JOLLY DAYS

Rationality and Behavioral Economics

Sometimes David Brooks sounds a fuddy-duddy, though a good influence on the public debates. The latter is reflected in his trying to understand rather than fit observation to theory; the value he gives to insight over slogan and his general modesty — a reluctance to impose his ego on his argument. There is a constriction in his reasoning though that is hard to define.

In this article Brooks affirms what he calls “perception” in assessing human behavior — saying indirectly that mechanical, mathematical, philosophical models of reality leave out the personal, the human, the interior.

Brooks sees this as affecting economics,

My sense is that this financial crisis is going to amount to a coming-out party for behavioral economists and others who are bringing sophisticated psychology to the realm of public policy. At least these folks have plausible explanations for why so many people could have been so gigantically wrong about the risks they were taking.

The remarkable insight of the behavioral economists is that we are feeling, intuitive human beings, subjective to a fault. Shocker. But Brooks doesn't seem to see the value inherent in feelings, what he calls perceptions, which are the root level of our understanding of our lives, of the ambiguity of experience, of the conundrum of existence. Sometimes emotions don't serve, but being human doesn't always have a logic to it, and sometimes logic doesn't serve either.

I'd suggest to Brooks that if he had more experience of the arts, the lifeblood of which exists in those ambiguities, he would not have needed the reality shock of a financial crisis to realize that his mechanical formula, “First, you perceive a situation. Then you think of possible courses of action. Then you calculate which course is in your best interest. Then you take the action.”, never worked in the first place. He ascribes this logic to economists but I feel he himself often overlaps reality with this Procrustean formula, adding to it a Platonic wish, conflating the wished for ideal with the real, He looks for the reassurance of the rational in a buzzing, blooming chaos of a world it is hard for him to accept. Rationality comes after being human, not before. A rationality that does not wrap itself around our interior lives is escapist fantasy.

Update:

In this neuroscience podcast a psychiatrist speculated that the pressure put on financial advisors toward unrealistic profits — beating the markets — causes them to justify their assumption of too-great risk by “making up stories” (to themselves) to deflect their awareness that they are gambling. They then, if their risk taking implodes, fear their own judgment to be faulty, freeze up, and you have a credit crunch. The psychiatrist said the fix is for the financial advisors to realize at the outset that they can't beat the markets.