blog POST

Behavioral Economics as Mass Gaslighting

Cass Sunstein

The central tenet of the discipline of 'behavioral economics' is that people are irrational economic actors. This sounds potentially revealing, but it isn't. Try predicting people on the assumption that they are irrational. It doesn't work. Which is why behavioral economists are always wrong about what's going to happen and consistently generate low or negative returns on their own stock portfolios, even during bull markets.

Obviously the discipline sounds like the sort of thing that will open up new vistas.

It doesn't.

Yes, people are stupid and amoral, but they are not irrational. They actually do astoundingly well for themselves, given how unintelligent and generally blinkered they are. People are more rational than they intelligent, that is to say.

But don't take my word for it. Try to predict on the assumption that people are irrational. Your predictions will be wrong. But if you switch to the assumption that they are rational, your predictions will be correct.

Just make sure that you don't build your value-system into the conception of rationality you are using. "Rational", in this context, means "rational in an invidiously self-interested way." Do not use some Kantian universalistic conception of rationality. Think 'tree frog rationality.' If you assume that people are rational in that sense, you'll more or less get things right.

In any case, behavioral economics suddenly became chic, despite having a track record of 0% in the way of generating accurate predictions. Why?

Here's one possibility. It's a kind of generalized gaslighting. 'You see,' we are told, 'the people need this government agency or this law or this bureaucracy to do the thinking for them, because, as behavioral economics show, they are irrational. They need someone else to manage their money and to micromanage their educations and god knows what else.'

That's the pitch. And that pitch is just that--a pitch, a slime covered way for bureaucrats to insinuate themselves into positions of financial and bureaucratic control

Yes, people are dumb in a lot of ways, amoral in a lot of ways; and even irrational in a lot of ways. But they are not dumb or irrational in the ways that behavioral economists say they are.

Quite the opposite.

People, including dumb ones, are amazingly adept at making decisions that redound to their benefit. People who would benefit from trade school know it and drop out of college. People who benefit from college know it and go to college. In fact, when adjusted for intelligence-level, performance-metrics for unintelligent people exceed those of intelligent people.

In other words, dumb people tend to be more rational than smart ones.

How is that possible?

It's possible because rationality is about getting what you want. Dumb people want three hots and a cot, and they usually get what they want. Smart people tend to have a lot of objectives, many of them vague; so they tend not to get what they want, mainly because they don't know what they want.

Geniuses are plagued by self-doubt. They don't know if they want to write fugues or go off into the woods to achieve enlightenment. So, predictably, they often underperform. But whoever heard of a dummy not knowing what he wants? He wants a warm meal, a big screen TV, and a girlfriend. He always gets the first two and sometimes gets the third.

But the genius? What the hell does he want? To write the great American novel? Well, how likely is that? (What is 'The Great American novel', for that matter?)

And so it is that dumb people tend to be more rational than smart ones. They have clear objectives. They only appear irrational when you foist alien objectives on them.

But behavioral economics says otherwise.

But why?

Because it's a made-to-order phony discipline. Look at the data that it's based on. Kahneman and other behavioral economists based their 'findings' on tendentious experiments that were repeated over and over until they coughed the right results. Kahneman would ask subjects to add numbers backwards, forwards, sideways, etc., and they were doing it right--so he made the strings of digits longer and longer until finally 'irrationalities' emerged.

And Irving Thaler desperately looked for cases where people simply 'should' have switched brands of toothpaste or brokerage accounts or places to live--and he inevitably found the irrationalities he wanted to find--but only buy ignoring deeper underlying irrationalities. Yes, Smith is slow to switch from one brand of soap to another, and that would be irrational since, after all, he could save $1/year by doing this. But is that $1/year really worth the uncertainty? Plus, if someone always took the rational path, he'd spend his whole life in a state of decision paralysis. Being pound-wise sometimes involves being penny-foolish--and behavioral economics looks at the penny-foolish and deliberately disregard the pound-wise.

Which is why behavioral economists can't predict the economy or the market. They can't predict because they don't understand them, because the irrationalities they ascribe to people either don't exist or aren't operative in those contexts. And they posit them to downgrade and demoralize people and to give themselves an unearned authority.

Again, if it doesn't predict, it doesn't explain. And behavioral economics doesn't predict. What it does do is lead to incredibly noxious government policies that restrict freedoms and bring about the very suboptimalities that it is itself supposed to prevent.

4 views0 comments

© 2020 - Philosophypedia| All Rights Reserved | Designed With ❤ Wibitech