Should We Assume Rationality?

Should We Assume Rationality?

The world is a complex place and people have to make a lot of decisions within that complexity. Whether we are deliberate about it or not, we create and manage systems and structures for navigating the complexity and framing the decisions we make. However, each of us operate from different perspectives. We make decisions that seem reasonable and rational from our individual point of view, but from the outside may seem irrational. The question is, should we assume rationality in ourselves and others? Should we think that we and other people are behaving irrationally when our choices seem to go against our own interests or should we assume that people have a good reason to do what they do?

 

This is a current debate and challenge in the world of economics and has been a long standing and historical debate in the world of politics. In his book Thinking Fast and Slow, Daniel Kahneman seems to take the stance that people are acting rationally, at least from their own point of view. He writes, “when we observe people acting in ways that seem odd, we should first examine the possibility that they have a good reason to do what they do.”

 

Rational decision-making involves understanding a lot of risk. It involves processing lots of data points, having full knowledge of our choices and the potential outcomes we might face, as well as thinking through the short and long-term consequences of our actions. Kahneman might argue, it would seem after reading his book, that truly rational thinking is beyond what our brains are ordinarily capable of managing. But to him, this doesn’t mean that people cannot still make rational choices and do what is in their best interests. When we see behaviors that seem odd, it is possible that the choices other people have made are still rational, but just require a different perspective.

 

The way people get to rationality, Thinking Fast and Slow suggests, is through heuristics that create shortcuts to decision-making and eliminate data that is more or less just noise. Markets can be thought of as heuristics in this way, allowing people to aggregate decisions and make choices with an invisible hand directing them toward rationality. So when we see people who seem to be acting obviously irrationally or opposed to their self-interest, we should ask whether they are making choices within an entirely different marketplace. What seems like odd behavior from the outside might be savvy signaling to a group we are not part of, might be a short term indulgence that will stand out to the remembering self in the long run, and might make sense if we can change the perspective through which we judge another person.

 

Kahneman shows that we can predict biases and patterns of thought in ourselves and others, but still, we don’t know exactly what heuristics and thinking structures are involved in other people’s decision-making. A charitable way to look at people is to assume their decisions are rational from where they stand and in line with the goals they hold, even if the choices they make do not appear to be rational to us from the outside.

 

Personally, I am on the side that doubts human rationality. While it is useful, empathetic, and humanizing to assume rationality, I think it can be a mistake, especially if we go too far in accepting the perspective of others as justification for their acts. I think that there are simply too many variables and too much information for us to truly make rational decisions or to fully understand the choices of others. My thinking is influenced by Kevin Simler and Robin Hanson who argue in The Elephant in the Brain, that we act on pure self-interest to a greater extent than we would ever admit, and we hide our self-interested behaviors and decisions from everyone, including ourselves.

 

At the same time, I do believe that we can set up systems, structures, and institutions that can help us make more rational decisions. Sunstein and Thaler, in Nudge, clearly show that markets can work and that people can be rational, but often need proper incentives and easy choice structures that encourage to encourage better choices. Gigerenzer in Risk Savvy ends up at a similar place, showing that we can get ahead of the brain’s heuristics and biases to produce rational thought. Creating the right frames, offering the right visual aids, and helping the brain focus on the relevant information can lead to rational thought, but nevertheless, as Kahneman shows, our thinking can still be hijacked and derailed, leading to choices that feel rational from the inside, but appear to violate what would be in our best interest when our decisions are stacked and combined over time. Ultimately, the greatest power in assuming rationality in others is that it helps us understand multiple perspectives, and might help us understand what nudges might help people change their behaviors and decisions to be more rational.
Detecting Rules

Detecting Rules

Our brains are built to think causally and look for patterns. We benefit when we can recognize that some foods make us feel sick, when certain types of clouds mean rain is on the way, or when our spouse gives us a certain look that means they are getting frustrated with something. Being able to identify patterns helps us survive and form better social groups, but it can also lead to problems. Sometimes we detect patterns and rules when there aren’t any, and we can adopt strange superstitions, traditions, or behaviors that don’t help us and might have a cost.

 

Daniel Kahneman demonstrates this in his book Thinking Fast and Slow by showing a series of letters and asking us to think about which series of letters would be more likely in a random draw situation. If we had a bag of letter tiles for each letter of the English alphabet, and we selected tiles at random, we wouldn’t expect to get a word we recognized. However, sometimes through random chance we do get a complete word. If you played thousands of Scrabble games, eventually you might draw 7 tiles that make a complete word on your first turn. The reality is that drawing the letters MGPOVIT is just as statistically likely as drawing the letters MORNING.

 

For our brains, however, seeing a full word feels less likely than a jumble of letters. As Kahneman explains, “We do not expect to see regularity produced by a random process, and when we detect what appears to be a rule, we quickly reject the idea that the process is truly random.”

 

We can go out of our way trying to prove that something is behaving according to rule when it is truly random. We can be sure that a pattern is taking place, even when there is no pattern occurring. This happens in basketball with the Hot Hand phenomenon and in science when researchers search for a significant finding that doesn’t really exist in the data from an experiment. Most of the time, this doesn’t cause a big problem for us. Its not really a big deal if you believe that you need to eat Pringles for your favorite sports team to win a playoff game. It only adds a small cost if you tackle some aspect of a house project in an inefficient way, because you are sure you have better luck when you do your long approach versus a more direct approach to handling the task.

 

However, once we start to see patterns that don’t exist in social life with other people, there can be serious consequences. The United States saw this with marijuana in the early days of marijuana prohibition as prejudice and racial fear overwhelmed the public through inaccurate stories of marijuana dangers. Ancient people who sacrificed humans to bring about rain were fooled by false pattern recognition. We see our brains looking for rules when we examine how every act of our president influences political polls for the upcoming election. Our powerful pattern and rule detecting brains can help us in a lot of ways, but they can also waste our time, make us look foolish, and have huge externalities for society.