Misunderstanding rationality

(Featured image credit: Les Colporteurs CC0)

It is tempting to equate ‘rational’ with ‘right’, and ‘irrational’ with ‘wrong’, but that is mistaken

The lottery is sometimes called a tax on the stupid. The logic behind this opinion is that the expected net gain is negative. In a post entitled ‘The irrationality of Euromillions’, blogger Robert Sharp works out that buying a £2 ticket is only economically rational when the jackpot is £190 million or more. Yet I am pretty sure that the anonymous Belgian who pocketed £134 million on 2 June (the highest Euromillions win so far this year) will not be too concerned about whether the purchase of that ticket was irrational or not.

Another situation that is often wheeled out as an example of irrationality is fear of flying. The headline of an Independent article  from 2009, “Why fear of flying is just plane stupid”, is pretty blunt. And the facts seem to support it: the risk of dying in a car crash is 100 times higher than that of perishing in an air disaster.

Cognitive errors…

It is hard to estimate with any accuracy how many people choose alternative modes of travel out of fear, but the terrorist attacks of 9/11 led to a large-scale natural experiment that does shed some light. In the months following the events, there was a marked drop in the number of passengers across the USA, and an increase in the number of road traffic casualties. This is strong evidence for the thesis that some people swapped the car for the plane. The estimate of the number of ‘excess’ traffic deaths in the last three months of 2001 varies a bit – 344 (Blalock et al), 353 (Gigerenzer), and 1018 (Sivak and Flannagan) – but it over that period it is significantly higher than the 266 passengers and crew who were killed in the planes.

We often take decisions based on what we see as their possible direct consequence. The lottery ticket buyer has the fabulous prize in mind, the person avoiding air travel is guided by the horrible prospect of dying in an air disaster – irrespective of the likelihood of either event.

Rationalists would be quick to point out how this relies on two common apparent cognitive errors. The salience effect or saliency bias refers to situations where our actions are influenced by what is highly visible and prominent. This makes both the lottery player and the aviophobe overestimate the likelihood of the desired (or undesired) event. Outcome bias makes us evaluate the quality of a decision on the basis of its result. If you win the jackpot, you’re unlikely to say you made the wrong choice buying a ticket. You may even attribute your good fortune to the clever way you decided to choose your numbers. And if you never fly as a matter of course, whenever there’s a crash you will be relieved that could never happen to you.

…or not?

But does that mean these choices are truly irrational? Not really.

For just by looking at the choices we don’t know what reasoning is behind them. If a lottery player’s cost is negligible to them, and the thrill of the draw provides ample enjoyment in return, there is really nothing irrational about their behaviour. Likewise, if avoiding the sheer terror of sitting in a steel tube 30,000 feet up in the air is well worth the inconvenience (and added risk) of driving long distance, and of not being able to visit another continent, that is a perfectly rational course of action for someone with fear of flying.

planecrash

“You’ll never get me into a plane” (picture: David Eun CC0)

The normative evaluation of how we make decisions seems to have been strengthened by Daniel Kahneman’s popular book Thinking Fast and Slow , in which he describes a model of two modes of thinking. The Wikipedia entry tags System 1 as “emotional, stereotypic, and subconscious” (traits we associate with impulsive, poorly thought through decision-making). System 2 is “logical, calculating, and conscious” (characteristics of wise, reasoned and well-considered decision-making). These terms barely conceal the implication that the latter is superior to the former.

Yet we have survived and prospered for tens of thousands of years with both systems working in tandem, making mostly the right trade-off between the speed of one and the thoroughness of the other. That demolishes any suggestion of inherent superiority.

Rationality is a matter of preference

Acting rationally also does not imply any moral rectitude. The work of economist Gary Becker, crystallized in his essay Crime and Punishment: An Economic Approach, shows that it is perfectly possible to be rational and criminal at the same time. David Friedman, a law professor at the University of Santa Clara, summarizes it clearly in a chapter in The New Economics of Human Behaviour: “Criminals are rational. A mugger is a mugger for the same reason I am a professor – because that profession makes him better off, by his own standards, than any other alternative available to him.”

And the rationality in the behaviour of a mugger relieving a passer-by of the contents of his wallet is not different from the rationality of, for example, the Member of Parliament voting for an income tax increase on the well-heeled. Both extract resources from someone else to further their self-interest.

So if we are tempted to look down on someone because we believe they are acting irrationally, we really ought to pause for a moment, and consider not what they’re doing, but why they’re doing it. When we see someone buying a lottery ticket, and on that basis alone decide they’re not being rational, we’re arguably being influenced by outcome bias ourselves. Unless we really know people’s preferences, we cannot judge their rationality.

Whether what they’re doing is right… that is a matter of our preferences.

 

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About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Cognitive biases and fallacies, Economics and tagged , . Bookmark the permalink.

One Response to Misunderstanding rationality

  1. Robert says:

    Thanks for linking!

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