03 January 2011

Defining Irrationality

Having read and reviewed The Upside of Irrationality, it has become obvious that there is quite a controversy over whether human beings are actually rational.  Unfortunately, debate on this issue is virtually impossible, since both sides’ arguments are inherently tautological.

Those who argue that humans are inherently rational, usually base their argument on the premise that one’s actions belie one’s desires.  In this case, rationality would be demonstrated when one sets out to acquire his desires in the most efficient way he knows how.  A farmer, for example, will generally make use of the most cost-effective technology.  He will use a tractor instead of, say, a rototiller or a plow.  In this sense, it is obvious that his actions are rational.  In the same vein, everyone’s actions are also rational, in that no one would use methods they believe to be less efficient than known plausible alternatives, generally speaking.  Of course, by “known plausible alternatives” it is meant that someone has a more efficient method readily available at their disposal, and, in this example, they would willingly forego its use in favor of whatever less efficient method they have to attain their ends.

In contrast, irrationality is often defined as pursuing suboptimal outcomes.  In general, it is assumed that a variety of economic goals are “good,” although the sense in which this word is used is rarely clarified.  A retirement account, for example, is often considered a noble economic goal.  One who doesn’t pursue this goal, then, would be considered irrational.  However, there are others who would define irrationality more strictly, as a failure to meet self-state goals.  Under this definition, one would only be considered irrational if, say, he stated a desire to lose weight than went out and ate fast food every day.

As should be remembered, both definitions are inherently tautological.  Each has its own merits, of course, but both definitions are in no way comparable to the other, since neither focuses on the same thing.  Rationality focuses on the methods; irrationality focuses on the goal.  Ultimately, those who argue that people are rational must assume that actions indicate true desire1; those who argue that people are irrational must assume that words indicate true desire.

In understanding this debate, it is also necessary to understand that humans are finite beings.  Even if humans are perfectly rational, it does not stand to reason that their actions will be perfectly efficient.  This fact has a tendency to muddle the debate, for inefficiency may be cited as proof for irrationality.  Of course, one may be perfectly rational in his pursuit of a goal, but may lack all the tools necessary to make attainment of said goal as efficient as it could be.  In this case, lack of resources, and not irrationality, is the cause of an inefficient outcome.  It is certainly possible that irrationality may lead to an inefficient outcome.  However, an inefficient outcome, in and of itself, is not proof of irrationality.

One of the most important constraints of human behavior is that of time.  All human beings have a limited amount of time in their lives.  While a prolonged consideration of cost-benefit ratios may lead to a more optimal outcome, it does not follow that said prolonged consideration is actually profitable.  If one is, say, shopping in the supermarket for potato chips, and there are two brands for sale (one on sale at two 13.1-ounce packages for $5.00; the other a $4.89, 12.7-ounce bag for sale at buy one, get one free), is it really reasonable to say that saving a couple of pennies is worth the time it would take to figure out which one is the better deal?

This, by the way, is the fly in the ointment of those who argue that humans are irrational.  Is avoiding taking a couple of minutes to save a few pennies really that great of an example of irrationality?  Is not time also a commodity?  Indeed, one of the biggest flaws in this method of analysis is that it fails to account for non-price variables, which are often as important, if not more so, than priced variables.

To be sure, proponents of inherent rationality have their own problems as well.  For instance, why do humans do stupid things?  Some suggest ignorance; others suggest that they have alternative methods of prioritization.  Each seems plausible in its own right, especially since this method accounts for non-price variables.  However, it does beg the question:  are price variables really that unimportant?

Unfortunately, it is extremely unlikely that there will ever be a satisfactory answer to the question of human rationality (or lack thereof).  The alternative arguments are self-proving, and neither does a particularly good job of predicting human behavior.  As many will attest to, expecting other people to behave rationally is often an exercise in futility.2  However, to borrow a phrase, each irrational person is irrational in his own way.  It would be nice, though, if we could get this question sorted out once and for all.

Notes:

1 This method, by the way, would appear to be the biblical method, for it is by one’s actions that you can determine one’s motivations (Matt. 7:16, etc.)

2 Of course, each person has a different idea on the most rational course of action, so what an investor is waiting on isn’t really rational behavior at all, but rather agreement.  Really, this expectation speaks to the egotism of the person expecting certain behavior from others.

No comments:

Post a Comment