Rationality Theory And Phrenology

 I'm always wondering in what ways the people of the future will look back at us and wonder WTF we are thinking. What will be the phrenology of our time?

There are of course many possibilities. But lately on my mind is the bizarre pretence we seem to have that we've got a solid handle on human motivation, behavior, and rationality. Hearing people talk, you'd think we've got such a good grasp of this stuff that it's meaningful to go around using theories and data to analyze what people do, and why, and what they ought to be doing instead.

Because really: when it comes to why people do what they do, we are wandering around in an epistemological desert. You'd never know that, though, from the way people go on about stuff.  The way people approach some numbers about some stuff people did, you'd think they were analyzing the latest numbers from the Large Hadron Collider.

For example, how often in the last year have you read something that used data to claim that people are really "irrational" in certain systematic ways, or that to make "rational" economic decisions they ought to be doing such-and-so, or that the presence of certain distractions -- such as really sexy underdressed women -- causes people to behave irrationally?

Don't you find these "findings" are often pronounced in the comfortable and confident tone of a man who knows he's wearing the right suit? But if you even just scratch the surface, you start to wonder what the hell they are talking about.

The standard science-y theory of rationality they're typically referencing is something like rational choice theory, where "rational" just means taking taking the least costly approach to getting what you want -- that is, the rational person maximizes their preference satisfaction at the least cost of doing things they don't want to do.

Sounds good -- and sure, maybe it's internally coherent. But here's the thing. If you're trying to think about when people might succeed or fail at being rational, you run right into a brick wall. This is because if you don't know what a person preferred, you don't know whether they behaved rationally in getting it. And -- unless they're your intimate friend or your patient in psychotherapy, how do you know what a person preferred?

It's like we've mentioned before. If a person does a surprising thing, you can never know whether they acted irrationally in satisfying a set of unsurprising preferences or whether they acted rationally in satisfying a set of surprising preferences.


And as we've discussed here before as well, even when it comes to money preferences aren't obvious. I prefer a fixed-rate mortgage even if it results in somewhat larger payments overall, because I care about the peace of mind, straightforward planning, and other things associated with fixed rates more than I care about the financial loss. I've been accused by an financial industry insider of being irrationally risk-averse, on the grounds that my decision will result in paying more money overall.

Now: suppose all you knew about me was that I had turned down a variable-rate mortgage in favor of a more expensive fixed-rate one. What could you say about the rationality of my choice?

Nothing. You can't say anything. All you can say is that if I had one set of preferences, I acted rationally and if I didn't, I didn't.

But this applies across the board. From the fact that someone does something -- even a pattern of things -- you can't really infer anything. Oh, a person wanted lobster, but then on seeing live lobsters changed their mind? You think that's irrational? As Richard Posner says, "an alternative interpretation is that this person simply has different preferences for two different goods: One is a lobster seen only after being cooked, and the other is a lobster seen before, in his living state, as well as after." Voilà! Rationality.

If there's no way to judge from the outside whether a decision is rational or irrational, then what are all these people doing with their pronouncements?

The most likely possibility, to my mind, is that they are projecting onto the subjects the kinds of preferences they themselves would have, and then going on from there. For example, the financial industry insider who called me irrational was going on a simple assumption: that people prefer to have more money rather than less, and don't have other preferences conflicting with this. It's a nice sounding assumption. It just happens to be totally and obviously false.

If this idea about projection is at all on the right track, then the whole thing starts to seem deeply creepy -- because the people pronouncing on rationality are so often of a certain type -- comfortable suburban upbringing, ivy-type education, lots of time being a guy and hanging out with guys. It's not news that the rest of us might have preferences that are radically different from theirs.

As I understand it, back in the day it was common in social science to just go with a "rationality assumption" -- assume people are rational and make inferences about other things, like preferences, from there. That does, indeed, avoid the difficulty we've been talking about, since you never have to determine whether someone's been rational -- the answer is always Yes.

I don't know too much about the intellectual history of this topic, but I believe there was a move away from this approach because it seemed so implausible as a description of people and the rationality assumption risked being used as a non-falsifiable -- and thus non-scientific -- tautology.

Those are good reasons, as far as they go, but at some point we'll have to grapple with the fact that once you move away from the rationality assumption, you bump right into a pretty extreme kind of uncertainty. Because the truth is, big-picture-wise, we don't really know why people do what they do.