Tag: psychology

A Movie Review, A Question, and A Definition of Rationality

First, the movie review:

“Yeh buzdilon ki soch hai. Sach bolne waale ko agar dukh sahne ki himmat hai, toh dukh dene ki bhi himmat honi chahiye. Sachaai angaarey ki tarah hai – haath par rakho aur haath na jale, yeh kaise ho sakta hai?” (“Only cowards think like this. If the truth-teller has the courage to suffer pain, he must also have the courage to give pain to others. Truth is like a piece of burning coal on your hand.”)

Mukherjee’s film lets us see – not through didactic monologues but through the natural, graceful unfolding of its narrative – that such thoughts may be very noble in theory, but that they can be damaging and self-defeating in certain situations. This makes Satyakam a difficult film to watch, as it draws the viewer into a quicksand of uncertainty and despair. (I can sympathise with the boy who fell asleep in the hall next to Ranjit Kapoor, especially if he’d already had a long hard day!) Throughout, there are counterpoints to Satyapriya’s unalloyed idealism, as the film repeatedly places him – and us – in morally hazy situations.

https://jaiarjun.blogspot.com/2011/04/mat-jaane-bhi-do-yaar-idealism-and-self.html

Second, the question.

The question comes from an excellent article that appeared recently in the 1843 magazine. The article is about RCT’s in general, and their development over time, but it is also about the place where RCT’s started and have continued to mushroom: Kenya. The context that you need to have for the question I am about to ask you is this excerpt:

Their [fieldworkers in RCT’s that is – Ashish] work is gruelling and often emotionally draining. They are paid a salary of $10-20 per day – not a fortune in Kenya. Field workers have been known to give their own money to recipients so that they can afford food, which can distort the outcome of a study. “When they got to the end of the month, they would just fabricate [the] data,” said Kingori, the sociologist. “The fact that these trials are designed in this way is setting them up to fail in real life. They are constantly being subverted by these field workers.” She told me of a case from a medical RCT in which a child died in one recipient family. A field worker agreed to substitute the family’s other child in the study, so that the household could continue to receive the treatment. Field workers told me that they’d heard stories of their peers filling in respondent surveys themselves, in order to hit their daily quotas. Many of these stories date from the early days of RCTs. Recently, IPA and similar organisations have improved their training and fraud detection. GiveDirectly told me that “data fraud and monetary fraud are…punished through contract termination.”

https://www.economist.com/1843/2024/03/01/how-poor-kenyans-became-economists-guinea-pigs

You are a fieldworker hired to do work for an RCT. You are not running the RCT, you are being paid to collect the data and submit it to the researchers. A family that is a part of this study loses a child. They beg you to not report this to the researchers, because then the family would no longer be a part of the RCT, and therefore would no longer be eligible to receive aid (receive treatment, in RCT lingo). Let’s say you choose to agree to their request. The RCT is screwed, but hey, at least the family will continue to receive help during a time of unimaginable distress.

Here’s my question: did you act rationally, or not?

Here’s a follow-up question for those of you who have formally studied microeconomics: according to the fundamental axioms of microeconomic theory, did you act rationally or not?

Third, the definition of rationality, as per microeconomics.

This definition is via Gemini (Google’ current name for it’s AI, although that may change by the time you read this, who knows):

“Here’s a breakdown of rationality as defined within the context of classical microeconomic theory:

Core Axioms of Rationality in Microeconomic Theory

Completeness: Individuals have well-defined preferences. When presented with any two options (bundles of goods, outcomes, etc.), they can express:

Preference for one over the other
Indifference between the two

Transitivity: If a consumer prefers A to B and B to C, then they must prefer A to C. This ensures consistency in preferences.

Utility Maximization: Individuals always strive to choose the option that gives them the highest level of utility (satisfaction, well-being). The concept of utility allows for comparison of different choices.

Self-Interest: Individuals are assumed to prioritize their own utility above that of others. This doesn’t necessarily imply selfishness, but rather that the individual’s well-being is their primary concern.

Implications of these Axioms

Predictability of Behavior: If we know an individual’s preferences and constraints (e.g., budget, availability of goods), and assume rationality, we can predict their choices.


Optimization: Rational individuals will allocate resources efficiently, always aiming to get the most value out of their choices given their constraints.


Responsiveness to Incentives: Changes in prices, income, or other constraints will lead rational individuals to adjust their behavior to maintain maximum utility.

Important Notes:

Narrow Definition: This definition of rationality is specific to microeconomic theory; it simplifies human behavior to make modeling and predictions easier.

Bounded Rationality: Real-life decision-making is impacted by imperfect information, limited cognitive capacity, and time pressure. The concept of bounded rationality acknowledges these limitations.


Ethics vs. Rationality: This rationality definition doesn’t address moral or ethical dimensions of choices. A “rational” choice could still be exploitative or harmful to others.”

Try taking stab at the question yourself. Then read what our new friends have to say about it. Here is Gemini’s considered opinion on the issue. Here is ChatGPT. Now that you’ve read their answers, see if you change yours!

Talk about it with your friends, with your professors, with your families.

And for homework, do watch Satyakaam. It is freely available on YouTube.

Bradley A. Hansen on Richard Thaler, Behavioral Economics and Anomalies

The blogging gods are alive and well, and their “In A Weird Coincidence” department is in fine fettle.

So, in a weird coincidence, Bradley Hansen posted on his blog about the same topic as my blogpost from yesterday. And even better, his take on the issue is different from mine, which means I get to write one more post about the topic (yay!).

Here’s his opening paragraph:

I was listening to a recent episode of Hidden Brain the other day about anomalies, specifically things that are supposedly anomalies in economic theory. The guest was Richard Thaler, who is famous as a behavioral economist and Nobel Prize winner. The discussion reminded me of some of the problems that I have with some work that is described as behavioral economics. One of the stories he told was about Richard Rosett, a professor of his when he was in graduate school at the University of Rochester. Rosett collected wine. He wouldn’t spend more than $20 or $30 on a bottle, but sometimes a bottle he had purchased would increase in price to as much as $200. There was a wine shop in Rochester that would have purchased these valuable bottles from him, yet he would serve them rather than sell them, despite the fact that he would not spend $200 on a bottle. Thaler regards this as an anomaly that contradicts economic theory. The claim is that economic theory says that cost is the value of the foregone opportunity. It doesn’t matter whether you paid $200 for the bottle you are serving or gave up the opportunity to sell the bottle for $200. Either way the cost is $200. That’s all well and good, but it is ignoring the value of the story, which is odd because Thaler claims stories are his thing.

https://bradleyahansen.blogspot.com/2023/10/richard-thaler-and-behavioral-economics.html

As always, please read the whole post. I will quote parts that are relevant to this post throughout, but his blogpost is worth reading in its entirety.

“What are you optimizing for?” is a question I love asking on this blog, and Hansen asks this question and answers it – in the case of economists. Economists, he says, assume that people are trying to maximize their utility, and not their wealth.

I’ve added that emphasis towards the end, but I assure you that neither Hansen, nor Thaler, would object in the slightest. In fact, anybody who has taught introductory economics would likely nod approvingly upon seeing the emphasis, because this is a surprisingly widespread misapprehension – that economics is about wealth maximization.

No. No, it is not. Economics is the study of how to get the most out of life, and wealth is the means that allows us to get to our ends. What gives us utility is, for example, the eating of a plate of pani puri. And our wealth is what allows us to buy that plate of pani puri. If we choose to maximize the amount of wealth we possess by giving up on eating the pani puri, we would be missing the point.

Now, Thaler is of the opinion that Rosett was wrong to not sell the $200 bottle to the wine shop. And Hansen is of the opinion that Thaler is wrong. I’m about to tell you my opinion in the next paragraph, so hang on.

So, my opinion. My opinion is that what Hansen is really saying is that Thaler is attacking a strawman.

How so? Let’s go through this step by step:

  1. We have with us a bottle of wine that was purchased for $20. This has risen in value since our purchase, and can now be sold in the market for $200. Or we could drink it. What should we do?
  2. An economist, Richard Thaler says, should sell it. Because buy for 20, sell for 200. Duh.
  3. Hansen, on the other hand, says no, an economist shouldn’t necessarily sell it. Why not?
  4. Because what a cool story to tell your guests while you serve them the wine! “I got this bottle for only $20, and the going rate for it is now $200. Drink up, people, and cheers!”
  5. So the $180 dollars that you could have earned by selling the bottle of wine – is it worth more than the pleasure that you get from telling the story? From being thought of as a connoisseur of wine? From being seen as a Really Cool Guy? If yes, then sell. If not, well, don’t.
  6. Effectively, Hansen is saying that the utility function ought to include the pleasure of being able to tell the story about the wine.
  7. And, if you ask me, also ought to include the pleasure one gets from drinking the wine.
  8. Taking all of this into account, Hansen says, you would be irrational to sell the wine.

Does Richard Thaler not know this? Of course he does.

He (Richard Thaler) is saying that conventional economics has forgotten this stuff. Hansen is saying that they have not.

So who is right?

Well, the other thing that I like to say on my blog is that the truth lies somewhere in the middle. And in this case, I would say that both are kind of correct. But (sorry, Professor Hansen!) I do think that Richard Thaler has a bit more going for his side of the debate.

And the reason I say that is because as a teacher, I am firmly of the opinion that we teachers send far too many students out into the real world with the impression that economics is only about prices, income and expenditure, and not about “charity and love for children, spouses, relatives or anyone else“.

That is from pp 98 (Chapter 7, Utility Maximization) of Hal Varian’s graduate level textbook (Microeconomics Analysis). In English, it is saying that the problem of preference maximization is solved by maximizing utility through the consumption of x, while making sure that the money you spend on buying x (the price, p, multiplied by the number of units purchased of x) is lesser than your income, m. It is saying a bit more than that too, but this is EconForEverybody, and so I’m going to keep things simple.

Well, as simple as is possible, granted.

And it gets worse! On the second page of his chapter, this is what Hal Varian has to say about utility functions:

“A utility function is often a very convenient way to describe preferences, but it should not be given any psychological interpretation.”

Yes, I’ve added the emphasis, it is not there in the original. And in this case, one’s approval about the emphasis being added is likely to be a function of whether you think Thaler is right or wrong.

We can debate (and I would love to!) what Hal Varian meant when he wrote that, and whether there remains room to add in the pleasure of telling the story about the wine bottle, given his definition of the utility function.

But this is my charge: the impression that a student is going to be left with, if said student chooses to tackle this book, is that there’s no room for any story telling pleasure in the framing of the utility function. In fact, I happily admit to having just that impression when I did battle with this book back in 2006.

Again, sure my impression may have been (partially or wholly) incorrect. And sure there may be different ways to interpret that statement from that textbook.

But when Hansen says that “part of the problem with the wine story comes from not appreciating the many ways in which people can get satisfaction (utility)”… well, I’d argue that the diagnosis is spot on.

And the underlying cause? The textbooks we use to teach microeconomics don’t teach how to think about utility deeply enough. And we teachers (myself included) don’t emphasize this point often enough.

Hansen ends his blog by saying the following:

I’m not saying there is no value in behavioral economics, but far too much attention is given to these little stories that supposedly contradict economic theory when in fact they do no such thing.

https://bradleyahansen.blogspot.com/2023/10/richard-thaler-and-behavioral-economics.html

Me, I’d say that far too little attention is given to those little mathematical versions of utility functions that supposedly help students understand economic theory, when in fact they do no such thing.

What say?

Correlation, Causation, Coffee…

… and so much else besides!

Alexey Guzey’s newsletter is a treasure trove of interesting things he finds on Twitter, and in Guzey’s case, interesting is an understatement.

But even by his high standards, the article I am sharing with you today is something else altogether.

Said article begins the same way most articles I have shared here:

“The break point in America is exactly 1973,” says economist Tyler Cowen, “and we don’t know why this is the case.” One possible culprit is the 1973 oil embargo, because many of these trends have to do with energy. But Cowen doesn’t think this holds water. “Since that time, the price of oil in real terms has fallen a great deal,” he says, “and productivity has not bounded back.”
Another possible culprit is the US going off the gold standard in 1971, part of the set of measures known as the Nixon shock (also the name of our new Heavy Metal band). This makes some sense because many of these trends have to do with the economy. But it’s not clear if this is a good explanation either, as many of these trends seem to be global, and most of the world is not on the US dollar.

https://slimemoldtimemold.com/2021/04/19/higher-than-the-shoulders-of-giants-or-a-scientists-history-of-drugs/

But it then takes on a life of its own. And if this excerpt doesn’t make you curious to read more, nothing ever will.

Bier of course was a surgeon, and so when it was his turn to give Hildebrandt the injection, he performed it flawlessly. Soon Hildebrandt was very anaesthetized. To test it, reports Regional Anaesthesia, “Bier pinched Hildebrandt with his fingernails, hit his legs with a hammer, stubbed out a burning cigar on him, pulled out his pubic hair, and then firmly squeezed his testicles,” all to no effect. In a different account, this last step was described as “strong pressure and traction to the testicles”. They also pushed a large needle “in down to the thighbone without causing the slightest pain”, and tried “strong pinching of the nipples”, which could hardly be felt. They were thrilled. With apparently no bad blood over this series of trials, the two gentlemen celebrated that evening with wine and cigars, and woke up the next morning with the world’s biggest pair of headaches, which confined them to bed for 4 and 9 days, respectively.

https://slimemoldtimemold.com/2021/04/19/higher-than-the-shoulders-of-giants-or-a-scientists-history-of-drugs/

The whole article is impossibly fascinating, and is peppered with Today I Learnt moments. Along with the surgeon above, Tesla (as in the scientist, not the firm), Robert Louis Stevenson, Freud, and the Beatles also make guest appearances – as do two Popes.

Please, do read.

Etc: Links for 20th September, 2019

  1. Nepali chai.
    ..
    ..
  2. Who owns the smiley face?
    ..
    ..
  3. “The feeling that overwork can induce is much more than tiredness; it induces an anxiety that places the sufferer in a rather hellish place between shutting down and waking up. Full wakefulness isn’t possible because the nervous system and body are so overburdened. But neither is a state of rest because there is a feeling that the sufferer’s always behind herself. Always chasing the next task. Always feeling that they haven’t done enough, which in turn induces the tendency to cynicism and indifference often associated with the condition.”
    ..
    ..
    On burnout.
    ..
    ..
  4. Inside Samsung’s secretive lab.
    ..
    ..
  5. Japanese folks aren’t too excited (yet) about the Olympics.