I think I’m starting to resolve a puzzle that’s been bugging me for awhile.

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.

Argument 1 is associated with “why do they do that?” sorts of puzzles. Why do they charge so much for candy at the movie theater, why are airline ticket prices such a mess, why are people drug addicts, etc. The usual answer is that there’s some rational reason for what seems like silly or self-destructive behavior.

Argument 2 is associated with “we can do better” claims such as why we should fire 80% of public-schools teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.

The trick is knowing whether you’re gonna get 1 or 2 above. They’re complete opposites!

Our story begins . . .

Here’s a quote from Steven Levitt:

One of the easiest ways to differentiate an economist from almost anyone else in society is to test them with repugnant ideas. Because economists, either by birth or by training, have their mind open, or skewed in just such a way that instead of thinking about whether something is right or wrong, they think about it in terms of whether it’s efficient, whether it makes sense. And many of the things that are most repugnant are the things which are indeed quite efficient, but for other reasons — subtle reasons, sometimes, reasons that are hard for people to understand — are completely and utterly unacceptable.

As statistician Mark Palko points out, Levitt is making an all-too-convenient assumption that people who disagree with him are disagreeing because of closed-mindedness. Here’s Palko:

There are few thoughts more comforting than the idea that the people who disagree with you are overly emotional and are not thinking things through. We’ve all told ourselves something along these lines from time to time.

I could add a few more irrational reasons to disagree with Levitt: political disagreement (on issues ranging from abortion to pollution) and simple envy at Levitt’s success. (It must make the haters even more irritated that Levitt is, by all accounts, amiable, humble, and a genuinely nice guy.) In any case, I’m a big fan of Freakonomics.

But my reaction to reading the above Levitt quote was to think of the puzzle described at the top of this entry. Isn’t it interesting, I thought, that Levitt is identifying economists as rational and ordinary people as irrational. That’s argument 2 above. In other settings, I think we’d hear him saying how everyone responds to incentives and that what seems like “efficiency” to do-gooding outsiders is actually not efficient at all. The two different arguments get pulled out as necessary.

The set of all sets that don’t contain themselves

Which in turn reminds me of this self-negating quote from Levitt protoge Emily Oster:

anthropologists, sociologists, and public-health officials . . . believe that cultural differences–differences in how entire groups of people think and act–account for broader social and regional trends. AIDS became a disaster in Africa, the thinking goes, because Africans didn’t know how to deal with it. Economists like me [Oster] don’t trust that argument. We assume everyone is fundamentally alike; we believe circumstances, not culture, drive people’s decisions, including decisions about sex and disease.

I love this quote for its twisted logic. It’s Russell’s paradox all over again. 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”? All we can say for sure is that it’s “circumstances, not culture.” It’s certainly not “differences in how entire groups of people think and act”–er, unless these groups are economists, anthropologists, etc.

OK, fine. I wouldn’t take these quotations too seriously; they’re just based on interviews, not careful reflection. My impression is that these quotes come from a simple division of the world into good and bad things:

– Good: economists, rationality, efficiency, thinking the unthinkable, believing in “circumstances”

– Bad: anthropologists, sociologists, public-health officials, irrationality, being deterred by repugnant ideas, believing in “culture”

Good is entrepreneurs, bad is bureaucrats. At some point this breaks down. For example, if Levitt is hired by a city government to help reform its school system, is he a rational, taboo-busting entrepreneur (a good thing) or a culture-loving bureaucrat who thinks he knows better than everybody else (a bad thing)? As a logical structure, the division into Good and Bad has holes. But as emotionally-laden categories (“fuzzy sets,” if you will), I think it works pretty well.

The solution to the puzzle

OK, now to return to the puzzle that got us started. How is it that economics-writers such as Levitt are so comfortable flipping back and forth between argument 1 (people are rational) and argument 2 (economists are rational, most people are not)?

The key, I believe, is that “rationality” is a good thing. We all like to associate with good things, right? Argument 1 has a populist feel (people are rational!) and argument 2 has an elitist feel (economists are special!). But both are ways of associating oneself with rationality. It’s almost like the important thing is to be in the same room with rationality; it hardly matters whether you yourself are the exemplar of rationality, or whether you’re celebrating the rationality of others.

Conclusion

I’m not saying that arguments based on rationality are necessarily wrong in particular cases. (I can’t very well say that, given that I wrote an article on why it can be rational to vote.) I’m just trying to understand how pop-economics can so rapidly swing back and forth between opposing positions. And I think it’s coming from the comforting presence of rationality and efficiency in both formulations. It’s ok to distinguish economists from ordinary people (economists are rational and think the unthinkable, ordinary people don’t) and it’s also ok to distinguish economists from other social scientists (economists think ordinary people are rational, other social scientists believe in “culture”). You just have to be careful not to make both arguments in the same paragraph.

P.S. Statisticians are special because, deep in our bones, we know about uncertainty. Economists know about incentives, physicists know about reality, movers can fit big things in the elevator on the first try, evolutionary psychologists know how to get their names in the newspaper, lawyers know you should never never never talk to the cops, and statisticians know about uncertainty. Of that, I’m sure.