Post No.: 0517
The best decision-making strategies are said to involve the application of rational logic. It’s about avoiding the cognitive traps, biases and errors that could cloud more objective and fair thinking.
But ‘bounded rationality’ is the idea that the rationality of individuals in decision-making tasks is limited by their own cognitive limitations, the information they have, and the finite amount of time they have to make a decision. This concept revises the assumption that humans are always rational actors. It also takes into account that perfect rationality is often not feasible in practice anyway because of the finite computational resources available for making them.
So people attempt to optimise by using cognitive shortcuts. But these can sometimes lead to illogical behaviours. ‘Rock, paper, scissors’, for instance, is a game where, if played fairly, a random strategy is the logical strategy, but people predictably tend to more likely stick with their previous choice if that had won and change from their previous choice if that had lost – thus people often make a series of independent games somewhat dependent on each other.
Humans are evidentially far from naturally rational creatures, as illuminated in Post No.: 0435. People are easily persuaded by how they currently feel, how they see themselves, and how they think they appear to others (especially to their nearby peers). Salespeople try to exploit such irrationalities all of the time.
However, most people actually find rationality abhorrent at times. Slave trading was seen as a cold, rational expression of capitalism – well lots of things done in the name of maximising profits or self-interests can be considered abhorrent. Many consider the abortion of foetuses that will knowingly be born with disabilities and most likely won’t have a high quality of life (according to the known probabilities and cost-to-benefit balance) as detestable. Many people in certain cultures would rather ‘spite their own faces just to see the other side suffer’ if they perceive unfairness when playing the ‘ultimatum game’. Many people don’t agree that sacrificing a few to save the many is defensible.
Price discrimination and charging different prices for the same things in different locations or markets (including if shops charged different prices for, say, XXS and XXL sizes of the ‘same’ clothing item even though it should be fair to charge more if more physical material is used to make the larger sizes), or dynamic/surge pricing for services served at peak times or for goods when demand is high and supply is low (which would mean that the richest would find it easiest to get to work when using public transport), are perfectly rational economic practices and reflect an efficient market – yet many people find these practices immoral and disgusting. Price discrimination should be how an efficient market works because different places will have different local fixed costs and competitive environments, and we cannot blame businesses for making the most of different people’s ‘willingness to pay’ for the same items – it’s cold-calculatedly about supply and demand.
There’s charging early adopters much more than later adopters when it has nothing to do with higher manufacturing costs per unit but to maximally capture people’s willingness to pay compared to their willingness to wait for something. Re-selling concert tickets at inflated prices to maximise what a ticket scalper can get should be considered a rational market behaviour – after all, if the price was actually too high, people wouldn’t buy them at that price and so the touts couldn’t re-sell them at that price, according to basic market dynamics. And as customers and regarding non-essential items, we simply shouldn’t buy something at a price if we don’t want it sold at that price – we should shop around or forgo it.
Now if you really need, say, some special kind of healthcare treatment – the free market could still rationally exploit this and think ‘we’ll extract as much profit as possible from you then, if you really must have it’.
There’s a so-called ‘pink tax’, where some toiletries marketed for females cost more than their equivalents marketed at men (with a few exceptions e.g. razors). This is considered unfair – even though it’s not a ‘tax’ at all but just market forces acting on prices. Arguably, rather than ask for laws to interfere with the market, women should simply vote with their wallets – buy the cheaper versions marketed at women, a neutral gender or even at men, to drive downward price pressure.
Likewise, gender profiling for motor insurance premiums is frequently considered unjust – it can serve a utilitarian goal but at the expense of individual liberties i.e. it works against good individual male drivers and in favour of bad individual female drivers.
If an internet-connected fridge shared data on what you’re consuming to insurance brokers and raised your premiums based on this data because you ate and drank a lot of junk – wouldn’t this price rise be ‘fair enough’ because the insurance companies will be more accurately, and therefore more fairly, assessing your true risk as a customer (although you might have a legitimate reason for why that stuff is constantly being replenished in your fridge yet you’re apparently not constantly consuming it)? Instead, most of us would consider it an egregious or underhand invasion of our privacy.
Personally-targeted adverts are similarly a totally efficient market practice – why waste money targeting people who mightn’t be interested in something? Yet we can find them creepy and intrusive, even if we can find out why they targeted us.
Price-stickiness is when the prices of goods/services don’t usually quite as dynamically reflect the dynamically changing costs of providing those goods/services i.e. prices adjust too slowly in the real world. If prices weren’t so sticky, more prices for things would change as frequently as forecourt petrol prices. Yet if many prices weren’t so sticky in reality, such as if the retail prices of a particular branded fluffy loaf of bread instantly rose as soon as the costs of producing and delivering it rose, many customers would complain. Retailers also fail to always drop prices as soon as the ‘cost of goods sold’ falls, yet customers this time won’t complain about this. There’s also wage-stickiness.
It’s economically irrational to continue looking after infirm or elderly and frail kin because you won’t likely get any more material returns from them. One may argue that it’s about paying back what you and society got from them but that’s in a sense a sunk cost fallacy – that’s in the past and one should only rationally continue to invest according to the expected net present, or future, returns. (Or if it’s just for the warm and furry feelings rather than economic returns then that should apply to helping complete strangers too and we should help everybody regardless of whether they’re kin or not.) Elderly and retired people have uses as grandparents but are an overall net drain on national resources, such as via pensions and the health service. However, not paying them back would disincentive the paying of taxes in the first place to fund these things when one is at working age (yet do understand that in most public pension systems, pensions paid to current pensioners are paid by current workers). Nonetheless, a Logan’s Run scenario could potentially solve a lot of economic problems – but economic rationality isn’t always acceptable morally.
In multiple cultures spanning from east to west, being called a ‘calculating’ person isn’t considered a compliment, even though one needs to calculate in order to be rational.
Maybe it’s okay that everything has a price if we use the proceeds well? For example, to hypothetically sacrifice the life of one child – even one’s own child – for £5Bn, then donating all of that money to charities that will save the lives of millions of children who’d otherwise suffer from famine and diseases. But there’ll still be some people who’d find this decision completely unconscionable.
There are lots of cases of both selfish and collective rationality where either a commercial entity finds that their personal position (as measured by their profits/market share), or a government finds that the national economy (as measured by GDP), are deemed more important than the health or lives of what they consider ‘just a few’ customers or citizens. Sometimes it’s incredibly difficult to calculate or predict the future though, such as when different countries undertook different approaches to protecting immediate lives during the pandemic versus protecting the long-term future welfare of citizens (especially school-age children) if the lockdowns were prolonged.
What’s rational for the short-term and/or self may not be for the long-term and/or collectively. For example, it’s short-term rationally self-interested to pay ransoms, such as from cyber-attack ransomware, but in the long-term that money just funds the crime (and other crimes) even more, and this greater crime will affect oneself individually as well as everyone collectively. We need to always ultimately care about the long-term and, perhaps, the collective. If we don’t always maximise our immediate pleasures or utility, such as by foregoing our gourmand urges, laziness, recreational drugs or slapping people we don’t like in the face(!) then we, and society, can personally end up better off overall in the long-term. Finding ingenious ways to play truant can be considered clever, but of course missing school isn’t very clever overall.
So maybe the true conflict is therefore between time scales – rationality for the short-term (e.g. consumption without regard for the environment) versus rationality for the long-term (e.g. regulating behaviours to ensure that consumption doesn’t irreversibly negatively impact future yet-born generations). Often the things we want aren’t the overall things we need.
Selfishness can also be problematic. For instance, from your own individual perspective, it’d be rational to not waste your own time voting if you know that thousands of others are going to vote, and especially if you think that your constituency is a relatively safe seat.
Unfortunately, other people and/or the far future are difficult to predict hence people will tend to serve themselves what’s best for the relatively more certain short-term. Also, if everyone else is serving their own short-term interests, it makes it rational for you to do so too otherwise you’d personally miss out. It therefore takes coordination and cooperation to serve what’s best for the long-term for everybody collectively and somewhat individually (e.g. global cooperation from all countries to tackle climate change, or cooperation from all citizens to wear face masks unless they have a valid exemption).
Not all deliberately irrational behaviours are considered abhorrent either. Some consider giving to charity, such as helping the poor and needy, as irrational from a self-interest perspective. Some go as far as arguing that it’d be an expression of rationality for a species to actively weed out the ‘weak stock’ from the gene pool – eugenics, if based on sound scientific data, can be considered rational for a species. But helping the vulnerable or those with genetic disorders makes for a better community – and after all, one day we, or our own children, might become considered ‘weak’?
Chasing something even though there’s only the slenderest hope that it’ll succeed might still be worth it emotionally. Decisions of pure rationality are often said to be devoid of emotions but emotions matter to humans. Many would prefer a short life but with no regrets; although a long life with no regrets is even more preferable.
In conclusion, not all rationality is good and not all irrationality is bad for us. And lots of rational decisions that only serve the self and/or short-term can lead to undesirable wider and/or long-term outcomes. So there’s generally got to be more big-picture than small-picture thinking (especially in this current world where there should be plenty enough for everybody in the world if only no one greedily hoarded stuff) – because if we make the long-term then we’ll have logically made the short-term, but if we make the short-term then it won’t necessarily mean we’ll make the long-term.