Rational Fools and Foolish Rationalists

by Spencer Slagowitz || October 23rd, 2017

There is this hilarious critique by Amartya Sen of neoclassical economics which pokes fun at the assumption that individuals are rational and that they have stable, known, and reasonable preferences. It comes in the form of a joke: an economist comes across a man trying to cut off his fingers with a pair of scissors. What does the economist do? Naturally, he offers the man a pair of sharper scissors.

The example is supposed to illustrate a readily evident folly of economics, one which Sen, to his credit, has explored in great depth. Obviously, our gut reaction is to stop the man from cutting off his fingers. Obviously, It seems, cutting off his fingers will bring him only misery, and the man is mistaken to believe or act otherwise. The takeaway is that economics needs to contend with the fact that is painfully clear in our daily lives—that we are not perfectly rational or egoistic individuals. They treat consumer preferences as known and stable, they presume individual preferences reflect known utility-functions and accurate estimates of predicted well-being.

We are profoundly foolish, we don’t know what we want or what will make us happy (indeed, a good portion of our lives is arguably an attempt to figure that out by trial and error), and even if we did know what constitutes our well-being, we sure as hell don’t know how to get there. The assumption of rational egoism at the heart of classical and neoclassic economics and other “neo-utilitarian/rational choice” approaches (to quote John Ruggie) to social science is misleading. This critique of the much-maligned Economic Man (often stylized as Homo Economics) is as old as the discipline it targets.

Our preferences and behavior are shaped by socialization and social embeddedness, instrumental adherence to social norms, our sense of identity (which is itself a product of socialization but could be bracketed off as a separate phenomenon), intergenerationally inherited values and culture, the peculiarities of our psychology, a lack of information in the case of “bounded rationality” and so on and so forth.

I. Ideal Types and the Pragmatic Defense of Egoistic Rationality

The response to this charge by modern positive economics is just as clichéd. Obviously, no one thinks about the world in the way that economists imagine. But the assumption of egoistic rationalism is necessary on pragmatic grounds—as Paul Krugman puts it, “abstraction, strategic simplification, is the only way we can impose some intellectual order on the complexity of economic life. And the assumption of rational behavior has been a particularly fruitful simplification.”

This argument was Milton Friedman’s central insight in his famous 1966 treatise, The Methodology of Positive Economics. Friedman goes as far as saying that, “Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense) [emphasis added].”

Friedman’s defense of the theoretical rational actor is strikingly similar to Max Weber’s justification for the use of “ideal types”—such as his three models of authority— to understand politics. In Weber’s schema, ideal types are “not a description of reality but [aim’ to give an unambiguous means of expression to such a description . . . An ideal type is formed by the one-sided accentuation of one or more points of view and by the synthesis of a great many diffuse, discrete, more or less present and occasionally absent concrete individual phenomena, which are arranged according to those one-sidedly emphasized viewpoints into a unified analytical construct.” In this way, we can see Friedman as positing homo economicus as an ideal type, a lens to understand the world.

Yet, while a convincing defense of the methodology of positive approaches, ‘the Economic Man” qua ideal type sheds little light on the application of the same assumptions to normative approaches and economic policymaking. In assessing whether to give Sen’s wannabe amputee a sharper pair of scissors, being able to predict the man’s behavior does not tell us whether we ought to intervene or whether his underlying preferences are justified.

II. Bioethics and Amputation

Surprisingly, Bioethics, a discipline far removed from traditional economics, has a lot to say about the analogy chosen by Amartya Sen. In particular, the fact that Sen takes it for granted that the desire to cut off one’s fingers is irrational, that the imagined individual’s amputation will not bring him well-being.

This brings us to Body Integrity Identity Disorder. Body Integrity Identity Disorder denotes a phenomenon wherein individuals experience a mismatch between their physical body and the subjective experience of their own body. Unlike other forms of asomatognosia and similar conditions in which there is a discrepancy between a person’s body and body image, those with BIID do not deny the existence or ownership of the limb in question; the alienation they experience appears somatic in nature. Consequently, individuals with BIID have pursued amputation as way to resolve the tension between physical embodiment and subjective perception.

An important point is that it is not that they hold the false belief that their limb is not theirs (as is seen in the case of somatoparaphrenia or certain cases of depersonalization) but that they vividly experience a sense of disconnect. This contrasts with disorders like Anorexia Nervosa in which there is a discrepancy between body image and physical embodiment but the anorexic is not aware of It. Tim Bayne and Neil Levy in their article on this topic “Amputees by Choice” make a distinction between the somatic/phenomenal component (what we feel and experience) and the doxastic (what we think and how we reason) component of body image, explaining that BIID keeps the latter component of their self-image intact. That is, in the case of BIID, patients recognize that this desire for amputation is “fundamentally irrational”, that there is no basis in reason for this belief. Nevertheless the recognition that BIID defies rational explanation does not alter the reality of what they experience. Moreover. while the sample size is small, an overwhelming majority those that go through with the amputation report substantially improved levels of well-being.

This problematizes Sen’s account, because presents a plausible case in which the man on the street trying to cut his arm off is actually pursuing his conception of the good. In fact, it is not “readily obvious” or self-evident that amputation of a limb will lead to decreased well-being, that it is a wrong path on the pursuit of happiness. A further critique of Sen’s assumptions can be found in the hedonistic adaptability literature, which shows that (and this is a slightly reductive account) that lottery winners a few months after winning were just as happy as paralyzed accident victims after a similar time since their accident.

This need not present a conundrum for the ideational critique of rational assumption in economics. Both can be correct. Rational conceptions of the good diverge and differ radically in society. We do not necessarily know what is good for other people. There is substantial statistical convergence with respect to major sources of well-being that largely emerge out of a shared biology and genetics, but that does not mean that there is an objective and absolute conception of the good life that we can appeal to in all cases. Or that there is a universal roadmap can be used to guide other individuals towards genuine well-being. Yet, at the same time it is clear that humans are foolish, that much of our behavior and beliefs are beautifully irrational, shaped by external and internal forces well out of our immediate control.

The paternalistic account of well-being isn’t correct but neither is the classical liberal one. Indeed, these two perspectives can be understood well as “ideal types.”—providing contrasting lenses that we can use to understand “reality”, but not capturing the entire picture on their own.

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