Making your mind up (NS)

Difficult choices to make? A heavy dose of irrationality may be just what you need.

Comment on a New Scientist article, 12 Nov. 2011, pg 39.

The on-line version is Decision time: How subtle forces shape your choices: Struggling to make your mind up? Interpret your gut instincts to help you make the right choice.

The article talks a lot about decision theory and rationality. No definitions are given, but it seems to be assumed that all decisions are analogous to decisions about games of chance. It is clearly supposed, without motivation, that the objective is always to maximize expected utility. This might make sense for gamblers who expect to live forever without ever running out of funds, but more generally is unmotivated.

Well-known alternatives include:

  • taking account of the chances of going broke (short-term) and never getting to the ‘expected’ (long-term) returns.
  • taking account of uncertainty, as in the Ellsberg’s approach.
  • taking account of the cost of evaluating options, as in March’s ‘bounded rationality’.

The logic of inconsistency

A box claims that ‘intransitive preferences’ give mathematicians a head-ache. But as a mathematician I find that some people’s assumptions about rationality give me a headache, especially if they try to force them on to me.

Suppose that I prefer apples to plums to pears, but I prefer a mixture to having just apples. If I am given the choice between apples and plums I will pick apples. If I am then given the choice between plums and pears I will pick plums. If I am now given the choice between apples and pears I will pick pears, to have a good spread of fruit. According to the article I am inconsistent and illogical: I should have chosen apples. But what kind of logic is it in which I would end up with all meat and no gravy? Or all bananas and no custard?

Another reason I might pick pears was if I wanted to acquire things that appeared scarce. Thus being offered a choice of apples or plums suggests that neither are scarce, so what I really want is pears. In this case, if I was subsequently given a choice of plums to pears I would choice pears, even though I actually prefer plums. An question imparts information, and is not just a means of eliciting information.

In criticising rationality one needs to consider exactly what the notion of ‘utility’ is, and whether or not it is appropriate.

Human factors

On the last page it becomes clear that ‘utility’ is even narrower than one might suppose. Most games of chance have an expected monetary loss for the gambler and thus – it seems – such gamblers are ‘irrational’. But maybe there is something about the experience that they value. They may, for example, be developing friendships that will stand them in good stead. Perhaps if we counted such expected benefits, gambling might be rational. Could buying a lottery ticket be rational if it gave people hope and something to talk about with friends?

If we expect that co-operation or conformity  have a benefit, then could not such behaviours be rational? The example is given of someone who donates anonymously to charity. “In purely evolutionary terms, it is a bad choice.” But why? What if we feel better about ourselves and are able to act more confidently in social situations where others may be donors?

Retirement

“Governments wanting us to save up for retirement need to understand why we are so bad at making long-term decisions.”

But are we so very bad? This could do with much more analysis. With the article’s view of rationality under-saving could be caused by a combination of:

  • poor expected returns on savings (especially at the moment)
  • pessimism about life expectancy
  • heavy discounting of future value
  • an anticipation of a need to access the funds before retirement
    (e.g., due to redundancy or emigration).

The article suggests that there might also be some biases. These should be considered, although they are really just departures from a normative notion of rationality that may not be appropriate. But I think one would really want to consider broader factors on expected utility. Maybe, for example, investing in one’s children’s’ future may seem a more sensible investment. Similarly, in some cultures, investing one’s aura of success (sports car, smart suits, …) might be a rational gamble. Is it that ‘we’ as individuals are bad at making long-term decisions, or that society as a whole has led to a situation in which for many people it is ‘rational’ to save less than governments think we ought to have? The notion of rationality in the article hardly seems appropriate to address this question.

Conclusion

The article raises some important issues but takes much too limited a view of even mathematical decision theory and seems – uncritically – to suppose that it is universally normatively correct. Maybe what we need is not so much irrationality as the right rationality, at least as a guide.

See also

Kahneman: anomalies paper , Review, Judgment. Uncertainty: Cosimedes and Tooby, Ellsberg. Examples. Inferences from utterances.

Dave Marsay

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