authors:
- Page, Lionel
content: 'The idea of the rational actor in economics has often been ridiculed and
  criticized as a derogatory view of what humans are like: selfish, cold-hearted calculators,
  basically psychopaths. And the critics have often insinuated that this analysis
  has been normatively loaded; humans as perfect cogs in the machinery of capitalism.
  The accusation is that this is how economics wants people to behave. Lionel Page
  does not use this line of attack in his book. Rather, given the various empirically
  determined biases, he asks: if the actual behavior of humans is often significantly
  different from that predicted by the rational-actor model, then why is it so? Instead
  of scrapping the idea of the rational actor, he uses it as a starting point to figure
  out what the mechanisms are that cause these departures.


  This is, in my mind, the best way to deal with the issue. Beginning with a baseline
  of rationality, defined in some way, the investigation in why it is not adhered
  to in particular cases might give us interesting insights into what is going on.
  Is the particular model of rationality mistaken or limited in some way? Are some
  unaccounted-for mechanisms active? Do we need to consider other factors? If so,
  what are they? So, instead of just tossing out the idea of the rational actor, an
  analysis of exactly how and why it fails may give us vital information.


  The framework of economics since at least the beginning of the twentieth century
  has been based on the idea of the rational actor. This is an idealized person who
  acts selfishly with clear goals and does so according to logical reasoning about
  preferences and how to satisfy them according to the situation. But in the last
  30 or so years, the focus has increasingly been aimed at the fact that we humans
  systematically deviate in many ways from this idealized actor. There have been many
  studies in economy, psychology, behavioral science and related fields that find
  different kinds of biases in how humans act and think various situations.


  Lionel Page''s aim in this book is to apply an overarching framework of evolutionary
  thinking to explain the many disparate results. His argument is that many of the
  seemingly biased or flawed human behaviors are actually perfectly reasonable adaptive
  solutions to practical problems. Hence the title of the book: Optimally irrational.
  Page initially makes a very simple point: if we humans are stupid, irrational and
  generally inept, as some have interpreted the results of behavioral studies, then
  how come we are still around? Should not evolution have disposed of humans if they
  were so badly flawed?


  Page summarizes a huge amount of scientific results and presents it in a very accessible
  manner. His descriptions and arguments are clear and concise. In general, I find
  them persuasive and thought-provoking. For instance, in choosing between several
  different options, we almost never have complete information, and obtaining complete
  information would be prohibitively expensive. So if we want to make a choice, we
  will have to decide when to make the choice given the remaining uncertainties. That
  is why rules-of-thumb and gut feeling are required. They are effort-saving devices,
  that usually produce results that are good enough. But in certain situations they
  fail. We do not have to feel like lesser human beings for choosing among alternatives
  just based on a feeling.


  Another example is the fact that the absolute level of some good (health, income,
  etc) does not seem to determine how satisfied we are with the current state of affairs.
  Rather, it is the comparison of our level to some reference point that matters.
  Why? Page presents several different possible explanations which are all very interesting.


  Page ends his book with a very interesting discussion on the history of the idea
  of rationality in economics, and how it relates to the place of psychology in that
  science. For example, one criterion of rationality of choice is called the axiom
  of the independence of irrelevant alternatives. Given a specific set of alternatives,
  the preferred choice among those should not be affected by the addition of another
  irrelevant alternative. But this is often violated. Page cites a scenario invented
  by the philosopher and economist Amartya Sen: Jane has the choice of going home
  to John for a drink, or to decline the invitation. She is tempted to go. But then
  John adds that he can also offer Jane some cocaine. Now, if Jane does not want to
  take any cocaine, it ought to be rational for her to accept the invitation for a
  drink and just say no to the cocaine. The availability of cocaine is an irrelevant
  alternative. But in fact, we would not be surprised if she decides that she no longer
  wants to go for a drink at John''s. The irrelevant alternative has affected her
  choice.


  Page ends his book with advice to his fellow economists: They need to try to figure
  out why people do things as they do, empirically, and enrich their models of behavior
  to reflect the evolutionary origins of human preferences, and to take into account
  the constraints, uncertainties and social strategic dilemmas that are an inescapable
  part of human existence.

  '
date: '2023-12-17'
edition:
  published: '2022'
  publisher: Cambridge University Press
goodreads: '63231594'
html: '<p>The idea of the rational actor in economics has often been ridiculed and
  criticized as a derogatory view of what humans are like: selfish, cold-hearted calculators,
  basically psychopaths. And the critics have often insinuated that this analysis
  has been normatively loaded; humans as perfect cogs in the machinery of capitalism.
  The accusation is that this is how economics wants people to behave. Lionel Page
  does not use this line of attack in his book. Rather, given the various empirically
  determined biases, he asks: if the actual behavior of humans is often significantly
  different from that predicted by the rational-actor model, then why is it so? Instead
  of scrapping the idea of the rational actor, he uses it as a starting point to figure
  out what the mechanisms are that cause these departures.</p>

  <p>This is, in my mind, the best way to deal with the issue. Beginning with a baseline
  of rationality, defined in some way, the investigation in why it is not adhered
  to in particular cases might give us interesting insights into what is going on.
  Is the particular model of rationality mistaken or limited in some way? Are some
  unaccounted-for mechanisms active? Do we need to consider other factors? If so,
  what are they? So, instead of just tossing out the idea of the rational actor, an
  analysis of exactly how and why it fails may give us vital information.</p>

  <p>The framework of economics since at least the beginning of the twentieth century
  has been based on the idea of the rational actor. This is an idealized person who
  acts selfishly with clear goals and does so according to logical reasoning about
  preferences and how to satisfy them according to the situation. But in the last
  30 or so years, the focus has increasingly been aimed at the fact that we humans
  systematically deviate in many ways from this idealized actor. There have been many
  studies in economy, psychology, behavioral science and related fields that find
  different kinds of biases in how humans act and think various situations.</p>

  <p>Lionel Page''s aim in this book is to apply an overarching framework of evolutionary
  thinking to explain the many disparate results. His argument is that many of the
  seemingly biased or flawed human behaviors are actually perfectly reasonable adaptive
  solutions to practical problems. Hence the title of the book: Optimally irrational.
  Page initially makes a very simple point: if we humans are stupid, irrational and
  generally inept, as some have interpreted the results of behavioral studies, then
  how come we are still around? Should not evolution have disposed of humans if they
  were so badly flawed?</p>

  <p>Page summarizes a huge amount of scientific results and presents it in a very
  accessible manner. His descriptions and arguments are clear and concise. In general,
  I find them persuasive and thought-provoking. For instance, in choosing between
  several different options, we almost never have complete information, and obtaining
  complete information would be prohibitively expensive. So if we want to make a choice,
  we will have to decide when to make the choice given the remaining uncertainties.
  That is why rules-of-thumb and gut feeling are required. They are effort-saving
  devices, that usually produce results that are good enough. But in certain situations
  they fail. We do not have to feel like lesser human beings for choosing among alternatives
  just based on a feeling.</p>

  <p>Another example is the fact that the absolute level of some good (health, income,
  etc) does not seem to determine how satisfied we are with the current state of affairs.
  Rather, it is the comparison of our level to some reference point that matters.
  Why? Page presents several different possible explanations which are all very interesting.</p>

  <p>Page ends his book with a very interesting discussion on the history of the idea
  of rationality in economics, and how it relates to the place of psychology in that
  science. For example, one criterion of rationality of choice is called the axiom
  of the independence of irrelevant alternatives. Given a specific set of alternatives,
  the preferred choice among those should not be affected by the addition of another
  irrelevant alternative. But this is often violated. Page cites a scenario invented
  by the philosopher and economist Amartya Sen: Jane has the choice of going home
  to John for a drink, or to decline the invitation. She is tempted to go. But then
  John adds that he can also offer Jane some cocaine. Now, if Jane does not want to
  take any cocaine, it ought to be rational for her to accept the invitation for a
  drink and just say no to the cocaine. The availability of cocaine is an irrelevant
  alternative. But in fact, we would not be surprised if she decides that she no longer
  wants to go for a drink at John''s. The irrelevant alternative has affected her
  choice.</p>

  <p>Page ends his book with advice to his fellow economists: They need to try to
  figure out why people do things as they do, empirically, and enrich their models
  of behavior to reflect the evolutionary origins of human preferences, and to take
  into account the constraints, uncertainties and social strategic dilemmas that are
  an inescapable part of human existence.</p>

  '
isbn: '9781009209205'
language: en
lastmod: '2023-12-17'
path: /library/page-2022.html
published: '2022'
rating: 5
reference: Page 2022
reviewed: '2023-12-17'
subjects:
- human-evolution
- political-philosophy
- science
title: Optimally Irrational
type: book
year: 2022