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Irracionalidade Racional

05 Jun

Um excelente guia para tentar compreender porque pessoas tão brilhantes nos seus campos de especialidade têm por vezes posições tão irracionais em temas onde o custo de errarem é baixo ou inexistente.

Bryan Caplan, George Mason University (doc transfers automatically):

Rational Ignorance vs. Rational Irrationality

Bryan Caplan
Department of Economics
and Center for the Study of Public Choice
George Mason University
Fairfax, VA 22030
bcaplan@gmu.edu

February, 1999

JEL Classifications: D84, D72, D62

Keywords: rational ignorance, rational expectations, irrationality

Abstract:

Beliefs about politics and religion often have three puzzling properties: systematic bias, high certainty, and little informational basis.  The theory of rational ignorance (Downs 1957) explains only the low level of information.  The current paper presents a general model of “rational irrationality,” which explains all three stylized facts.  According to the theory of rational irrationality, being irrational – in the sense of deviating from rational expectations – is a good like any other; the lower the private cost, the more agents buy.  A peculiar feature of beliefs about politics, religion, etc. is that the private repercussions of error are virtually nonexistent, setting the private cost of irrationality at zero; it is therefore in these areas that irrational views are most apparent.  The consumption of irrationality can be optimal, but it will usually not be when the private and the social cost of irrationality differ – for example, in elections.

For discussion and useful suggestions I would like to thank Don Boudreaux, Tyler Cowen, Pete Boettke, Jim Schneider, Geoffrey Brennan, Bill Dougan, Bill Dickens, Mitch Mitchell, Ed Lopez, J.C. Bradbury, Todd Zywicki, David Bernstein, Corina Caplan, Robin Hanson, Dan Klein, Alex Tabarrok, Nicky Tynan, Timur Kuran, seminar participants at George Mason, participants at the Public Choice Outreach seminar, and members of my Armchair Economists’ listserv.  Gisele Silva provided excellent research assistance.  The standard disclaimer applies.

Brady: I do not think about things that… I do not think about!

Drummond: Do you ever think about things that you do think about?

Jerome Lawrence and Robert E. Lee, Inherit the Wind (1982, p.97)

1.  Introduction 

Scarcity of information increases the expected absolute magnitude of your mistakes, but does not bias your estimates or prompt you to treat noise as if it were knowledge.  An important implication is that even rational ignorance is perfectly consistent with rational expectations.  Voters’ minimal purchase of political information, for example, makes large mistakes likely, but not mistakes that are systematically biased in one direction.  (Wittman 1995, 1989; Coate and Morris 1995; Becker 1976a)  There is also no reason for a rationally ignorant individual to be dogmatic, conditioning his beliefs on logically irrelevant factors to reduce his subjective degree of uncertainty.  A rationally ignorant person knows his estimates are imprecise, acknowledging that it is likely that his uninformed opinion is wrong.

Downs (1957) first introduced the theory of rational ignorance to explain why voters know so little about seemingly important issues: when the expected benefits of information are small relative to the costs (as they almost always will be in an election), people buy little information.  Much of the subsequent economic analysis of politics builds on the assumption that these “Downsian” incentives foster rational ignorance. (Olson 1982, 1965; Magee, Brock, and Young 1989; Popkin 1991)   Religious believers’ low level of knowledge about their own (and other) religions could also be seen as instances of rational ignorance.  But what is puzzling about many people’s political and religious beliefs is that while they invest little effort in gathering information, they often hold them with certitude or near certitude.  Nearly two-thirds (64.4%) of respondents to the General Social Survey (1996) have “no doubts” about the existence of God, and more than two-thirds (68.4%) say that conflicts between faith and science have “never” caused them to doubt their faith.

Hoffer (1951) points out that political movements often call forth the same degree of certitude.

What compounds the puzzle is that many of these beliefs – political or religious – are systematically mistaken.  During the Middle Ages, people who overestimated the probability that witches exist were not balanced out by equal numbers who underestimated this probability.

Similarly, socialist revolutionaries have repeatedly expected forced collectivization to dramatically improve agricultural productivity, even though such experiments have been uniformly disastrous.  (Conquest 1985; Becker 1996)  To treat these as unexceptional instances of rational ignorance strains credulity.

What follows is an alternative model of “rational irrationality”, that explains why people hold low-information, high certitude, systematically biased beliefs.

In the model, agents trade off utility from beliefs against utility from states of affairs.  (Akerlof and Dickens 1982; Akerlof 1989)  If the most pleasant belief for an individual differs from the belief dictated by rational expectations, agents weigh the hedonic benefits of deviating from rational expectations against the expected costs of self-delusion.  Combining this model with the Downs/Olson insight that some kinds of errors are privately costless provides an intuitive framework for judging when and to what extent beliefs are likely to be “irrational.”

The next section argues that the concept of rational ignorance has been over-used: the incentives that foster non-committal ignorance could just as easily give rise to irrational conviction.  Section three presents the simple model of rational irrationality and discusses other economists’ treatment of irrationality.  Section four applies the model of rational irrationality to political opinion, religious belief, science and pseudo-science, and jury decisions.  Section five contrasts cases where private irrationality is optimal to situations where it produces socially inefficient results.  Section six concludes the paper.

2.  Rational Ignorance: A Critique

Even though Downs’ An Economic Theory of Democracy preceded Muth’s analysis of rational expectations, it carefully distinguished random error due to information costs from irrationality. (1957, p.9)  Subsequent analysis honed the distinction further: If an individual has rational expectations about x, then his beliefs about x are unbiased (his mean forecast error is zero) and his forecast errors are uncorrelated with available information; if an individual is ignorant about x then his expected absolute measurement error is large. (Sheffrin 1996; Pesaran 1987)  So long as agents process information in a rational way, biased information does not imply biased judgments; bad data will be discounted or filtered.  Even uninformed beliefs can be rational: Minimal information leads to large mean absolute measurement error, but not bias.

While these general principles are widely accepted, Wittman (1995, 1989) vigorously advances the claim that economists often mistakenly move from rational ignorance to systematic bias on an ad hoc basis.  Voters’ rational ignorance is a poor explanation for e.g. inefficient Congressional spending patterns: “[T]o be uninformed about the nature of pork-barrel projects in other congressional districts does not mean that voters tend to underestimate the effects of pork barrel – it is quite possible that the uninformed exaggerate both the extent and the negative consequences of pork-barrel projects.”

(1995, pp.15-16)  Even if politicians or special interests lie or “obsfucate” their intentions (Magee, Brock, and Young 1989), the worst this can do to rational voters in equilibrium is merely increase the variance, not the mean value, of their estimates of programs’ net benefits.

What this critique overlooks is the possibility that agents optimize over two cognitive margins: the quantity of information they acquire, and how rationally they process the information they do have. (Diagram 1) The quality of an agent’s estimate depend on both inputs: less information leads to greater variance, less rationality to greater bias.  As private error costs increase, agents both acquire more information, and process it more rationally.  When the private error costs are substantial, it is at least plausible to ignore the second margin and assume that agents are fully rational.  But in a Downsian environment where the private cost of error is zero, people have no more incentive to rationally process information than they do to acquire it.

This is critical because the theoretical justifications for rational expectations presume that irrationality has private costs.  The most common of these probably remains Muth’s: “[I]f expectations were not moderately rational there would be opportunities for economists [or anyone else who had rational expectations] to make profits in commodity speculation, running a firm, or selling the information to current owners.”

(1961, p.330)  Yet if the private benefit of information is negligible, then so too are the benefits that people with seriously biased judgments forego.  If it is not worth my time to gather information about politics or religion, then how severe could the consequences of bias be in the first place?  In other words, if it is cheap to have a large absolute measurement error, then it will also be cheap to have a systematic bias.  Similarly, if there is no private benefit of correct estimation, the arbitrage opportunities Muth alludes to do not exist.  Speculating on or selling superior knowledge only pays if there is some private benefit that more accurate people get the less accurate do not.

Another line of argument notes that models with learning often converge to rational expectations equilibria. (Pesaran 1987, pp.32-48; Cyert and DeGroot 1974)  But learning models fail when the private benefit of rationality is negligible: If there is no private return to correct estimation, then there is no incentive to exert effort to learn.  Imagine forcing students to take the same exam every day without recording their grades; they get feedback from each test, but have no incentive to use this feedback to enhance their performance.

To sum up:  Rational ignorance has been oversold in two ways.  First, as the previous literature notes (Wittman 1995, 1989; Coate and Morris 1995), the implications of rational ignorance have been misunderstood.  Rational ignorance cannot explain majority rule’s systematic bias toward inefficient policies like tariffs or pork-barrel spending.  But there is a second and more important point that the existing literature overlooks:  The key assumption underlying rational ignorance – minimal private benefit of information – negates the standard arguments for rational expectations.  Neither profit opportunities, arbitrage, nor learning weed out biased expectations when bias is cheap.  The very incentive structure that makes the variance of errors large is also a safe environment for irrational bias.

3.  Rational Irrationality

a.  Related Literature

A number of economists have admitted the existence of irrationality, but with one important exception (Akerlof and Dickens 1982), their treatments view irrationality as an exception to – rather than an application of – basic microeconomic theory.  Many of these claim that irrationality is particularly pronounced in politics, but again with one exception (Akerlof 1989), they do not have a theoretical explanation for this pattern.  Schumpeter for example hints that voters are irrational because they are thinking about issues outside “the sphere of their real interests” and lack the “responsibility that is induced by a direct relation to the favorable or unfavorable effects of a course of action.” (1976, pp.262, 259)  But rather than develop this insight, he groups it with a variety of other explanations for irrationality: crowd psychology, the abstractness of political issues, voters’ lack of specialized training, a short-run bias, the lack of a clear practical test of policy effectiveness. (Prisching 1995)

Voter rationality is the main theme of Becker’s work on the economics of politics (e.g. 1976a), but at times he turns unexpectedly Schumpeterian. He attributes government growth not to changes in voters’ perceived self-interest, but rather to their indoctrination by interest groups. (Becker 1985, p.345)  Or as “A Theory of Competition Among Pressure Groups for Political Influence” states:

I too claim to have presented a theory of rational political behavior, yet have hardly mentioned voting.  This neglect is not accidental because I believe that voter preferences are frequently not a crucial independent force in political behavior.  These “preferences” can be manipulated and created through the information and misinformation provided by interested pressure groups, who raise their political influence partly by changing the revealed “preferences” of enough voters and politicians. (Becker 1983, p.392)

Pressure groups use their wealth to put out “misinformation,” voters hear it, and proceed to on average move their beliefs closer to the beliefs the pressure group wants them to have.  How can this be a rational way for voters to form or update beliefs?  Becker does not say; neither does he indicate exactly how political beliefs differ from non-political beliefs.  It is not surprising then that little subsequent research builds upon this side of Becker’s thought.

The psychology and economics literature (Rabin 1998) also frequently argues that beliefs are irrational in some respect.  People misunderstand the law of large numbers, misinterpret evidence, and tend to misread new information as confirmation of their previous beliefs.  The psychological anomalies that appear in market-type settings have been studied most intensively; Quattrone and Tversky (1988) extend the approach to political beliefs, but do not argue that deviations from rationality are particularly likely to stand out in this realm.

Probably the first economic theory of irrationality appears in Akerlof and Dickens (1982).  In their formal model of cognitive dissonance, workers have rational expectations ex ante, and receive utility from two sources: the objective circumstances of their job (including safety), and their subjective beliefs about their personal safety.  They can freely choose their ex post beliefs about safety, but realize that overly sanguine estimates lead them to take foolish risks.  The key result is that while workers initially have rational expectations about the underlying trade-offs, they choose some degree of self-delusion.

Akerlof and Dickens mainly apply their model to standard market behavior, such as optimal safety decisions; they do not use it to analyze voting – except to argue that the presence of cognitive dissonance in markets helps explain why citizens vote for government policies to counter-act it. (Akerlof and Dickens 1984, pp.141, 143)  However, Akerlof (1989) extends the analysis to political belief, combining choice over beliefs with the Downsian incentives.  The current paper develops Akerlof’s point both extensively and intensively:  Extensively, systematic divergence between beliefs and reality is unusually pronounced in every walk of life where the private costs of error are negligible; intensively, excessive certainty is likely to accompany systematic bias.

b. Rationality Irrationality: A Simple Model

Suppose that an individual has well-defined preferences over states of affairs and beliefs about the world.  These preferences can be represented with indifference curves. (Diagram 2)  The agent’s wealth appears on the x-axis; the quantity of “irrationality” (deviation of the agent’s expectations from rational expectations) appears on the y-axis.  An agent who consumes zero y has rational expectations.  (After some point, y*, the slope of the indifference curve turns positive: agents deviate from rational expectations because they have a specific alternate belief that they like to think is true, not because they want to be as far from the truth as possible).  A conventional agent without belief preferences would have a set of vertical indifference curves.  In contrast, the indifference curves of an agent with belief preferences are negatively sloped until the agent reaches his belief “bliss point” y*, and positively sloped thereafter.

The agent’s budget line indicates the feasible set of wealth/irrationality bundles. (Diagram 3)  The slope of the price line shows how much material wealth one sacrifices as a result of holding irrational beliefs.

Overestimating your ability to work while intoxicated exposes you to the risk of firing or lawsuits, and underestimating the efficacy of modern medicine compared to faith-healing forces you to forego potentially life-saving medical treatments.  The critical assumption of the model – the assumption which makes this a theory of rational irrationality rather than “irrational irrationality” – is that the agent perceives this budget line without bias.  On some level, the agent does form rational estimates of the attendant consequences of self-deception.  The agent then selects the wealth/irrationality bundle on the highest feasible indifference curve.  Material wealth is greatest when the agent has rational expectations (where the budget line crosses the x-axis), but agents with a taste for irrationality are likely to trade off some material wealth in exchange for more satisfying beliefs.

A key feature of beliefs is that some have practical consequences for the individual adherent, while others do not.  The belief that protectionism is a wealth-enhancing national policy does not prevent the individual adherent from enjoying the benefits of international trade.  In contrast, holding that household self-sufficiency is the path to prosperity has large private costs.  One’s belief about the relative merits of evolution and creationism is unlikely to make a difference to one’s career outside of the life sciences, but maintaining that faith-healing is more effective than modern medical science may be deadly.

This contrast is illustrated in Diagram 4.  When beliefs have practical consequences, there is a standard negatively-sloped budget line; the flatter the slope, the more costly irrationality becomes and the less irrationality the agent selects.  In contrast, when there are no practical consequences associated with a belief, the budget line is vertical.  In this case, the agent always chooses his “bliss” belief y*, no matter how far away from rationality it lies.

The theory of rational irrationality, like the theory of rational ignorance, predicts that when private error costs are zero, agents will gather little information.  But unlike the rationally ignorant, the rationally irrational nevertheless form definite conclusions.  They know what they want the truth to be, and if error is cheap, they choose their “bliss” belief even if they have little information to go on.  When private error costs are zero, conclusions that are at the same time baseless and unreasonable should be expected.

The puzzle this model aims to explain is low information, systematically biased, excessively certain beliefs.  It might seem that this model can only explain the first two properties, providing no insight into excessive certainty.  But let an agent’s estimate of the accuracy of his estimates be another belief that the agent chooses over.  Then along this dimension as well, an agent can trade off wealth for irrationality.  As the price of overestimating the accuracy of one’s estimates falls, certainty becomes a psychological good even the uninformed can afford.  It seems likely that systematic bias about a belief and systematic bias about the belief’s certitude are complements: there is not much utility in affirming unreasonable views with a healthy dose of skepticism.  As John Locke puts it, “[T]hese, of all men, hold their opinions with the greatest stiffness; those being generally the most fierce and firm in their tenets, who have least examined them.” (1951, p.371)

Wittman points out that “If voter misinformation were an important reason for poor policy choices, then we should be able to observe more informed voters making better policy choices.” (1989, p.1401)  But in fact, more educated voters seem as likely to support e.g. “pork-barrel” spending as anyone else, even when they do not directly benefit.  Stark, Iannaccone, and Finke (1996) and Iannaccone (1998) make a similar point about the rationality of religious belief: Religiosity has not decreased as education levels have risen, and for the most part religious participation and education are positively, not negatively correlated.  If all mistakes were the result of ignorance, one would expect intelligence and education to make errors smaller and less likely.  But if mistakes are the result of tastes for irrational beliefs, the connection between intelligence, education, and error is less clear-cut.  The cognitive elite may get passionately attached to beliefs about topics that most people never even think about.  Even the “experts” may be highly informed about nothing other than their profession’s shared illusions if employment and pay bear little relation to the correctness of the expert’s opinions.  As Orwell (1968) smartly put it, “One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool.”

My model differs from the one presented in Akerlof and Dickens (1982) in two important respects: one formal, one informal.  The main formal difference is that mine does not assume that beliefs are fixed after their initial selection.  Rather, in my model the belief one chooses is just as sensitive to relative price changes as any other good; when a belief suddenly becomes more costly to hold, people often recant.  As Gaetano Mosca pointedly observes:

Mohammed, for instance, promises paradise to all who fall in a holy war.  Now if every believer were to guide his conduct by that assurance in the Koran, every time a Mohammedan army found itself faced by unbelievers it ought either to conquer or to fall to the last man. It cannot be denied that a certain number of individuals do live up to the letter of the Prophet’s word, but as between defeat and death followed by eternal bliss, the majority of Mohammedans normally elect defeat. (1939, p.181-2)

It is difficult to think that the warriors were faking their devotion to Islam all along, yet standard rational expectations models of belief formation are unable to explain such sudden changes of opinion. By imposing the assumption of belief fixity, Akerlof and Dickens artificially hobble their model’s ability to generate the explanation: Beliefs respond to relative price changes just like any other good.  On some level, adherents remain aware of what price they have to pay for their beliefs.  Under normal circumstances, the belief that death in holy war carries large rewards is harmless, so people readily accept the doctrine.  But in extremis, as the tide of battle turns against them, the price of retaining this improbable belief suddenly becomes enormous.  Widespread apostacy is the result as long as the price stays high; believers flee the battlefield in disregard of the incentive structure they recently affirmed.

But when the danger passes, the members of the routed army can and barring a shift in preferences will return to their original belief.  They face no temptation to convert to a new religion or flirt with atheism.

One might be inclined to interpret Mosca’s example as simple hypocrisy by actors caught in a prisoners’ dilemma: the warriors believe they ought to stand firm, but in their own self-interest they flee.  But the point is that if their initial beliefs were true, it would be maximally in their interest to die fighting and win eternal bliss; the soldier who keeps his original belief and perishes pursues his perceived self-interest no less than the compatriot who changes his original belief and flees.  What the dire circumstances shock is rather the perception itself: when the price line flattens, adherence to unwarranted beliefs becomes a superfluous luxury.  The soldiers adjust their optimal wealth/irrationality bundles, which in turn realigns where they think their self-interest lies.

The main informal difference between the current model and Akerlof and Dickens (1982) and Akerlof (1989) is that I give no specific psychological, anthropological, or sociological interpretation to choice over beliefs.  Nor do I assume, as e.g. Kuran (1995) does, that choice over beliefs is necessarily a gradual process.  Rather I interpret choice over beliefs in the very general terms that Locke characterized as “enthusiasm”:

For the evidence that any proposition is true (except such as are self-evident) lying only in the proofs a man has of it, whatsoever degrees of assent he affords it beyond the degrees of that evidence, it is plain that all the surplusage of assurance is owing to some other affection, and not to the love of truth… (1951, p.429; emphasis added)

The “other affections” which give rise to the “surplusage of assurance” are nothing out of the ordinary: Locke mentions “conceit,” “laziness, ignorance, and vanity,” and “the tedious and not always successful labor of strict reasoning.”

Becker maintains that the ultimate arguments of stable utility functions should not be market goods and services, but rather “fundamental aspects of life, such as health, prestige, sensual pleasure, benevolence, or envy…” (1976b, p.5)  He elsewhere suggests “envy, prestige, physical and psychological health, ‘circumspectness,’ and so on…” and approvingly cites Bentham’s list of fifteen “simple pleasures” which includes “piety,” “imagination,” and “hope.” (1976c, pp.137, 147-8)  The motivations Locke explores fit comfortably into this Beckerian framework: Consumption of irrational beliefs can be seen as one common technology for producing self-esteem, prestige, piety, and/or hope.  The “economic approach to human behavior” need not discount evidence from specific psychological, anthropological, or sociological theories (Akerlof 1989), but it can generate choice over beliefs without appealing to them.

c.  Is Irrationality an Illusion? 

Four disparate lines of research maintain that the irrationality of political and/or religious beliefs may be merely apparent.  There is Kuran’s (1995) theory of preference falsification; Fremling and Lott’s (1996, 1989) analysis of the “bias toward zero in aggregate perceptions”; Brennan and Lomasky’s (1993, 1989) work on expressive voting; and Iannaccone’s (1992) model of religion as a club good.  All four have merit in some cases, but they fall short of a full explanation.

Kuran (1995) emphasizes the role of “preference falsification”: people often affirm beliefs not because they actually hold them, but because they find it safer to pledge allegiance to officially palatable views.  The more dangerous dissent becomes, the more likely one is to observe a unanimous chorus affirming a succession of absurdities. When uninformed people dogmatically uphold a systematically biased estimate, many are concealing their true beliefs – or their rational ignorance.

Kuran is a necessary corrective to analysts of totalitarian societies who take widespread, dogmatic support for the party line at face value.  (Arendt 1973; Hoffer 1951)  Pushing Kuran’s analysis to its extreme limits (though he does not), it could be argued that all apparent irrationality amounts to preference falsification.  But if no one actually believes the official opinion, it is difficult to see why people promulgate it or sanction critics.

Kuran’s work and mine can however be viewed as broadly complementary:  He explains how a minority of adherents can pressure others into pretending to share their view, while my model shows why there are any irrational adherents to begin with.  Kuran’s discussion of how preference falsification sometimes leads to sincere adherence is also consistent with my approach, and helps explain why large numbers of people share the same irrational views.

Fremling and Lott (1996, 1989) offer a different analysis of putatively irrational belief.  Since the number of possible ways the economy works is enormous, they argue, people implicitly estimate only a handful of the economy’s possible econometric models to conserve mental resources.  Agents’ estimates are unbiased if their model is correct.  However, if they misspecify the model by omitting variables, that sets their implicit coefficient estimate for that variable to zero.  At the aggregate level, then, if some people include a critical variable while others exclude it, the average perception will be biased towards zero.  For example, Fremling and Lott note that during the ‘70’s, polls showed that few people even considered the possibility that price controls were the cause of shortages.  Those aware of this hypothesis may have had unbiased estimates of the impact of price controls, but the aggregate estimate was attenuated in the direction of zero.  “The more costly it is to convince consumers of the long-term pernicious effect of controls, the less likely it is that they will understand these costs.  Thus, we are relying not on voter ‘stupidity’ or ‘irrationality,’ but solely on differential costs of information.” (Fremling and Lott 1989, p.295)

Fremling and Lott provide a plausible explanation for why some irrationality is only apparent, but its applicability is limited.  Consider their observation that most people blamed domestic oil companies or OPEC rather than price controls for gas shortages.  How would randomly selected members of the public have reacted if an economist suggested adding a price control variable to their specification?  Some people, pace Fremling and Lott, would say “I hadn’t thought of that,” estimate the new model without bias, and change their minds.  Others, however, would have probably responded with hostility rather than curiosity, in spite of their cursory study of economics.  They would show no interest in evidence for the opposing view, even if they were given information free of charge and compensated for their listening time.  It is the belief formation process of the latter group that my model explains.

A third explanation of apparent irrationality derives from Brennan and Lomasky’s (1993, 1989) theory of expressive voting.  Since a voter’s choice is almost never decisive, Brennan and Lomasky argue “expressive” not “instrumental” values determine how (not just whether) people vote.  Moreover, instrumental and expressive values are sometimes negatively correlated: peace may be a much better outcome than war, but national pride has more expressive value than compromise.  The political dominance of expressive values can lead to what Brennan and Lomasky call “the voters’ dilemma”: if everyone indulges their expressive tastes, ignoring the actual consequences of policies, then emotionally appealing but suboptimal policies will win out.

The theory of expressive voting challenges the collective rationality of democratic decision-making, and thereby indirectly affirms voters’ individual rationality.  A person can have rational expectations about the effects of different policies, but still vote for those with the most emotional appeal.  Still, how much expressive value can voting for counter-productive policies have?  In most cases, the expressive value of policies would fade if they were widely known to be ineffective: if people had rational expectations about the consequences of gas price controls, would it still be inspiring to vote for them?  In other words, instrumental beliefs frequently underlie expressive preferences.  If these instrumental beliefs were rational, then the collectively irrational effects of expressive voting would probably be mild.

A final piece of interest is Iannaccone (1992), which maintains that there is a rational choice explanation for religious behavior even though it superficially appears to be “based on subjective belief, forced indoctrination, and outright irrationality.” (1992, pp.271-272)  Iannaccone points out that religion is a club good with special free-rider problems: “[T]he aspects of religious participation that confer external benefits (commitment, effort, enthusiasm, etc.) are intrinsically difficult to monitor.  The willingness to pay money is a poor proxy for these qualities since the former is strongly correlated with income but the latter are not.” (1992, p.274)  Religions counter these special problems by discouraging or prohibiting consumption of secular substitutes.  For example, religions may forbid eating pork, require special clothing, or even insist that members live in an isolated commune.

Iannaccone provides a useful explanation for why “stigma, self-sacrifice, and bizarre behaviorial standards” need not imply irrationality.  Still, there is more to religions than adherents’ activities; there is also a set of beliefs that adherents are supposed to – and frequently do – sincerely embrace.

Sometimes these beliefs are, like creationism, highly improbable.   Yet despite limited exposure to the evidence, religious adherents tend to hold their doctrines with virtual certainty.  Iannaccone’s extension of his model to fraternal hazing, tribal disfigurement, and other “clubs” with no doctrinal component is revealing.  What the theory of rational irrationality adds to Iannaccone’s analysis is an explanation for dogmatic, systematically biased beliefs resting on little or no information.

4.  Rational Irrationality: Applications

This section offers examples where systematically biased beliefs are common and the private costs of error are low.  It separately examines political beliefs, religious beliefs, science and pseudo-science, and juries, argues that in these areas the private costs of error are usually negligible, and presents evidence that irrationality is inordinately pronounced in each of the four.

a.  Political Beliefs

Just as it is unlikely that one vote will change an election, it is improbable that one’s person’s political beliefs will change society.  For most individuals the private cost of choosing one political ideology over another is about zero.

These political ideologies have two components: normative rankings over states of the world, and positive descriptions of how the world works.

While science cannot resolve disputes about normative rankings, it can provide a benchmark against which to judge the rationality of descriptive political views.

Probably the clearest examples of irrational political beliefs may be found in totalitarian movements such as Communism and Nazism – an irrationality that most commentators see as a central feature of these regimes.  (Orwell 1983; Arendt 1973; Hoffer 1951; Friedrich and Brzezinski 1965)  Orwell famously termed totalitarian irrationality “doublethink”: “Doublethink means the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them.” (1983, p.176)  Admittedly, many subjects of totalitarian regimes uphold the party line out of fear rather than devotion (Kuran 1995, Wintrobe 1998), but every ideology has its share of sincere fanatics.  “True believers” are easiest to single out during a movements’ early years, but victory does not eliminate them. (Hoffer 1951; Mosca 1939, esp. pp.163-198)

The evidence of irrationality outside of totalitarian movements is less dramatic but still illuminating.  Important political beliefs fail to satisfy rational expectations in the aggregate; consider for example the public’s anti-foreign bias.  As a normative matter, foreign aid, immigration, and free trade are unpopular.  According to the GSS, only 6.3% favor increasing immigration by any amount, and fully 65.4% favor decreasing it; similarly, 74.2% hold that too much is spent on foreign aid.

But what is interesting from the point of view of this paper are the descriptive beliefs that underlie the normative views.  The Survey of Americans and Economists on the Economy (1996) asked the general public and professional economists to assess various explanations for “why the economy is not doing better than it is,” as “major reasons,” “minor reasons,” or “not a reason.”  Here are their contrasting responses for questions concerning foreigners.

General Public
Explanation Major Reason Minor Reason Not a Reason No Opinion
Foreign aid spending is too high 66 23 10 1
There are too many immigrants 47 32 19 1
Companies are sending jobs overseas 68 25 6 1
Economists
Foreign aid spending is too high 1 13 86 0
There are too many immigrants 1 19 80 <.5
Companies are sending jobs overseas 6 35 58 <.5
Source: Survey of Americans and Economists on the Economy, Questions 27 and 29

The general public is not merely less knowledgeable than the experts: this would only imply greater dispersion around the informed mean.  There is also a systematic anti-foreign bias.  The general public thinks, as a descriptive matter, that foreign aid, immigration, and foreign competition are quantitatively important problems.  Even on questions that leave almost no room for idiosyncratic interpretation, the public shows a systematic bias: 41% of respondents to the National Survey of Public Knowledge of Welfare Reform and the Federal Budget (1995) thought that foreign aid was one of the two “largest areas of federal government spending”!

A natural if uncharitable interpretation of the public’s beliefs about these issues is that foreigners make emotionally appealing scapegoats for economic problems; as Hoffer observes, “[T]he ideal devil is a foreigner.” (1951, p.87)  But this is not an irreducible “taste for discrimination.”  It derives from the firm belief that foreigners are really responsible for the economy’s problems.  Convincing yourself that immigrant taxi drivers are all “foreign thieves” might have the same emotional appeal as thinking them responsible for economic troubles, but the former is a luxury few could afford (at least in areas where people use taxis).

b.  Religious Beliefs

While modern religions are much less likely to make specific, verifiable, descriptive claims than they were in earlier centuries, their willingness to do so has not disappeared.  Numerous religions reject the theory of evolution, and a smaller but still substantial number hold firm to the belief that the earth is only a few thousand years old.  One might think that their rejection would be near universal, but 33.5% of GSS respondents affirm the literal truth of the entirety of the Bible, and over half say that the theory of evolution is either “probably not true” (16.4%) or “definitely not true” (35.3%).

The high level of certainty is particularly interesting from the point of view of rational irrationality: note that the “definite” disbelievers outnumber the “probable” by a factor of more than 2:1.

Again, the low private cost of disbelief is crucial.  However divorced from reality one is, personal wealth is approximately unchanged – except for biologists and geologists.  Many people therefore choose to buy a systematically biased opinion and hold it with certainty, in spite of their minimal acquaintance with the scientific evidence.

The theory of rational irrationality can be easily applied to religious beliefs that conflict with known scientific evidence.  But it is likely that some such as Montgomery would limit its broader application, arguing that probability theory is not an adequate tool to cope with religious choices.  “Religion involves not merely the unknown but the unknowable… Because the economic approach does assume that probabilities are knowable, I think it is fair to challenge economists to identify those signals that convey information about ultimate reality.” (1996, p.445)

While this is a challenging question, it is not necessary for economists to answer it in order to apply the theory of rational irrationality to most religious belief.  Suppose for the sake of argument that the reader’s religious views are correct and justifiable.  Now what can be said about the remaining (N-1) religious viewpoints in the world?  If the adherents of the other (N-1) views had merely acquired little information compared to oneself, then their errors should be unbiased and their opinions tentative.  From virtually any religious viewpoint, however, this does not seem to be the case: the Catholic for example must admit that Muslims, Jews, Hindus, atheists, and many other groups systematically underestimate the probability that Jesus was the Son of God – and their errors are not in any sense balanced out by other people who overestimate this probability.  And while some people tentatively disagree because they have not seen the Church’s evidence that Jesus was the Son of God, many others firmly disagree in spite of their low level of information.  In sum, one need not be a religious skeptic to think that my model explains most religious belief.

c.  Science and Pseudo-Science

The practical success of science has not driven superstition into bankruptcy. (Randi 1989)  52.5% of respondents to the GSS maintain that astrology has “some scientific truth.”

As Sagan observes, “Each field of science has its own complement of pseudoscience… Botanists have plants whose passionate emotional lives can be monitored with lie detectors, anthropologists have surviving ape-men, zoologists have extant dinosaurs, and evolutionary biologists have Biblical literalists snapping at their flanks.” (1995, p.43)

Why does anyone turn to the pseudosciences for answers?  The model of rational irrationality helps explain why: People have mixed cognitive motives.  They want to find out the truth, but they also have pet theories that they want to be true.  It is easier to tell a good story when unconstrained by the facts. Pseudoscientists are trying to make people feel better rather than tell them possibly uncomfortable truths.

So long as both suppliers and demanders of pseudoscience face relatively vertical wealth/irrationality budget constraints, superstition can persist indefinitely. Pseudoscientists prosper as long as they feed clients’ emotional needs without appreciable side effects on their wealth.  This explains why most pseudoscientific “forecasts” (astrology, psychic advisors, palm reading, etc.) are so vague that believers can still take the optimal action whatever it turns out to be. Pseudoscience also unsurprisingly appeals to many people once conventional science can do nothing more for their problems.  When pseudoscientists’ claims are more precise, they need to be free of practical implications on the individual level; even if the government is conducting secret alien autopsies, there is little one person can do about it.

Scientists and their clients face almost the opposite incentive structure: the wealth/irrationality budget constraints for both are quite flat.  The primary reason is that scientists usually sell practical results that only someone tuned into the real world can produce.  If a scientist disregards unpleasant evidence or scientific principles, his customers have the incentive to go elsewhere to get the practical results they want.  The two groups mutually reinforce each other’s commitment to look at the world rationally.

Scientific norms reinforce the incentive structure that gives science its almost unique reputation as a source of unbiased information.  The scientific ethos is an implicit tax on dogmatic attitudes and subsidy for the spirit of free inquiry.

The underlying rationale behind these reputational incentives seems to be that even scientists will demand a positive quantity of irrationality if the price is low enough.  The implicit tax the scientific community imposes on irrationality is – crucially – a private cost, prompting scientists to suppress their systematic biases.  Scientific reputation may be a minor incentive for most, but it is almost the only constraint on theoretical physicists, evolutionary biologists, and others with few practical results to sell.

d.  Juries

A juror’s vote in a trial, unlike a citizen’s vote in an election, often has a high probability of being decisive; in a criminal trial, one “no” vote suffices to hang the jury.  But it is the overall legal climate – not the outcome of one case – that affects a juror’s wealth; and as a rule the outcome of one case has no appreciable impact on the overall legal climate.  A juror’s private cost of irrationality is therefore as trivial as the voter’s; the juror’s personal wealth will not vary no matter how ill-founded his opinion is. (Tullock 1980, pp.120-2)  They might try to do a good job out of a sense of civic duty, but there is no private, pecuniary disincentive that deters them from believing that handsome defendants are less likely to be guilty, or that DNA evidence is unreliable.  Jurors facing this incentive structure tend to consume a lot of irrational beliefs about the probability that a defendant is guilty.

Perhaps as a second-best solution, legal rules of evidence often explicitly recognize that jurors are not rational, and withhold evidence that juries are likely to process irrationally.  Under current United States federal rules of evidence, judges weigh information’s “probative value” against its “prejudicial effect,” and keep it from the jury if the latter substantially outweighs the former.  As a standard evidence text explains, this prejudicial effect may be due to “the injection of undue emotionalism into the proceeding arousing hostility, anger, or sympathy on the part of the jury,” or to “the likelihood that the jury will misuse the evidence in some way or give it undue weight.” (Mueller and Kirkpatrick, 1995, p.197)  Even if judges decide not to bar prejudicial evidence, they often require measures to reduce its emotional impact: Courts may exclude a color photograph of a murder victim, but agree to admit a black and white version or an artist’s sketch of the same picture.  If jurors had rational expectations, would be hard to explain why seeing graphic photos of the murder victim would provoke them to convict an innocent person, and even harder to understand why a color photo would have more impact than a black and white version.

Similarly, juries are rarely able to see evidence about a defendant’s prior criminal record, the assumption being that juries would systematically overweight its significance.  As a famous Supreme Court ruling explains, prior criminals acts are inadmissible evidence “not because character is irrelevant; on the contrary, it is said to weigh too much with the jury and to so overpersuade them as to prejudge one with a bad general record…” (Mueller and Kirkpatrick, 1995, pp.217-8; emphasis added)  It is true that admitting such evidence might give authorities bad incentives; but rational jurors would respond by downweighting the importance of prior convictions (and rational citizens might in turn vote to increase sanctions for knowingly prosecuting innocent defendants with criminal records).

5.  The Optimality of Irrationality

If people rationally select their level of irrationality, the standard conclusions about the optimality of unregulated private choice within one’s budget set apply.

People choose to be irrational because the private costs of the belief are less than the private benefits. Even if an individual selects a degree of irrationality with high private costs, this only shows that the utility of holding the belief makes it a good bargain.  People who were unlikely to be biologists in any case are more likely to embrace creationism; but if a person does give up a career in biology for the sake of creationism, in economic terms this is welfare-enhancing.  It is when the costs of irrationality spill over onto other people that serious efficiency problems arise.  What does this suggest about the efficiency of the previous examples?

a.  Inefficient Irrationality

The externalities of irrational political belief are omnipresent.  In an election, the private cost of irrationality is effectively zero, even though the aggregate impact may be large.  It is cheap for an individual to irrationally underestimate the costs of war, but if enough people buy this opinion the result could be disaster.  Irrational views about the effects of tariffs, price controls, or expelling unpopular minorities would have similar but less drastic efficiency consequences.

The same applies to juries:  Collectively, the opinions of juries are a primary determinant of the efficiency of the legal system.  But individually, a juror can consume irrational beliefs about race, economics, or crime for free.  It costs a jury nothing to disregard scientific evidence in their deliberations, or to buy into the expert testimony of a charlatan. (Huber 1991)

Admittedly, under quite special circumstances, widespread individual irrationality cancels out.  If irrationally biased voters on one side of an issue exactly balance the irrationally biased voters on the other side, the median voter’s expectations remain rational.

If one group irrationally favors complete free trade, while an equal sized group irrationally favors autarky, the aggregate electoral impact of irrationality is nil.  But this auspicious coincidence is quite unlikely.  While there are strong a priori reasons to think that the mean (and median) measurement error will be zero, theory has nothing to say about mean or median preferences.

b.  Efficient Irrationality

The inefficiently high level of political and juror irrationality may be contrasted to an essentially optimal level of religious and pseudo-scientific irrationality.  Before the advent of religious toleration, religiously-inspired irrational opinions had large social costs from the suppression of scientific progress, inquisitions, and religious wars – and the same social costs continue today in countries where religious intolerance persists. At least in the Western democracies, the impact of irrationality is now largely internalized by believers, who e.g. reject scientific evidence, abstain from medical treatment, constrain their career options, and so on, but cannot compel non-believers to do the same.

The scientific community has also greatly reduced the negative externalities of irrational belief.  When astrologers and astronomers could deposit their findings in a common scientific pool, the irrationality of the astrologers dragged down the reputation of astronomers, diluting the latter’s incentive to be rational.  Scientists’ self-segregation from the broader pseudo-scientific community re-aligned incentives, creating one sub-culture that rewards rationality and profits from its reputation for practical results, and another sub-culture that taxes rationality and profits from telling people what they want to hear.  Intellectually separating these markets lets people consume pseudo-science without preventing scientists from capturing the benefits of their own rationality.

6.  Conclusion

Economists were quick to apply economics to ignorance, but have normally either ignored irrationality, explained it away, or admitted it on an ad hoc basis.  But as Muth rightly noted in his original treatment of rational expectations, “[R]ationality is an assumption that can be modified.  Systematic biases, incomplete or incorrect information, poor memory, etc., can be examined with analytical methods based on rationality.”  (1961, p.330)  The strategy of this paper to acknowledge the existence of irrationality as nothing more than another economic good that actors have preferences over.

Analyzing irrationality with economic tools strongly suggests that the concept of rational ignorance has been oversold.  Try to interpret Hoffer’s political or religious true believer as an instance of rational ignorance:  “It is the true believer’s ability to ‘shut his eyes and stop his ears’ to facts that do not deserve to be either seen or heard which is the source of his unequaled fortitude and constancy… And it is the certitude of his infallible doctrine that renders the true believer impervious to the uncertainties, surprises, and unpleasant realities of the world around him.” (1951, p.76)  While there is a family resemblance, important pieces of the puzzle do not fit.  When minimal information accompanies certitude and systematic bias, we are dealing with rational irrationality rather than rational ignorance.

Diverse applications immediately suggest themselves.  This paper was only able to explore them in a cursory manner; more intensive explorations provide a fruitful outlet for future research.  The ability of rational irrationality to provide sound microfoundations for the economic analysis of politics seems particularly promising.  Political economy has reached an impasse: the theoretical case for the efficiency of political markets (Becker 1976a; Wittman 1995, 1989) seems impossible to reconcile with the empirical and intuitive case for political failure. (e.g. Olson 1996; Schleifer 1998)  Recognizing that political actors are not merely rationally ignorant but often rationally irrational may resolve the paradox. (Caplan 1999)

The political scientist Gaetano Mosca laid down a powerful challenge to economics: “Economic science has penetratingly investigated the laws that regulate the production and distribution of wealth.  It has as yet done little with the relations of those laws to other laws that operate in the political organization of human societies.  Economists have not concerned themselves with those beliefs, those collective illusions, which sometimes become general in given societies, and which form so large a part of the history of the world – as has been well said, man does not live by bread alone.” (1923, p.328)  While some economists argue that irrationality cannot be reconciled with the economic approach to human behavior (e.g. Becker 1976b, pp.11-13), the application of the economic way of thinking to irrationality can also be seen as a striking vindication of economic imperialism.

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