irrational

Bigotry is more powerful than the market

pnrj cognitive science, core principles, critique of neoclassical economics, current events, ethics, heuristics and biases, inequality, market failure, public policy , , , , , , , , , , , , , , , , , , , , , , ,

Nov 20, JDN 2457683

If there’s one message we can take from the election of Donald Trump, it is that bigotry remains a powerful force in our society. A lot of autoflagellating liberals have been trying to explain how this election result really reflects our failure to help people displaced by technology and globalization (despite the fact that personal income and local unemployment had negligible correlation with voting for Trump), or Hillary Clinton’s “bad campaign” that nonetheless managed the same proportion of Democrat turnout that re-elected her husband in 1996.

No, overwhelmingly, the strongest predictor of voting for Trump was being White, and living in an area where most people are White. (Well, actually, that’s if you exclude authoritarianism as an explanatory variable—but really I think that’s part of what we’re trying to explain.) Trump voters were actually concentrated in areas less affected by immigration and globalization. Indeed, there is evidence that these people aren’t racist because they have anxiety about the economy—they are anxious about the economy because they are racist. How does that work? Obama. They can’t believe that the economy is doing well when a Black man is in charge. So all the statistics and even personal experiences mean nothing to them. They know in their hearts that unemployment is rising, even as the BLS data clearly shows it’s falling.

The wide prevalence and enormous power of bigotry should be obvious. But economists rarely talk about it, and I think I know why: Their models say it shouldn’t exist. The free market is supposed to automatically eliminate all forms of bigotry, because they are inefficient.

The argument for why this is supposed to happen actually makes a great deal of sense: If a company has the choice of hiring a White man or a Black woman to do the same job, but they know that the market wage for Black women is lower than the market wage for White men (which it most certainly is), and they will do the same quality and quantity of work, why wouldn’t they hire the Black woman? And indeed, if human beings were rational profit-maximizers, this is probably how they would think.

More recently some neoclassical models have been developed to try to “explain” this behavior, but always without daring to give up the precious assumption of perfect rationality. So instead we get the two leading neoclassical theories of discrimination, which are statistical discrimination and taste-based discrimination.

Statistical discrimination is the idea that under asymmetric information (and we surely have that), features such as race and gender can act as signals of quality because they are correlated with actual quality for various reasons (usually left unspecified), so it is not irrational after all to choose based upon them, since they’re the best you have.

Taste-based discrimination is the idea that people are rationally maximizing preferences that simply aren’t oriented toward maximizing profit or well-being. Instead, they have this extra term in their utility function that says they should also treat White men better than women or Black people. It’s just this extra thing they have.

A small number of studies have been done trying to discern which of these is at work.
The correct answer, of course, is neither.

Statistical discrimination, at least, could be part of what’s going on. Knowing that Black people are less likely to be highly educated than Asians (as they definitely are) might actually be useful information in some circumstances… then again, you list your degree on your resume, don’t you? Knowing that women are more likely to drop out of the workforce after having a child could rationally (if coldly) affect your assessment of future productivity. But shouldn’t the fact that women CEOs outperform men CEOs be incentivizing shareholders to elect women CEOs? Yet that doesn’t seem to happen. Also, in general, people seem to be pretty bad at statistics.

The bigger problem with statistical discrimination as a theory is that it’s really only part of a theory. It explains why not all of the discrimination has to be irrational, but some of it still does. You need to explain why there are these huge disparities between groups in the first place, and statistical discrimination is unable to do that. In order for the statistics to differ this much, you need a past history of discrimination that wasn’t purely statistical.

Taste-based discrimination, on the other hand, is not a theory at all. It’s special pleading. Rather than admit that people are failing to rationally maximize their utility, we just redefine their utility so that whatever they happen to be doing now “maximizes” it.

This is really what makes the Axiom of Revealed Preference so insidious; if you really take it seriously, it says that whatever you do, must by definition be what you preferred. You can’t possibly be irrational, you can’t possibly be making mistakes of judgment, because by definition whatever you did must be what you wanted. Maybe you enjoy bashing your head into a wall, who am I to judge?

I mean, on some level taste-based discrimination is what’s happening; people think that the world is a better place if they put women and Black people in their place. So in that sense, they are trying to “maximize” some “utility function”. (By the way, most human beings behave in ways that are provably inconsistent with maximizing any well-defined utility function—the Allais Paradox is a classic example.) But the whole framework of calling it “taste-based” is a way of running away from the real explanation. If it’s just “taste”, well, it’s an unexplainable brute fact of the universe, and we just need to accept it. If people are happier being racist, what can you do, eh?

So I think it’s high time to start calling it what it is. This is not a question of taste. This is a question of tribal instinct. This is the product of millions of years of evolution optimizing the human brain to act in the perceived interest of whatever it defines as its “tribe”. It could be yourself, your family, your village, your town, your religion, your nation, your race, your gender, or even the whole of humanity or beyond into all sentient beings. But whatever it is, the fundamental tribe is the one thing you care most about. It is what you would sacrifice anything else for.

And what we learned on November 9 this year is that an awful lot of Americans define their tribe in very narrow terms. Nationalistic and xenophobic at best, racist and misogynistic at worst.

But I suppose this really isn’t so surprising, if you look at the history of our nation and the world. Segregation was not outlawed in US schools until 1955, and there are women who voted in this election who were born before American women got the right to vote in 1920. The nationalistic backlash against sending jobs to China (which was one of the chief ways that we reduced global poverty to its lowest level ever, by the way) really shouldn’t seem so strange when we remember that over 100,000 Japanese-Americans were literally forcibly relocated into camps as recently as 1942. The fact that so many White Americans seem all right with the biases against Black people in our justice system may not seem so strange when we recall that systemic lynching of Black people in the US didn’t end until the 1960s.

The wonder, in fact, is that we have made as much progress as we have. Tribal instinct is not a strange aberration of human behavior; it is our evolutionary default setting.

Indeed, perhaps it is unreasonable of me to ask humanity to change its ways so fast! We had millions of years to learn how to live the wrong way, and I’m giving you only a few centuries to learn the right way?

The problem, of course, is that the pace of technological change leaves us with no choice. It might be better if we could wait a thousand years for people to gradually adjust to globalization and become cosmopolitan; but climate change won’t wait a hundred, and nuclear weapons won’t wait at all. We are thrust into a world that is changing very fast indeed, and I understand that it is hard to keep up; but there is no way to turn back that tide of change.

Yet “turn back the tide” does seem to be part of the core message of the Trump voter, once you get past the racial slurs and sexist slogans. People are afraid of what the world is becoming. They feel that it is leaving them behind. Coal miners fret that we are leaving them behind by cutting coal consumption. Factory workers fear that we are leaving them behind by moving the factory to China or inventing robots to do the work in half the time for half the price.

And truth be told, they are not wrong about this. We are leaving them behind. Because we have to. Because coal is polluting our air and destroying our climate, we must stop using it. Moving the factories to China has raised them out of the most dire poverty, and given us a fighting chance toward ending world hunger. Inventing the robots is only the next logical step in the process that has carried humanity forward from the squalor and suffering of primitive life to the security and prosperity of modern society—and it is a step we must take, for the progress of civilization is not yet complete.

They wouldn’t have to let themselves be left behind, if they were willing to accept our help and learn to adapt. That carbon tax that closes your coal mine could also pay for your basic income and your job-matching program. The increased efficiency from the automated factories could provide an abundance of wealth that we could redistribute and share with you.

But this would require them to rethink their view of the world. They would have to accept that climate change is a real threat, and not a hoax created by… uh… never was clear on that point actually… the Chinese maybe? But 45% of Trump supporters don’t believe in climate change (and that’s actually not as bad as I’d have thought). They would have to accept that what they call “socialism” (which really is more precisely described as social democracy, or tax-and-transfer redistribution of wealth) is actually something they themselves need, and will need even more in the future. But despite rising inequality, redistribution of wealth remains fairly unpopular in the US, especially among Republicans.

Above all, it would require them to redefine their tribe, and start listening to—and valuing the lives of—people that they currently do not.

Perhaps we need to redefine our tribe as well; many liberals have argued that we mistakenly—and dangerously—did not include people like Trump voters in our tribe. But to be honest, that rings a little hollow to me: We aren’t the ones threatening to deport people or ban them from entering our borders. We aren’t the ones who want to build a wall (though some have in fact joked about building a wall to separate the West Coast from the rest of the country, I don’t think many people really want to do that). Perhaps we live in a bubble of liberal media? But I make a point of reading outlets like The American Conservative and The National Review for other perspectives (I usually disagree, but I do at least read them); how many Trump voters do you think have ever read the New York Times, let alone Huffington Post? Cosmopolitans almost by definition have the more inclusive tribe, the more open perspective on the world (in fact, do I even need the “almost”?).

Nor do I think we are actually ignoring their interests. We want to help them. We offer to help them. In fact, I want to give these people free money—that’s what a basic income would do, it would take money from people like me and give it to people like them—and they won’t let us, because that’s “socialism”! Rather, we are simply refusing to accept their offered solutions, because those so-called “solutions” are beyond unworkable; they are absurd, immoral and insane. We can’t bring back the coal mining jobs, unless we want Florida underwater in 50 years. We can’t reinstate the trade tariffs, unless we want millions of people in China to starve. We can’t tear down all the robots and force factories to use manual labor, unless we want to trigger a national—and then global—economic collapse. We can’t do it their way. So we’re trying to offer them another way, a better way, and they’re refusing to take it. So who here is ignoring the concerns of whom?

Of course, the fact that it’s really their fault doesn’t solve the problem. We do need to take it upon ourselves to do whatever we can, because, regardless of whose fault it is, the world will still suffer if we fail. And that presents us with our most difficult task of all, a task that I fully expect to spend a career trying to do and yet still probably failing: We must understand the human tribal instinct well enough that we can finally begin to change it. We must know enough about how human beings form their mental tribes that we can actually begin to shift those parameters. We must, in other words, cure bigotry—and we must do it now, for we are running out of time.

What is the price of time?

pnrj critique of neoclassical economics, heuristics and biases , , , , , , , , , , , , , , ,

JDN 2457562

If they were asked outright, “What is the price of time?” most people would find that it sounds nonsensical, like I’ve asked you “What is the diameter of calculus?” or “What is the electric charge of justice?” (It’s interesting that we generally try to assign meaning to such nonsensical questions, and they often seem strangely profound when we do; a good deal of what passes for “profound wisdom” is really better explained as this sort of reaction to nonsense. Deepak Chopra, for instance.)

But there is actually a quite sensible economic meaning of this question, and answering it turns out to have many important implications for how we should run our countries and how we should live our lives.

What we are really asking for is temporal discounting; we want to know how much more money today is worth compared to tomorrow, and how much more money tomorrow is worth compared to two days from now.

If you say that they are exactly the same, your discount rate (your “price of time”) is zero; if that is indeed how you feel, may I please borrow your entire net wealth at 0% interest for the next thirty years? If you like we can even inflation-index the interest rate so it always produces a real interest rate of zero, thus protecting you from potential inflation risk.
What? You don’t like my deal? You say you need that money sooner? Then your discount rate is not zero. Similarly, it can’t be negative; if you actually valued money tomorrow more than money today, you’d gladly give me my loan.

Money today is worth more to you than money tomorrow—the only question is how much more.

There’s a very simple theorem which says that as long as your temporal discounting doesn’t change over time, so it is dynamically consistent, it must have a very specific form. I don’t normally use math this advanced in my blog, but this one is so elegant I couldn’t resist. I’ll encase it in blockquotes so you can skim over it if you must.

The value of $1 today relative to… today is of course 1; f(0) = 1.

If you are dynamically consistent, at any time t you should discount tomorrow relative to today the same as you discounted today relative to yesterday, so for all t, f(t+1)/f(t) = f(t)/f(t-1)
Thus, f(t+1)/f(t) is independent of t, and therefore equal to some constant, which we can call r:

f(t+1)/f(t) = r, which implies f(t+1) = r f(t).

Starting at f(0) = 1, we have:

f(0) = 1, f(1) = r, f(2) = r^2

We can prove that this pattern continues to hold by mathematical induction.

Suppose the following is true for some integer k; we already know it works for k = 1:

f(k) = r^k

Let t = k:

f(k+1) = r f(k)

Therefore:

f(k+1) = r^(k+1)

Which by induction proves that for all integers n:

f(n) = r^n

The name of the variable doesn’t matter. Therefore:

f(t) = r^t

Whether you agree with me that this is beautiful, or you have no idea what I just said, the take-away is the same: If your discount rate is consistent over time, it must be exponential. There must be some constant number 0 < r < 1 such that each successive time period is worth r times as much as the previous. (You can also generalize this to the case of continuous time, where instead of r^t you get e^(-r t). This requires even more advanced math, so I’ll spare you.)

Most neoclassical economists would stop right there. But there are two very big problems with this argument:

(1) It doesn’t tell us the value r should actually be, only that it should be a constant.

(2) No actual human being thinks of time this way.

There is still ongoing research as to exactly how real human beings discount time, but one thing is quite clear from the experiments: It certainly isn’t exponential.

From about 2000 to 2010, the consensus among cognitive economists was that humans discount time hyperbolically; that is, our discount function looks like this:

f(t) = 1/(1 + r t)

In the 1990s there were a couple of experiments supporting hyperbolic discounting. There is even some theoretical work trying to show that this is actually optimal, given a certain kind of uncertainty about the future, and the argument for exponential discounting relies upon certainty we don’t actually have. Hyperbolic discounting could also result if we were reasoning as though we are given a simple interest rate, rather than a compound interest rate.

But even that doesn’t really seem like humans think, now does it? It’s already weird enough for someone to say “Should I take out this loan at 5%? Well, my discount rate is 7%, so yes.” But I can at least imagine that happening when people are comparing two different interest rates (“Should I pay down my student loans, or my credit cards?”). But I can’t imagine anyone thinking, “Should I take out this loan at 5% APR which I’d need to repay after 5 years? Well, let’s check my discount function, 1/(1+0.05 (5)) = 0.8, multiplied by 1.05^5 = 1.28, the product of which is 1.02, greater than 1, so no, I shouldn’t.” That isn’t how human brains function.

Moreover, recent experiments have shown that people often don’t seem to behave according to what hyperbolic discounting would predict.

Therefore I am very much in the other camp of cognitive economists, who say that we don’t have a well-defined discount function. It’s not exponential, it’s not hyperbolic, it’s not “quasi-hyperbolic” (yes that is a thing); we just don’t have one. We reason about time by simple heuristics. You can’t make a coherent function out of it because human beings… don’t always reason coherently.

Some economists seem to have an incredible amount of trouble accepting that; here we have one from the University of Chicago arguing that hyperbolic discounting can’t possibly exist, because then people could be Dutch-booked out of all their money; but this amounts to saying that human behavior cannot ever be irrational, lest all our money magically disappear. Yes, we know hyperbolic discounting (and heuristics) allow for Dutch-booking; that’s why they’re irrational. If you really want to know the formal assumption this paper makes that is wrong, it assumes that we have complete markets—and yes, complete markets essentially force you to be perfectly rational or die, because the slightest inconsistency in your reasoning results in someone convincing you to bet all your money on a sure loss. Why was it that we wanted complete markets, again? (Oh, yes, the fanciful Arrow-Debreu model, the magical fairy land where everyone is perfectly rational and all markets are complete and we all have perfect information and the same amount of wealth and skills and the same preferences, where everything automatically achieves a perfect equilibrium.)

There was a very good experiment on this, showing that rather than discount hyperbolically, behavior is better explained by a heuristic that people judge which of two options is better by a weighted sum of the absolute distance in time plus the relative distance in time. Now that sounds like something human beings might actually do. “$100 today or $110 tomorrow? That’s only 1 day away, but it’s also twice as long. I’m not waiting.” “$100 next year, or $110 in a year and a day? It’s only 1 day apart, and it’s only slightly longer, so I’ll wait.”

That might not actually be the precise heuristic we use, but it at least seems like one that people could use.

John Duffy, whom I hope to work with at UCI starting this fall, has been working on another experiment to test a different heuristic, based on the work of Daniel Kahneman, saying essentially that we have a fast, impulsive, System 1 reasoning layer and a slow, deliberative, System 2 reasoning layer; the result is that our judgments combine both “hand to mouth” where our System 1 essentially tries to get everything immediately and spend whatever we can get our hands on, and a more rational assessment by System 2 that might actually resemble an exponential discount rate. In the 5-minute judgment, System 1’s voice is overwhelming; but if we’re already planning a year out, System 1 doesn’t even care anymore and System 2 can take over. This model also has the nice feature of explaining why people with better self-control seem to behave more like they use exponential discounting,[PDF link] and why people do on occasion reason more or less exponentially, while I have literally never heard anyone try to reason hyperbolically, only economic theorists trying to use hyperbolic models to explain behavior.

Another theory is that discounting is “subadditive”, that is, if you break up a long time interval into many short intervals, people will discount it more, because it feels longer that way. Imagine a century. Now imagine a year, another year, another year, all the way up to 100 years. Now imagine a day, another day, another day, all the way up to 365 days for the first year, and then 365 days for the second year, and that on and on up to 100 years. It feels longer, doesn’t it? It is of course exactly the same. This can account for some weird anomalies in choice behavior, but I’m not convinced it’s as good as the two-system model.

Another theory is that we simply have a “present bias”, which we treat as a sort of fixed cost that we incur regardless of what the payments are. I like this because it is so supremely simple, but there’s something very fishy about it, because in this experiment it was just fixed at $4, and that can’t be right. It must be fixed at some proportion of the rewards, or something like that; or else we would always exhibit near-perfect exponential discounting for large amounts of money, which is more expensive to test (quite directly), but still seems rather unlikely.

Why is this important? This post is getting long, so I’ll save it for future posts, but in short, the ways that we value future costs and benefits, both as we actually do, and as we ought to, have far-reaching implications for everything from inflation to saving to environmental sustainability.

No, advertising is not signaling

pnrj critique of neoclassical economics, heuristics and biases, market failure, Uncategorized , , , , , , , , ,

JDN 2457373

Awhile ago, I wrote a post arguing that advertising is irrational, that at least with advertising as we know it, no real information is conveyed and thus either consumers are being irrational in their purchasing decisions, or advertisers are irrational for buying ads that don’t work.

One of the standard arguments neoclassical economists make to defend the rationality of advertising is that advertising is signaling—that even though the content of the ads conveys no useful information, the fact that there are ads is a useful signal of the real quality of goods being sold.

The idea is that by spending on advertising, a company shows that they have a lot of money to throw around, and are therefore a stable and solvent company that probably makes good products and is going to stick around for awhile.

Here are a number of different papers all making this same basic argument, often with sophisticated mathematical modeling. This paper takes an even bolder approach, arguing that people benefit from ads and would therefore pay to get them if they had to. Does that sound even remotely plausible to you? It sure doesn’t to me. Some ads are fairly entertaining, but generally if someone is willing to pay money for a piece of content, they charge money for that content.

Could spending on advertising offer a signal of the quality of a product or the company that makes it? Yes. That is something that actually could happen. The reason this argument is ridiculous is not that advertising signaling couldn’t happen—it’s that advertising is clearly nowhere near the best way to do that. The content of ads is clearly nothing remotely like what it would be if advertising were meant to be a costly signal of quality.

Look at this ad for Orangina. Look at it. Look at it.

Now, did that ad tell you anything about Orangina? Anything at all?

As far as I can tell, the thing it actually tells you isn’t even true—it strongly implies that Orangina is a form of aftershave when in fact it is an orange-flavored beverage. It’d be kind of like having an ad for the iPad that involves scantily-clad dog-people riding the iPad like it’s a hoverboard. (Now that I’ve said it, Apple is probably totally working on that ad.)

This isn’t an isolated incident for Orangina, who have a tendency to run bizarre and somewhat suggestive (let’s say PG-13) TV spots involving anthropomorphic animals.

But more than that, it’s endemic to the whole advertising industry.

Look at GEICO, for instance; without them specifically mentioning that this is car insurance, you’d never know what they were selling from all the geckos,

and Neanderthals,

and… golf Krakens?

Progressive does slightly better, talking about some of their actual services while also including an adorably-annoying spokesperson (she’s like Jar Jar, but done better):

State Farm also includes at least a few tidbits about their insurance amidst the teleportation insanity:

But honestly the only car insurance commercials I can think of that are actually about car insurance are Allstate’s, and even then they’re mostly about Dennis Haybert’s superhuman charisma. I would buy bacon cheeseburgers from this man, and I’m vegetarian.

Esurance is also relatively informative (and owned by Allstate, by the way); they talk about their customer service and low prices (in other words, the only things you actually care about with car insurance). But even so, what reason do we have to believe their bald assertions of good customer service? And what’s the deal with the whole money-printing thing?

And of course I could deluge you with examples from other companies, from Coca-Cola’s polar bears and Santa Claus to this commercial, which is literally the most American thing I have ever seen:

If you’re from some other country and are going, “What!?” right now, that’s totally healthy. Honestly I think we would too if constant immersion in this sort of thing hadn’t deadened our souls.

Do these ads signal that their companies have a lot of extra money to burn? Sure. But there are plenty of other ways to do that which would also serve other valuable functions. I honestly can’t imagine any scenario in which the best way to tell me the quality of an auto insurance company is to show me 30-second spots about geckos and Neanderthals.

If a company wants to signal that they have a lot of money, they could simply report their financial statement. That’s even regulated so that we know it has to be accurate (and this is one of the few financial regulations we actually enforce). The amount you spent on an ad is not obvious from the result of the ad, and doesn’t actually prove that you’re solvent, only that you have enough access to credit. (Pets.com famously collapsed the same year they ran a multi-million-dollar Super Bowl ad.)

If a company wants to signal that they make a good product, they could pay independent rating agencies to rate products on their quality (you know, like credit rating agencies and reviewers of movies and video games). Paying an independent agency is far more reliable than the signaling provided by advertising. Consumers could also pay their own agencies, which would be even more reliable; credit rating agencies and movie reviewers do sometimes have a conflict of interest, which could be resolved by making them report to consumers instead of producers.

If a company wants to establish that they are both financially stable and socially responsible, they could make large public donations to important charities. (This is also something that corporations do on occasion, such as Subaru’s recent campaign.) Or they could publicly announce a raise for all their employees. This would not only provide us with the information that they have this much money to spend—it would actually have a direct positive social effect, thus putting their money where there mouth is.

Signaling theory in advertising is based upon the success of signaling theory in evolutionary biology, which is beyond dispute; but evolution is tightly constrained in what it can do, so wasteful costly signals make sense. Human beings are smarter than that; we can find ways to convey information that don’t involve ludicrous amounts of waste.

If we were anywhere near as rational as these neoclassical models assume us to be, we would take the constant bombardment of meaningless ads not as a signal of a company’s quality but as a personal assault—they are needlessly attacking our time and attention when all the genuinely-valuable information they convey could have been conveyed much more easily and reliably. We would not buy more from them; we would refuse to buy from them. And indeed, I’ve learned to do just that; the more a company bombards me with annoying or meaningless advertisements, the more I make a point of not buying their product if I have a viable substitute. (For similar reasons, I make a point of never donating to any charity that uses hard-sell tactics to solicit donations.)

But of course the human mind is limited. We only have so much attention, and by bombarding us frequently and intensely enough they can overcome our mental defenses and get us to make decisions we wouldn’t if we were optimally rational. I can feel this happening when I am hungry and a food ad appears on TV; my autonomic hunger response combined with their expert presentation of food in the perfect lighting makes me want that food, if only for the few seconds it takes my higher cognitive functions to kick in and make me realize that I don’t eat meat and I don’t like mayonnaise.

Car commercials have always been particularly baffling to me. Who buys a car based on a commercial? A decision to spend $20,000 should not be made based upon 30 seconds of obviously biased information. But either people do buy cars based on commercials or they don’t; if they do, consumers are irrational, and if they don’t, car companies are irrational.

Advertising isn’t the source of human irrationality, but it feeds upon human irrationality, and is specifically designed to exploit our own stupidity to make us spend money in ways we wouldn’t otherwise. This means that markets will not be efficient, and huge amounts of productivity can be wasted because we spent it on what they convinced us to buy instead of what would truly have made our lives better. Those companies then profit more, which encourages them to make even more stuff nobody actually wants and sell it that much harder… and basically we all end up buying lots of worthless stuff and putting it in our garages and wondering what happened to our money and the meaning in our lives. Neoclassical economists really need to stop making ridiculous excuses for this damaging and irrational behavior–and maybe then we could actually find a way to make it stop.

Advertising: Someone is being irrational

pnrj critique of neoclassical economics, public policy , , , , , , , , , , , , , , ,

JDN 2457285 EDT 12:52

I’m working on moving toward a slightly different approach to posting; instead of one long 3000-word post once a week, I’m going to try to do two more bite-sized posts of about 1500 words or less spread throughout the week. I’m actually hoping to work toward setting up a Patreon and making blogging into a source of income.

Today’s bite-sized post is about advertising, and a rather simple, basic argument that shows that irrational economic behavior is widespread.

First, there are advertisements that don’t make sense. They don’t tell you anything about the product, they are often completely absurd, and while sometimes entertaining they are rarely so entertaining that people would pay to see them in theaters or buy them on DVD—which means that any entertainment value they had is outweighed by the opportunity cost of seeing them instead of the actual TV show, movie, or whatever else it was you wanted to see.

If you doubt that there are advertisements that don’t make sense, I have one example in particular for you which I think will settle this matter:

If you didn’t actually watch it, you must. It is too absurd to be explained.

And of course there are many other examples, from Coca-Cola’s weird associations with polar bears to the series of GEICO TV spots about Neanderthals that they thought were so entertaining as to deserve a TV show (the world proved them wrong), to M&M commercials that present a terrifying world in which humans regularly consume the chocolatey flesh of other sapient citizens (and I thought beef was bad!).

Or here’s another good one:

In the above commercial, Walmart attempts to advertise themselves by showing a heartwarming story of a child who works hard to make money by doing odd jobs, including using the model of door-to-door individual sales that Walmart exists to make obsolete. The only contribution Walmart makes to the story is apparently “we have affordable bicycles for children”. Coca-Cola is also thrown in for some reason.

Certain products seem to attract nonsensical advertising more than others, with car insurance being the prime culprit of totally nonsensical and irrelevant commercials, perhaps because of GEICO in particular who do not actually seem to be any good at providing car insurance but instead spend all of their resources making commercials.

Commercials for cars themselves are an interesting case, as certain ads actually appeal in at least a general way to the quality of the vehicle itself:

Then there are those that vaguely allude to qualities of their vehicles, but mostly immerse us in optimistic cyberpunk:

Others, however, make no attempt to say anything about the vehicle, instead spinning us exciting tales of giant hamsters who use the car and the power of dance to somehow form a truce between warring robot factions in a dystopian future (if you haven’t seen this commercial, none of that is a joke; see for yourself below):

So, I hope that I have satisfied you that there are in fact advertisements which don’t make sense, which could not possibly give anyone a rational reason to purchase the product contained within.

Therefore, at least one of the following statements must be true:

1. Consumers behave irrationally by buying products for irrational reasons
2. Corporations behave irrationally by buying advertisements that don’t work

Both could be true (in fact I think both are true), but at least one must be, on pain of contradiction, as long as you accept that there are advertisements which don’t provide rational reasons to buy products. There’s no wiggling out of this one, neoclassicists.

Advertising forms a large part of our economy—Americans spend $171 billion per year on ads, more than the federal government spends on education, and also more than the nominal GDP of Hungary or Vietnam. This figure is growing thanks to the Internet and its proliferation of “free” ad-supported content. Insofar as advertising is irrational, this money is being thrown down the drain.

The waste from spending on ads that don’t work is limited; you can’t waste more than you actually spent. But the waste from buying things you don’t actually need is not limited in the same way; an ad that cost $1 million to air (cheaper than a typical Super Bowl ad) could lead to $10 million in worthless purchases.

I wouldn’t say that all advertising is irrational; some ads do actually provide enough meaningful information about a product that they could reasonably motivate you to buy it (or at least look into buying it), and it is in both your best interest and the company’s best interest for you to have such information.

But I think it’s not unreasonable to estimate that about half of our advertising spending is irrational, either by making people buy things for bad reasons or by making corporations waste time and money on buying ads that don’t work. This amounts to some $85 billion per year, or enough to pay every undergraduate tuition at every public university in the United States.

This state of affairs is not inevitable.

Most meaningless ads could be undermined by regulation; instead of the current “blacklist” model where an ad is legal as long as it doesn’t explicitly state anything that is verifiably false, we could move to a “whitelist” model where an ad is illegal if it states anything that isn’t verifiably true. Red Bull cannot give you wings, Maxwell House isn’t good to the last drop, and Volkswagen needs to be more specific than “round for a reason”. We may never be able to completely eliminate irrelevant emotionally-salient allusions (pictures of families, children, puppies, etc.), but as long as the actual content of the words is regulated it would be much harder to deluge people with advertisements that provide no actual information.

We have a choice, as a civilization: Do we want to continue to let meaningless ads invade our brains and waste the resources of our society?

The irrationality of racism

pnrj core principles, heuristics and biases , , , , , , , , , , , , , , , , , , , , , ,

JDN 2457039 EST 12:07.

I thought about making today’s post about the crazy currency crisis in Switzerland, but currency exchange rates aren’t really my area of expertise; this is much more in Krugman’s bailiwick, so you should probably read what Krugman says about the situation. There is one thing I’d like to say, however: I think there is a really easy way to create credible inflation and boost aggregate demand, but for some reason nobody is ever willing to do it: Give people money. Emphasis here on the people—not banks. Don’t adjust interest rates or currency pegs, don’t engage in quantitative easing. Give people money. Actually write a bunch of checks, presumably in the form of refundable tax rebates.

The only reason I can think of that economists don’t do this is they are afraid of helping poor people. They wouldn’t put it that way; maybe they’d say they want to avoid “moral hazard” or “perverse incentives”. But those fears didn’t stop them from loaning $2 trillion to banks or adding $4 trillion to the monetary base; they didn’t stop them from fighting for continued financial deregulation when what the world economy most desperately needs is stronger financial regulation. Our whole derivatives market practically oozes moral hazard and perverse incentives, but they aren’t willing to shut down that quadrillion-dollar con game. So that can’t be the actual fear. No, it has to be a fear of helping poor people instead of rich people, as though “capitalism” meant a system in which we squeeze the poor as tight as we can and heap all possible advantages upon those who are already wealthy. No, that’s called feudalism. Capitalism is supposed to be a system where markets are structured to provide free and fair competition, with everyone on a level playing field.

A basic income is a fundamentally capitalist policy, which maintains equal opportunity with a minimum of government intervention and allows the market to flourish. I suppose if you want to say that all taxation and government spending is “socialist”, fine; then every nation that has ever maintained stability for more than a decade has been in this sense “socialist”. Every soldier, firefighter and police officer paid by a government payroll is now part of a “socialist” system. Okay, as long as we’re consistent about that; but now you really can’t say that socialism is harmful; on the contrary, on this definition socialism is necessary for capitalism. In order to maintain security of property, enforcement of contracts, and equality of opportunity, you need government. Maybe we should just give up on the words entirely, and speak more clearly about what specific policies we want. If I don’t get to say that a basic income is “capitalist”, you don’t get to say financial deregulation is “capitalist”. Better yet, how about you can’t even call it “deregulation”? You have to actually argue in front of a crowd of people that it should be legal for banks to lie to them, and there should be no serious repercussions for any bank that cheats, steals, colludes, or even launders money for terrorists. That is, after all, what financial deregulation actually does in the real world.

Okay, that’s enough about that.

My birthday is coming up this Monday; thus completes my 27th revolution around the Sun. With birthdays come thoughts of ancestry: Though I appear White, I am legally one-quarter Native American, and my total ethnic mix includes English, German, Irish, Mohawk, and Chippewa.

Biologically, what exactly does that mean? Next to nothing.

Human genetic diversity is a real thing, and there are genetic links to not only dozens of genetic diseases and propensity toward certain types of cancer, but also personality and intelligence. There are also of course genes for skin pigmentation.

The human population does exhibit some genetic clustering, but the categories are not what you’re probably used to: Good examples of relatively well-defined genetic clusters include Ashkenazi, Papuan, and Mbuti. There are also many different haplogroups, such as mitochondrial haplogroups L3 and CZ.

Maybe you could even make a case for the “races” East Asian, South Asian, Pacific Islander, and Native American, since the indigenous populations of these geographic areas largely do come from the same genetic clusters. Or you could make a bigger category and call them all “Asian”—but if you include Papuan and Aborigine in “Asian” you’d pretty much have to include Chippewa and Najavo as well.

But I think it tells you a lot about what “race” really means when you realize that the two “race” categories which are most salient to Americans are in fact the categories that are genetically most meaningless. “White” and “Black” are totally nonsensical genetic categorizations.

Let’s start with “Black”; defining a “Black” race is like defining a category of animals by the fact that they are all tinted red—foxes yes, dogs no; robins yes, swallows no; ladybirds yes, cockroaches no. There is more genetic diversity within Africa than there is outside of it. There are African populations that are more closely related to European populations than they are to other African populations. The only thing “Black” people have in common is that their skin is dark, which is due to convergent evolution: It’s not due to common ancestry, but a common environment. Dark skin has a direct survival benefit in climates with intense sunlight.  The similarity is literally skin deep.

What about “White”? Well, there are some fairly well-defined European genetic populations, so if we clustered those together we might be able to get something worth calling “White”. The problem is, that’s not how it happened. “White” is a club. The definition of who gets to be “White” has expanded over time, and even occasionally contracted. Originally Hebrew, Celtic, Hispanic, and Italian were not included (and Hebrew, for once, is actually a fairly sensible genetic category, as long as you restrict it to Ashkenazi), but then later they were. But now that we’ve got a lot of poor people coming in from Mexico, we don’t quite think of Hispanics as “White” anymore. We actually watched Arabs lose their “White” card in real-time in 2001; before 9/11, they were “White”; now, “Arab” is a separate thing. And “Muslim” is even treated like a race now, which is like making a racial category of “Keynesians”—never forget that Islam is above all a belief system.

Actually, “White privilege” is almost a tautology—the privilege isn’t given to people who were already defined as “White”, the privilege is to be called “White”. The privilege is to have your ancestors counted in the “White” category so that they can be given rights, while people who are not in the category are denied those rights. There does seem to be a certain degree of restriction by appearance—to my knowledge, no population with skin as dark as Kenyans has ever been considered “White”, and Anglo-Saxons and Nordics have always been included—but the category is flexible to political and social changes.

But really I hate that word “privilege”, because it gets the whole situation backwards. When you talk about “White privilege”, you make it sound as though the problem with racism is that it gives unfair advantages to White people (or to people arbitrarily defined as “White”). No, the problem is that people who are not White are denied rights. It isn’t what White people have that’s wrong; it’s what Black people don’t have. Equating those two things creates a vision of the world as zero-sum, in which each gain for me is a loss for you.

Here’s the thing about zero-sum games: All outcomes are Pareto-efficient. Remember when I talked about Pareto-efficiency? As a quick refresher, an outcome is Pareto-efficient if there is no way for one person to be made better off without making someone else worse off. In general, it’s pretty hard to disagree that, other things equal, Pareto-efficiency is a good thing, and Pareto-inefficiency is a bad thing. But if racism were about “White privilege” and the game were zero-sum, racism would have to be Pareto-efficient.

In fact, racism is Pareto-inefficient, and that is part of why it is so obviously bad. It harms literally billions of people, and benefits basically no one. Maybe there are a few individuals who are actually, all things considered, better off than they would have been if racism had not existed. But there are certainly not very many such people, and in fact I’m not sure there are any at all. If there are any, it would mean that technically racism is not Pareto-inefficient—but it is definitely very close. At the very least, the damage caused by racism is several orders of magnitude larger than any benefits incurred.

That’s why the “privilege” language, while well-intentioned, is so insidious; it tells White people that racism means taking things away from them. Many of these people are already in dire straits—broke, unemployed, or even homeless—so taking away what they have sounds particularly awful. Of course they’d be hostile to or at least dubious of attempts to reduce racism. You just told them that racism is the only thing keeping them afloat! In fact, quite the opposite is the case: Poor White people are, second only to poor Black people, those who stand the most to gain from a more just society. David Koch and Donald Trump should be worried; we will probably have to take most of their money away in order to achieve social justice. (Bill Gates knows we’ll have to take most of his money away, but he’s okay with that; in fact he may end up giving it away before we get around to taking it.) But the average White person will almost certainly be better off than they were.

Why does it seem like there are benefits to racism? Again, because people are accustomed to thinking of the world as zero-sum. One person is denied a benefit, so that benefit must go somewhere else right? Nope—it can just disappear entirely, and in this case typically does.

When a Black person is denied a job in favor of a White person who is less qualified, doesn’t that White person benefit? Uh, no, actually, not really. They have been hired for a job that isn’t an optimal fit for them; they aren’t working to their comparative advantage, and that Black person isn’t either and may not be working at all. The total output of the economy will be thereby reduced slightly. When this happens millions of times, the total reduction in output can be quite substantial, and as a result that White person was hired at $30,000 for an unsuitable job when in a racism-free world they’d have been hired at $40,000 for a suitable one. A similar argument holds for sexism; men don’t benefit from getting jobs women are denied if one of those women would have invented a cure for prostate cancer.

Indeed, the empowerment of women and minorities is kind of the secret cheat code for creating a First World economy. The great successes of economic development—Korea, Japan, China, the US in WW2—had their successes precisely at a time when they suddenly started including women in manufacturing, effectively doubling their total labor capacity. Moreover, it’s pretty clear that the causation ran in this direction. Periods of economic growth are associated with increases in solidarity with other groups—and downturns with decreased solidarity—but the increase in women in the workforce was sudden and early while the increase in growth and total output was prolonged.

Racism is irrational. Indeed it is so obviously irrational that for decades now neoclassical economists have been insisting that there is no need for civil rights policy, affirmative action, etc. because the market will automatically eliminate racism by the rational profit motive. A more recent literature has attempted to show that, contrary to all appearances, racism actually is rational in some cases. Inevitably it relies upon either the background of a racist society (maybe Black people are, on average, genuinely less qualified, but it would only be because they’ve been given poorer opportunities), or an assumption of “discriminatory tastes”, which is basically giving up and redefining the utility function so that people simply get direct pleasure from being racists. Of course, on that sort of definition, you can basically justify any behavior as “rational”: Maybe he just enjoys banging his head against the wall! (A similar slipperiness is used by egoists to argue that caring for your children is actually “selfish”; well, it makes you happy, doesn’t it? Yes, but that’s not why we do it.)

There’s a much simpler way to understand this situation: Racism is irrational, and so is human behavior.

That isn’t a complete explanation, of course; and I think one major misunderstanding neoclassical economists have of cognitive economists is that they think this is what we do—we point out that something is irrational, and then high-five and go home. No, that’s not what we do. Finding the irrationality is just the start; next comes explaining the irrationality, understanding the irrationality, and finally—we haven’t reached this point in most cases—fixing the irrationality.

So what explains racism? In short, the tribal paradigm. Human beings evolved in an environment in which the most important factor in our survival and that of our offspring was not food supply or temperature or predators, it was tribal cohesion. With a cohesive tribe, we could find food, make clothes, fight off lions. Without one, we were helpless. Millions of years in this condition shaped our brains, programming them to treat threats to tribal cohesion as the greatest possible concern. We even reached the point where solidarity for the tribe actually began to dominate basic survival instincts: For a suicide bomber the unity of the tribe—be it Marxism for the Tamil Tigers or Islam for Al-Qaeda—is more important than his own life. We will do literally anything if we believe it is necessary to defend the identities we believe in.

And no, we rationalists are no exception here. We are indeed different from other groups; the beliefs that define us, unlike the beliefs of literally every other group that has ever existed, are actually rationally founded. The scientific method really isn’t just another religion, for unlike religion it actually works. But still, if push came to shove and we were forced to kill and die in order to defend rationality, we would; and maybe we’d even be right to do so. Maybe the French Revolution was, all things considered, a good thing—but it sure as hell wasn’t nonviolent.

This is the background we need to understand racism. It actually isn’t enough to show people that racism is harmful and irrational, because they are programmed not to care. As long as racial identification is the salient identity, the tribe by which we define ourselves, we will do anything to defend the cohesion of that tribe. It is not enough to show that racism is bad; we must in fact show that race doesn’t matter. Fortunately, this is easy, for as I explained above, race does not actually exist.

That makes racism in some sense easier to deal with than sexism, because the very categories of races upon which it is based are fundamentally faulty. Sexes, on the other hand, are definitely a real thing. Males and females actually are genetically different in important ways. Exactly how different in what ways is an open question, and what we do know is that for most of the really important traits like intelligence and personality the overlap outstrips the difference. (The really big, categorical differences all appear to be physical: Anatomy, size, testosterone.) But conquering sexism may always be a difficult balance, for there are certain differences we won’t be able to eliminate without altering DNA. That no more justifies sexism than the fact that height is partly genetic would justify denying rights to short people (which, actually, is something we do); but it does make matters complicated, because it’s difficult to know whether an observed difference (for instance, most pediatricians are female, while most neurosurgeons are male) is due to discrimination or innate differences.

Racism, on the other hand, is actually quite simple: Almost any statistically significant difference in behavior or outcome between races must be due to some form of discrimination somewhere down the line. Maybe it’s not discrimination right here, right now; maybe it’s discrimination years ago that denied opportunities, or discrimination against their ancestors that led them to inherit less generations later; but it almost has to be discrimination against someone somewhere, because it is only by social construction that races exist in the first place. I do say “almost” because I can think of a few exceptions: Black people are genuinely less likely to use tanning salons and genuinely more likely to need vitamin D supplements, but both of those things are directly due to skin pigmentation. They are also more likely to suffer from sickle-cell anemia, which is another convergent trait that evolved in tropical climates as a response to malaria. But unless you can think of a reason why employment outcomes would depend upon vitamin D, the huge difference in employment between Whites and Blacks really can’t be due to anything but discrimination.

I imagine most of my readers are more sophisticated than this, but just in case you’re wondering about the difference in IQ scores between Whites and Blacks, that is indeed a real observation, but IQ isn’t entirely genetic. The reason IQ scores are rising worldwide (the Flynn Effect) is due to improvements in environmental conditions: Fewer environmental pollutants—particularly lead and mercury, the removal of which is responsible for most of the reduction in crime in America over the last 20 years—better nutrition, better education, less stress. Being stupid does not make you poor (or how would we explain Donald Trump?), but being poor absolutely does make you stupid. Combine that with the challenges and inconsistencies in cross-national IQ comparisons, and it’s pretty clear that the higher IQ scores in rich nations are an effect, not a cause, of their affluence. Likewise, the lower IQ scores of Black people in the US are entirely explained by their poorer living conditions, with no need for any genetic hypothesis—which would also be very difficult in the first place precisely because “Black” is such a weird genetic category.

Unfortunately, I don’t yet know exactly what it takes to change people’s concept of group identification. Obviously it can be done, for group identities change all the time, sometimes quite rapidly; but we simply don’t have good research on what causes those changes or how they might be affected by policy. That’s actually a major part of the experiment I’ve been trying to get funding to run since 2009, which I hope can now become my PhD thesis. All I can say is this: I’m working on it.

Are humans rational?

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JDN 2456928 PDT 11:21.

The central point of contention between cognitive economists and neoclassical economists hinges upon the word “rational”: Are humans rational? What do we mean by “rational”?

Neoclassicists are very keen to insist that they think humans are rational, and often characterize the cognitivist view as saying that humans are irrational. (Daniel Ariely has a habit of feeding this view, titling books things like Predictably Irrational and The Upside of Irrationality.) But I really don’t think this is the right way to characterize the difference.

Daniel Kahneman has a somewhat better formulation (from Thinking, Fast and Slow): “I often cringe when my work is credited as demonstrating that human choices are irrational, when in fact our research only shows that Humans are not well described by the rational-agent model.” (Yes, he capitalizes the word “Humans” throughout, which is annoying; but in general it is a great book.)

The problem is that saying “humans are irrational” has the connotation of a universal statement; it seems to be saying that everything we do, all the time, is always and everywhere utterly irrational. And this of course could hardly be further from the truth; we would not have even survived in the savannah, let alone invented the Internet, if we were that irrational. If we simply lurched about randomly without any concept of goals or response to information in the environment, we would have starved to death millions of years ago.

But at the same time, the neoclassical definition of “rational” obviously does not describe human beings. We aren’t infinite identical psychopaths. Particularly bizarre (and frustrating) is the continued insistence that rationality entails selfishness; apparently economists are getting all their philosophy from Ayn Rand (who barely even qualifies as such), rather than the greats such as Immanuel Kant and John Stuart Mill or even the best contemporary philosophers such as Thomas Pogge and John Rawls. All of these latter would be baffled by the notion that selfless compassion is irrational.

Indeed, Kant argued that rationality implies altruism, that a truly coherent worldview requires assent to universal principles that are morally binding on yourself and every other rational being in the universe. (I am not entirely sure he is correct on this point, and in any case it is clear to me that neither you nor I are anywhere near advanced enough beings to seriously attempt such a worldview. Where neoclassicists envision infinite identical psychopaths, Kant envisions infinite identical altruists. In reality we are finite diverse tribalists.)

But even if you drop selfishness, the requirements of perfect information and expected utility maximization are still far too strong to apply to real human beings. If that’s your standard for rationality, then indeed humans—like all beings in the real world—are irrational.

The confusion, I think, comes from the huge gap between ideal rationality and total irrationality. Our behavior is neither perfectly optimal nor hopelessly random, but somewhere in between.

In fact, we are much closer to the side of perfect rationality! Our brains are limited, so they operate according to heuristics: simplified, approximate rules that are correct most of the time. Clever experiments—or complex environments very different from how we evolved—can cause those heuristics to fail, but we must not forget that the reason we have them is that they work extremely well in most cases in the environment in which we evolved. We are about 90% rational—but woe betide that other 10%.

The most obvious example is phobias: Why are people all over the world afraid of snakes, spiders, falling, and drowning? Because those used to be leading causes of death. In the African savannah 200,000 years ago, you weren’t going to be hit by a car, shot with a rifle bullet or poisoned by carbon monoxide. (You’d probably die of malaria, actually; for that one, instead of evolving to be afraid of mosquitoes we evolved a biological defense mechanism—sickle-cell red blood cells.) Death in general was actually much more likely then, particularly for children.

A similar case can be made for other heuristics we use: We are tribal because the proper functioning of our 100-person tribe used to be the most important factor in our survival. We are racist because people physically different from us were usually part of rival tribes and hence potential enemies. We hoard resources even when our technology allows abundance, because a million years ago no such abundance was possible and every meal might be our last.

When asked how common something is, we don’t calculate a posterior probability based upon Bayesian inference—that’s hard. Instead we try to think of examples—that’s easy. That’s the availability heuristic. And if we didn’t have mass media constantly giving us examples of rare events we wouldn’t otherwise have known about, the availability heuristic would actually be quite accurate. Right now, people think of terrorism as common (even though it’s astoundingly rare) because it’s always all over the news; but if you imagine living in an ancient tribe—or even an medieval village!—anything you heard about that often would almost certainly be something actually worth worrying about. Our level of panic over Ebola is totally disproportionate; but in the 14th century that same level of panic about the Black Death would be entirely justified.

When we want to know whether something is a member of a category, again we don’t try to calculate the actual probability; instead we think about how well it seems to fit a model we have of the paradigmatic example of that category—the representativeness heuristic. You see a Black man on a street corner in New York City at night; how likely is it that he will mug you? Pretty small actually, because there were less than 200,000 crimes in all of New York City last year in a city of 8,000,000 people—meaning the probability any given person committed a crime in the previous year was only 2.5%; the probability on any given day would then be less than 0.01%. Maybe having those attributes raises the probability somewhat, but you can still be about 99% sure that this guy isn’t going to mug you tonight. But since he seemed representative of the category in your mind “criminals”, your mind didn’t bother asking how many criminals there are in the first place—an effect called base rate neglect. Even 200 years ago—let alone 1 million—you didn’t have these sorts of reliable statistics, so what else would you use? You basically had no choice but to assess based upon representative traits.

As you probably know, people have trouble dealing with big numbers, and this is a problem in our modern economy where we actually need to keep track of millions or billions or even trillions of dollars moving around. And really I shouldn’t say it that way, because $1 million ($1,000,000) is an amount of money an upper-middle class person could have in a retirement fund, while $1 billion ($1,000,000,000) would make you in the top 1000 richest people in the world, and $1 trillion ($1,000,000,000,000) is enough to end world hunger for at least the next 15 years (it would only take about $1.5 trillion to do it forever, by paying only the interest on the endowment). It’s important to keep this in mind, because otherwise the natural tendency of the human mind is to say “big number” and ignore these enormous differences—it’s called scope neglect. But how often do you really deal with numbers that big? In ancient times, never. Even in the 21st century, not very often. You’ll probably never have $1 billion, and even $1 million is a stretch—so it seems a bit odd to say that you’re irrational if you can’t tell the difference. I guess technically you are, but it’s an error that is unlikely to come up in your daily life.

Where it does come up, of course, is when we’re talking about national or global economic policy. Voters in the United States today have a level of power that for 99.99% of human existence no ordinary person has had. 2 million years ago you may have had a vote in your tribe, but your tribe was only 100 people. 2,000 years ago you may have had a vote in your village, but your village was only 1,000 people. Now you have a vote on the policies of a nation of 300 million people, and more than that really: As goes America, so goes the world. Our economic, cultural, and military hegemony is so total that decisions made by the United States reverberate through the entire human population. We have choices to make about war, trade, and ecology on a far larger scale than our ancestors could have imagined. As a result, the heuristics that served us well millennia ago are now beginning to cause serious problems.

[As an aside: This is why the “Downs Paradox” is so silly. If you’re calculating the marginal utility of your vote purely in terms of its effect on you—you are a psychopath—then yes, it would be irrational for you to vote. And really, by all means: psychopaths, feel free not to vote. But the effect of your vote is much larger than that; in a nation of N people, the decision will potentially affect N people. Your vote contributes 1/N to a decision that affects N people, making the marginal utility of your vote equal to N*1/N = 1. It’s constant. It doesn’t matter how big the nation is, the value of your vote will be exactly the same. The fact that your vote has a small impact on the decision is exactly balanced by the fact that the decision, once made, will have such a large effect on the world. Indeed, since larger nations also influence other nations, the marginal effect of your vote is probably larger in large elections, which means that people are being entirely rational when they go to greater lengths to elect the President of the United States (58% turnout) rather than the Wayne County Commission (18% turnout).]

So that’s the problem. That’s why we have economic crises, why climate change is getting so bad, why we haven’t ended world hunger. It’s not that we’re complete idiots bumbling around with no idea what we’re doing. We simply aren’t optimized for the new environment that has been recently thrust upon us. We are forced to deal with complex problems unlike anything our brains evolved to handle. The truly amazing part is actually that we can solve these problems at all; most lifeforms on Earth simply aren’t mentally flexible enough to do that. Humans found a really neat trick (actually in a formal evolutionary sense a goodtrick, which we know because it also evolved in cephalopods): Our brains have high plasticity, meaning they are capable of adapting themselves to their environment in real-time. Unfortunately this process is difficult and costly; it’s much easier to fall back on our old heuristics. We ask ourselves: Why spend 10 times the effort to make it work 99% of the time when you can make it work 90% of the time so much easier?

Why? Because it’s so incredibly important that we get these things right.