Wim Hordijk — The Evolutionary Roots of Irrationality

Standard economic theory assumes that humans behave fully rationally and are able to objectively calculate the value (or cost) of the different choices they are presented with. In fact, we pride ourselves on our rationality. Different from the animals, we humans have the unique capacity for logical thought and rational decision making. Or do we?

According to behavioral economist Dan Ariely, we should be less proud of ourselves. In his entertaining book Predictably Irrational, Ariely describes many case studies of every-day irrational human behavior. His simple but clever scientific experiments often require nothing more than a box of chocolates. However, subtle differences in the way these chocolates are offered to people can cause large and completely irrational differences in the way we behave. Moreover, these irrational behaviors fly square in the face of what conventional economic theory, based on rationality, would predict....

So much for methodological atomist in economics, or other social disciplines as James Buchanan's rational choice theory spreads.

Humans are not like atoms in physics and chemistry or even like cells in biology. They are not homogeneous and cannot be assumed to be so as the concepts of homo economicus and representative agent that underly neoclassical method do.  

Social systems in which human agents are elements, or families, do not resemble atoms and molecules closely enough to serve as a framework for representational models, where the arrangements of symbols in possibility space are asserted to reflect the configuration and behavior of objects in actual space with more than rough approximation.

Wim Hordik argues that this is not a imperfection, but rather an important aspect of the evolutionary development of humans that serves to protect. For example, if homo economicus were entirely true then life would be determined by quantity, objectivity and positivity, while quality, subjectivity and values would be largely excluded from importance and banished from consideration in decisions. The world would be colorless, so to speak.

The Evolution Institute
The Evolutionary Roots of Irrationality
Wim Hordijk | Senior Fellow at the Konrad Lorenz Institute for Evolution and Cognition Research in Klosterneuburg, Austria

Olivia Goldhill — A philosopher who studies life changes says our biggest decisions can never be rational

At some point, everyone reaches a crossroads in life: Do you decide to take that job and move to a new country, or stay put? Should you become a parent, or continue your life unencumbered by the needs of children?

Instinctively, we try to make these decisions by projecting ourselves into the future, trying to imagine which choice will make us happier. Perhaps we seek counsel or weigh up evidence. We might write out a pro/con list. What we are doing, ultimately, is trying to figure out whether or not we will be better off working for a new boss and living in Morocco, say, or raising three beautiful children.

This is fundamentally impossible, though, says philosopher L.A. Paul at the University of North Carolina at Chapel Hill, a pioneer in the philosophical study of transformative experiences. Certain life choices are so significant that they change who we are. Before undertaking those choices, we are unable to evaluate them from the perspective and values of our future, changed selves. In other words, your present self cannot know whether your future self will enjoy being a parent or not....

Having established the epistemological significance of transformative life choices, there still remains the question of how, exactly, we should make such decisions. Paul is still figuring this out. So far, her best proposal is that, while you can’t know which choice you’ll prefer, you can at least decide whether you want to experience a transformation.

Perennial wisdom suggests the principle, It is always reasonable to go beyond reason to love. The transformational power of love is the strongest force in human life.

From a systems perspective, this transformation involves emergence, and emergence involves uncertainty.

Quartz
A philosopher who studies life changes says our biggest decisions can never be rational
Olivia Goldhill

Elly Vintiadis — The Irrationality Within Us

So what does it mean to be rational? We usually distinguish between two kinds of rationality. Epistemic rationality, which is involved in acquiring true beliefs about the world and which sets the standard for what we ought to believe, and instrumental rationality which is involved in decision-making and behavior and is the standard for how we ought to act.

We are epistemically rational if we believe things for which we have good evidence and if we would change our beliefs in light of evidence against those beliefs. For example, it is epistemically rational for me to believe there is some wine in the fridge since it was left over from last night and I put it there myself. But that is not enough; I should also be willing to change my belief, for example if I am told that someone drank it in the meantime and maybe if I saw for myself that the wine in the fridge is no more. To still believe, for no other reason, that there is wine in the fridge despite this new evidence would be epistemically irrational.

We are instrumentally rational when we act in ways that are appropriate for achieving our goals – for instance when we go on a diet when we want to lose weight, or we study hard to do well in an exam.

In contrast, one is irrational when one’s beliefs or actions are not in accord with the requirements of rationality. For instance, if one wants to achieve a certain goal but acts in ways that do not lead to that goal; when one forms beliefs for which there is no evidence, or that fly in the face of available evidence; when one reasons faultily and so on. And, because we value rationality and hold it up as a standard we should aspire to, irrationality is understood to be a bad thing.

Recently, philosopher and head of the PERFECT project Lisa Bortolotti has offered evidence that though we tend to rationalize our decisions after we have made them, we do not make choices primarily by rational deliberation. Instead, most of our decision-making involves emotions and intuition and, often, these processes lead to better results than those achieved by reasoning through our choices.

Useful article. The above excerpt is the takeaway.

BTW, there are five criteria of truth. 1) The first is correspondence or conformity with facts and evidence. This is also known as epistemological or semantic truth. 2) The second is coherence or consistency, which is logical validity and mathematical consistency. This is also known as syntactical truth. 3) The third criterion is pragmatic or instrumental. It is suitability to an objective. It is also known as practical truth or practical wisdom. 4) The fourth criterion is simplicity or elegance. It is the most economical expression. 5) The fifth criterion is the coincidence of the previous four. It is called completeness or comprehensiveness.

"Rationality" is considered the ability to apply all five consistently without the intrusion of subjectivity, that is, emotion, preference, and cognitive-affective bias. Current research suggests that rationality in this sense is an unrealizable ideal owing to human brain functioning as revealed by cognitive science. The rational and non-rational are entangled in brain functioning to the degree that they cannot be completely unentangled. Moreover, the entanglement is subliminal and humans are not even aware of its operation. "You" as the conscious and intentional mind are the slave of your brain.

Scientific American
The Irrationality Within Us
Elly Vintiadis, philosophy instructor at the American College of Greece
ht Mark Thoma at Economist's View

It's Amazing How Close People Can Get To Simplicity, Before Irrationality Returns

   (Commentary posted by Roger Erickson)

https://www.philadelphiafed.org/-/media/publications/economic-education/ben-franklin-and-paper-money-economy.pdf

For example, take our dimwit reporters ... please! In an otherwise incredibly useful article, this fateful comment was still found lurking.

"How would government pay for prolonged 'deficits?' It would get the money by selling securities to the central bank in exchange for cash."

BMHOTK! Whatever! [That dull throbbing you hear is the sound of logicians pounding their heads on tables in frustration.]

If we "get" money by selling securities, how do we pay off the securities? Let me guess. We "get" securities back by selling money? So why bother?

What do YOU do when you have a prolonged deficit in fiat? Nothing? :( 

(Does anyone bother speaking intelligible language anymore, or only sophism?)

As an alternative to "buying" fiat, a public could just track & monitor currency issuance, as north american colonies did, starting from ~1680 onwards. If not for our revolution, we might still be using someone else's currency, and in the same position as Greece today.

Today, issuing & tracking our own currency supply could be done with cell phone apps. As MRW notes, we don't need a semi-independent, supposedly private Central Bank to pretend to independently "own" or even administer our currency supply. We only need a Central Bank by any other name, without all the mystical baggage. As has been noted in past MMT discussions, all CB functions could easily be run out of a basement room in the Treasury Dept, maybe one called the "Ministry of Money."

Since we let Central Bankers simply mark up bank accounts by striking a key on a keypad, then we can also just get rid of our Central Bankers, and instead automate the process of denominating transactions between ALL debtors and creditors! Fiat by fiat. Wotta concept! Sovereign currency could be just another Automatic Stabilizer (instead of an Automatic Destabilizer).

That way we could bail out regulators instead of bailing out banksters. :( Ya think?

Wake me if this electorate ever wakes up (to logic-101).

However, until then, it's full head of steam towards convenient wall.

Cameron Murray — Uncertainty is not what you think it is

Looking at risk and uncertainty through the lens of options theory.

Fresh economic thinking 

Uncertainty is not what you think it is
Cameron Murray (rumplestatskin)