Only economists are rational

Andrew Gelman makes the following observation:

Pop economists (or, at least, pop micro-economists) are often making one of two arguments:

1. People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.

2. People are irrational and they need economists, with their open minds, to show them how to be rational and efficient.

….

Economists are different from everybody else, because . . . economists “assume everyone is fundamentally alike”! But if everyone is fundamentally alike, how is it that economists are different “from almost anyone else in society”?

Gelman notes that it is OK to argue one or the other, just not at the same time. The difficulty is how to distinguish the proper argument for a particular case. There is a degree of arbitrariness in the choice.

In my pop economics moments, I tend to use a mix of the two – people are boundedly rational, but no-one, be that government, economists or me are likely to be able to make them more efficient and rational than they already are. An economist or government might be able to give them more information than they already have, but we’re less likely than them to know what they should do with it.

Then there is the pop-evolutionary approach. You could consider there to be two similar arguments:

1. People are the product of evolutionary processes, act to maximise their fitness and rationally do so.

2. People are not adapted to modern environments, but rather to our ancestral environment of the Pleistocene. As a result, people irrationally take actions that reduce their fitness.

It is somewhat easier (though not always so) to decide between these two alternatives as there is a clear objective against which the person’s actions can be assessed – maximising fitness. In the rationality case for the economists, it is not always clear what the objective is.

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