[extropy-chat] Rational Irrationality

Technotranscendence neptune at superlink.net
Wed Dec 6 12:42:13 UTC 2006

No time to participate in the discussion, but I thought all of you might
look over http://www.gmu.edu/departments/economics/bcaplan/econ.html for
three essays on this by Bryan Caplan.  The essays are:

"Rational Irrationality: A Framework for the Neoclassical-Behavioral
Debate"  (_Eastern Economic Journal_ 26(2), Spring 2000, pp.191-211.)

"Critics of behavioral economics often argue that apparent irrationality
arises mainly because test subjects lack adequate incentives; the
defenders of behavioral economics typically reply that their findings
are robust to this criticism. The current paper presents a simple
theoretical model of "rational irrationality" to clarify this debate,
reducing the neoclassical-behavioral dispute to a controversy over the
shape of agents' wealth/irrationality indifference curves. Many
experimental anomalies are consistent with small deviations from polar
"neoclassical" preferences, but even mildly relaxing standard
assumptions about preferences has strong implications. Rational
irrationality can explain both standard, costly biases, as well as
wealth-enhancing irrationality, but it remains inconsistent with
evidence that intensifying financial incentives for rationality makes
biases more pronounced."

"Rational Ignorance vs. Rational Irrationality" (_Kyklos_ 54(1), 2001,

"Beliefs about politics and religion often have three puzzling
properties: systematic bias, high certainty, and little informational
basis. The theory of rational ignorance (Downs 1957) explains only the
low level of information. The current paper presents a general model of
"rational irrationality," which explains all three stylized facts.
According to the theory of rational irrationality, being irrational - in
the sense of deviating from rational expectations - is a good like any
other; the lower the private cost, the more agents buy. A peculiar
feature of beliefs about politics, religion, etc. is that the private
repercussions of error are virtually nonexistent, setting the private
cost of irrationality at zero; it is therefore in these areas that
irrational views are most apparent. The consumption of irrationality can
be optimal, but it will usually not be when the private and the social
cost of irrationality differ - for example, in elections."

"Rational Irrationality and the Microfoundations of Political Failure"
(_Public Choice_ 107(3/4), June 2001, pp.311-331.)

"Models of inefficient political failure have been criticized for
implicitly assuming the irrationality of voters. (Wittman 1999, 1995,
1989; Coate and Morris 1995) Building on Caplan's (1999a, 1999b) model
of "rational irrationality," the current paper maintains that the
assumption of voter irrationality is both theoretically and empirically
plausible. It then examines microfoundational criticisms of four classes
of political failure models: rent-seeking, pork-barrel politics,
bureaucracy, and economic reform. In each of the four cases,
incorporating simple forms of privately costless irrationality makes it
possible to clearly derive the models' standard conclusions. Moreover,
it follows that efforts to mitigate political failures will be socially
suboptimal, as most of the literature implicitly assumes. It is a
mistake to discount the empirical evidence for these models on
theoretical grounds."

I'm not saying I agree with all Caplan has to say here, but I think he
provokes some thought.



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