about it, and then
+ Punt
That is, apply all the rational (analytical, logical etc.) tools
available in a given context and then make an intuitive decision. [1]
The rational analysis (in the used car case) will include:
+ Starts easily
+ Runs without loud hammering or rattling noises
+ Steers responsively
+ Doesn't emit clouds of smoke
+ Brakes work
If we're more knowledgeable, it may include noting that the upholstery
isn't worn to a frazzle or that the brake pedal pad isn't worn down
[2], both signs of excessive wear.
But after all that, our intuition, our non-rational, subconscious
pattern recognition will take into account numerous other factors for
which there is no readily workable analytical computation: the
vendor's demeanor and language, the shine on his shoes, the kind of
coffee cups on his desk, location of the business, the state of other
cars on the lot or almost anything in the overall gestalt in which the
potential transaction will take place. And when we act, we act under
the influence of that intuition.
This is real rational behavior. I agree with Ed that we already knew
this. Since the era of Newton and Daniel Waterhouse, though, we
haven't been encouraged to think it.
This doesn't directly address the matter raised in Steve Kurtz'
original post of Kristof's op-ed piece:
SK:NDK> Evidence is accumulating that the human brain systematically
SK:NDK> misjudges certain kinds of risks. In effect, evolution has
SK:NDK> programmed us to be alert for snakes and enemies with clubs,
SK:NDK> but we aren't well prepared to respond to dangers that require
SK:NDK> forethought.
On an individual basis, some of us are more inclined to use forethought
and act accordingly, others less so and some of us are ready to seize
upon some single prognostication of risk and anticipate it
frenziedly. [3] All well and good, if I have food for a year in the
cellar, a first aid kit that includes surgical tools or my own
fire-truck in an outbuilding. But those instances of forethought that
involve heavy number-crunching of advanced, possibly arbitrary,
mathematical models on vast data sets -- climate, population carrying
capacity, atmospheric mechanisms, global energy projections, global
pollution -- are not merely *not scary serpents*, they're at or beyond
the limits of what even the experts can know with certainty. The best
that they may be able to say with certainty is that a precautionary
strategy is justified by the data or models.
What the experts know, if uncertainly, can't be communicated to us,
(the public) or even to Them (politicians and regulators) except as
bald-faced assertions (at best) or as propaganda supported by science
at such a popularized level that it's indistinguishable from
advertising and marketing crap. Alternative to communicating an
(apparent) threat to us, authorities can just compel us to do what
they say. Only then we'll all be saved or lost together (if we permit
it) on Some Guy's say so. Or The Guy will score real big because the
matter in play was, in fact, a scam to benefit him and his cronies.
It's an interesting and rather scary conundrum. Heterogeneity,
diversity, competing solutions to a given problem, local decision
making and so on have been, collectively, the great success strategy
of biology itself as well as of social development and advance. When
there's a truly global problem that requires (or at least appears to
require) a global strategy, it goes against the grain of all our best
successes and instincts and appears to justify a totalitarian
response.
FWIW,
- Mike
[1] I have a friend, an MIT engineering grad with an advanced degree
from the London School of Economics, who made a *rational*
decision about a new car in the late 70s. He studied
construction, engineering and performance specs, compared prices
between models and, for given models, between dealerships, and
then bought what turned out, over the next couple of years, to be
quite possibly the *worst possible* choice for his budget and
driving conditions. A little intuition about Nova Scotia winters
and topography might have saved him grief.
[2] Used car dealers know that savvy customers will look at the brake
pedal pad. If it's worn out, it will indicate many miles on the
car (possibly far in excess of the figure shown on the odometer
after the dealer has tweaked it) as well as excessive brake usage
by the former owner. So they replace the brake pad as a matter of
course. But they are also aware that the savvy customer will know
about this subterfuge, so they replace it with a *lightly used*
one from a scrapped vehicle. Knowing this, the presence on a used
car of anything but (a) a severely worn brake pedal pad or (b) a
brand new one, becomes a meaningless datum and irrelevant to
rational analysis.
[3] http://
dickdestiny.com/blog1/2009/07/04/gop-continues-to-grow-the-emp-crazy-vote/
--
Michael Spencer Nova Scotia, Canada .~.
/V\
[email protected] /( )\
http://home.tallships.ca/mspencer/ ^^-^^
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