It is generally considered (at least in economics) that humans tend to (or always) make rational decisions. Rational decisions can vaguely be defined as actions with the benefits exceeding the costs (a decision arrived after a cost-benefit analysis).
According to classical view of economics, it is these rational decisions that will ensure the harmony of a market. The invisible hand.
But this brings about a lot of criticism and skepticism because there are a lot of everyday decisions that people make that don't necessarily make "sense" or at least fail the cost-benefit analysis. In fact, there are numerous irrational decisions people make all the time. For instance, texting while driving, being religious and believing in a God, election of Obama, etc. are example of certain irrational behaviors humans perform.
So does this mean the classical view is flawed and that we humans don't always make the right choice and therefore need intervention? No and there is a reason why.
In order to answer the question, there needs to be a little tweak in the assumption of the rational behavior in humans. It is a simple change with wide implications.
Instead of saying "People exhibit rational behavior in a market" it should be changed to "the successful decisions made by people in a market tend to be rational (in the long run)."
By successful decisions, I mean decisions that satisfy the cost-benefit analysis (i.e. benefits exceeds the cost).
So a person who texts while driving is likely to crash and so will punished (either through injuries or financial loss).This person is now at a disadvantage in comparison to others. The person who was not texting will escape these costs and thus will likely have more chances in trying to achieve whatever he desires. The same applies to someone who elected Obama. He will likely suffer more compared to a nation that did not elect him. Therefore putting him at an disadvantage.
So in the long run, the decisions made (intentional or unintentional) that end up being rational are more likely help the individual/group to survive and excel at life.
The astute reader might have already drawn some parallels between this contention and the theory of natural selection. Just like old adage "survival of the fittest" by Herbert Spencer is the common notion in nature, "survival of the rational" is the rule that applies more specifically to humans. Nature "selects" the most rational of decisions and let them survive over time. Of course, nature in this sense can be described as the market aka “the invisible hand” fueled by the drive of self interest (will to power).
Of course, all of this applies only if it is assumed that people are truly let to be free. I.e. a limited government with laissez faire approach to markets.
All of this will be distorted in a society that is based on force. Then, the whole rule flips. It will no longer be the "survival of the rational' but rather "survival of the powerful".
In a society based on force, there is no competition. For instance, A society where the government controls everything (central planning) usually leaves no choice for the people regarding any aspects of their lives. The basic necessities for survival such as food and shelter are dictated by the state. Now that the officials in the state control the population, we have therefore given way for a society that disciplines its inhabitants based on the level of power rather than extent of rationality. In this society, the higher up an individual is in the state (aka higher power), the better chances he has at excelling at his life. Thus, everyone will strive to be part of the state because that is the only way to be prosperous. The worst part is that they achieve power not by following by being rational but rather through corrupt practices such as bribery and political linkage.
On the other hand, a society based on freedom will fine tune nature to select only the rational because one of the consequences of freedom is competition. The competition between private individuals will keep a constant check on every person and especially on private businesses. The opposing interests will keep trying new ways to defeat each other until one of them hits the chord. This usually occurs when the rational choice has been made.
From this perspective, the fight between "good and evil" becomes much more black and white. It is now a fight/choice between the rational or the powerful. In other words, the choice is between the survival of the rationalist and the survival of the powerful.
It is up to us to decide which one we want. Or maybe we don't have the choice. Maybe the powerful (current and past) have made the choice already.
Austrian Economics only reqires that humans act with a purpose. These acting humans then create the economy and society. The freer the humans are to act in their own interests without someone else imposing violence or coersion on them, the more prosperous the humans will become. The properties of the purpose, rational or not, mean or not, good or not, profitable or not, etc are important but do not make the economy and will get sorted out preferable by profit and loss, or by others defending themselves.
Bogart is right. Whenever humans act and something doesn't go according to our plan, the culprit is misinformation. Whenever we act purposefully, there is a conscious goal in mind. I think that's what praxeology attempts to define and explain.
"The culprit is misinformation"
Not always true. If you were to show Obama or Bernanke an article on the detrimental effects of Federal Reserve, they will still continue to deny it even if the information has been presented to them.
Alright. I didn't entirely mean it in that sense. The problem is when you get to that level, bad philosophy will doom any project so Bernake would look for any excuse to continue the same policies because he believes he is in the right. He's still working off of misinformed philosophy. Bernake wouldn't believe you because he has an alternative theory, but that theory could be incorrect.
Just because they disagree with your conclusions doesn't make them irrational.
Right which was my second point in the article. The conflict between the powerful and the rational are what we are in the middle of. The reasonable decision would be to abolish the Fed but a decision that favors the powerful is expanding the money supply. Since Bernanke is on the powerful end of it, he choses the latter.
Everyone... Please read the whole article because reading only the top half distorts my whole viewpoint and creates confusion.
You're conflating objective rationality (which doesn't exist, because that would mean that something is objectively right) with the general definition of rationality, which describes a thought process in which individuals weigh benefits and costs. Therefore, the Federal Reserve is rational for those agents who are responsible for its actions.
Okay, reading the whole opening post.
None of these actions are irrational. The mistake in your logic is made further down the post, so I will save my main rebuttal for then. However, all of these actions fulfill a cost-benefit analysis (which doesn't necessarily have to be rigorous and/or based on perfect information) at the time the decision was made. I chose to text and drive because I believed that it woud bring me benefits that would justify the cost, while at the same time it was perceived to be (by me) to be the most beneficial action I could have taken.
This is where you make your mistake. Human rationality doesn't mean that the action is absolutely and objectively the best action someone could have taken, with perfect knowledge and forethought. Human reason is a thought process in which prior to the action the agent does a cost-benefit analysis, at varying levels of rigor, at which that agent perceives (based on this cost-benefit analysis) the action to be the best he can take at the time. That the action was mistaken post hoc does not make that action irrational.
As such, mistakes are not irrational. They are poorly made rational decisions. Furthermore, I would go as far as to claim that irrational action is simply biologically impossible (excepting natural impulses, which I would call neither rational nor irrational).
By the way, those who have the advantage of a monopoly on force are using this advantage rationally. There is no difference, in terms of rationality, between Ben Bernanke and Ron Paul.
The problem with that is that people add in false information while contemplating the decision and therefore construing the quality of the decision. For example, some people decide not walk on cracks on the ground because they use the false information that cracks are bad luck. Sure the bad luck theory explains why people avoid the cracks because no one wants bad luck per se but it is not neceassarily a rational decision, a made up "fact" was added in to the equation.
We just have to face the fact that some people are "stupid" (atleast in some aspects) and dont necessarily come up with the same solutions from the thought process; though the mechanics of the thought process are similar.
Again, a rational decision is one in which at the time the decision was made it was perceived that the benefits outweighed the costs. That someone is superstitious, and therefore that their superstitions are weighed into the decision making process does not change the fact that that thought process is rational. Furthermore, just because you believe something to be wrong, it doesn't mean that the person who is making the decision believes that same thing to be wrong.
We just have to face the fact that some people are "stupid"...
When talking about rationality, whether someone is "stupid" or not has absolutely no bearing.
...dont necessarily come up with the same solutions from the thought process
It was never implied that two people had to come to the same conclusion. That is not a precondition of rationality.
...though the mechanics of the thought process are similar.
It's the "mechanics" that rationality is.
EDIT: By the way, by your definition, one of us here is irrational.
Ok there seems to be a confusion with the definition. How about if I define rationality as any reasonable decisions? In other words, the decisions that were taken with reason as driving mechanism by evaluating the factors that are acting and the quality of the outcome. Sometimes, decisions that resemble those made by reason is good enough.
Ok there seems to be a confusion with the definition.
There is no confusion. You tried to redefine the word under false premises.
How about if I define rationality as any reasonable decisions?
How about we define it as it has already been defined?
The Mises definition of rational is the most historically literal one. To ration is to be rational. Value statements about how "reasonable" are actions don't qualify as value free science.
Ok there seems to be a confusion with the definition. How about if I define rationality as any reasonable decisions?
You can certainly definite it that way, if you'd like. It invalidates your criticism of economic theory however, as the theory makes claims based on a different definition.
faber est suae quisque fortunae
The "Austrian" definition of rationality is so broad as to be trivial or practically useless. There's nothing inherently wrong with defining things one's own way, but to insist that this is *the* definition of rationality is a silly move. In the context of most linguistic practise, the term "rational" has normative connotations. For the purpose of economics, "Austrians" may prefer to remove all normative connotations in a way that almost defines "irrationality" out of existence, but economics or economists can't rightfully enjoy a monopoly on the use of the word or concept.
At a broader philosophical level, there is no requirement that anyone be "value-free", to abstain from normative judgements about decision-making processes. IMO, insisting on this is by the very least a categorical error in which one tries to use economic methodology outside of its proper context or scope, as if it dictates what is philosophically warranted altogether.
As a related side-note, I don't believe there is such thing as "value-free science" (science, "natural" or otherwise, is governed by epistemic normatives and progresses through value-laden conventional processes), or that there is such thing as an economist ("Austrian" or otherwise) that genuinely avoids normative judgements within their practise of their field. In fact, this pretense to being "objective" via eschewing the value-realm is something "Austrians" seem to have in common with none other than positivists, who they otherwise would rant and rave against.
"Rational decisions can vaguely be defined as actions with the benefits exceeding the costs (a decision arrived after a cost-benefit analysis). "
i still dont see why this is not a valid definition. You guys are confusing the similairty in mechanics of thoughts process between humans with the actual rationality that not all humans possess (atleast, not all the time).
Either way, you're attacking the definition rather than the argument. The argument uses the word in a specific, well explained manner. If you disagree with the argument, it is disingenuous to attack it using a different definition. Austrians claim X,Y and Z, which they define as “W”. The fact that they may be misusing the term “W” in no way invalidates the claims X, Y and Z.
The "Austrian" definition of rationality is so broad as to be trivial or practically useless.
The Austrian definition of rationality is not broad at all. Would you care to substantiate this claim? Furthermore, how can you say it's "practically useless", if it is the only axiom of Misesian praxeology, which is not useless.
...but economics or economists can't rightfully enjoy a monopoly on the use of the word or concept.
We can if the purpose of the definition is to critisize our conclusions.
As a related side-note, I don't believe there is such thing as "value-free science"...
Your point that all science tends to be value-driven is not incorrect, however, it nevertheless stands that logically rigorous economic theory is value-free in the sense that the relationship exists regardless of values. In other words, that an increase in the supply of money will lead to an increase in the prices of goods towards which this new money is bid is true whether you think an increase in the supply of money is moral or not.
So, when we discuss the notion of value-free economics it is only within the context that economic relationships are objectively true. Concretely, the two following sentences say different things, one is value-loaded and the other is value-free,
"Taxation reduces incentive for investment."
"We should tax, because poor people need money more than rich people."
One explains a relationship independent of value, and the other is a normative, ethical premise.
In fact, this pretense to being "objective" via eschewing the value-realm is something "Austrians" seem to have in common with none other than positivists, who they otherwise would rant and rave against.
All economic theory, whether Keynesian, Austrian, or Neoclassical, if it is logically rigorous and therefore objective true, is value-free. The judgements economists make based on this theory will most likely be value-loaded, but this has no bearing on the characteristics of the theory itself.
I hope this clarifies what is meant by value-free economics.
The argument essentially is the definition, especially given the extremely aprioristic nature of it.
The argument essentially is the definition, especially given the extremely aprioristic nature of it. The claims X, Y, and Z all hinge on none other than the question-begging definition that has been established.
There is actually no question begged. That people may behave irrationally according to your standard has no bearing on essential Austrian premises. In fact, the Austrian "definition" of rationality is the only objective standard, and that is that all non-instinctual human action is rational. If you want to redefine the word rational, that's fine, but then don't expect rational to be relevant to Austrian economics anymore.
All that you've done here is basically re-assert the definition and then claim the status of objectivity. Not only do we run into the obvious problem at the semantic level that there is no such thing as an objective definition, but we're left with a simple assertion ("all non-instinctual human action is rational"). How is this assertion proved? Via appeal to the definition. We're left with a circle.
Since Austrian methodology is so extreme aprioristic, it can do little more than define its terms arbitrarily and then make deductions.
All that you've done here is basically re-assert the definition and then claim the status of objectivity.
Okay, so what's your specific argument? Can you make a case that is substantiated? Otherwise, this debate isn't going to progress beyond, "you're wrong, because I say so."
Mises's definition of rationality is based on an observation of human behavior (well, this is a more Rothbardian premise). It actually is not Misesian; mainstream economists call it "thinking on the margin". It doesn't try to put value on human action, rather it suggests that all non-instectual human action is the process of reason (or that individual market agents weigh benefits and costs prior to each action taken, not specifying to what degree of rigour each cost-benefit analysis is made).
Re-defining "rationality" as something which makes logical sense within your own subjective cost-benefit analysis has no implication on the validity of Austrian economics, because this definition is fundamentally different from that of Mises.
You have been posting in these forums for quite a long time. You know exactly what Austians mean when they use the term. You obviously think that the term does not fit the meaning. Fair enough. But pointing out that it is a misuse of the word is not a valid attack of the ideas with which the term was used to represent. It's the essense of a Stawman. You use "W" in a way that was neither stated not implied, and think that somehow that invalidates X, Y and Z.
Replace "rational" with "blue", and define "blue" in exactly the same manner that Austians define rational, and not the normal, Brain Police approved definition. Is the Austrian argument of "Blue Action" somehow invalidated because "blue" is a color and not normally used in this manner?
I basically deny that the weighing of costs and benefits works as a universalizable description of non-instinctual human action. My evidence is basically everything the field of psychology has been doing since the 19th century ended. To be frank, I think Austrians are guilty of the fallacy of the homo economicus.
As for re-defining rationality, I find the use of this phrase to be loaded, especially considering that, as I initially said, it is the Austrians who have re-defined rationality relative to common linguistic practise.
Brainpolice: There is actually no question begged. That people may behave irrationally according to your standard has no bearing on essential Austrian premises. In fact, the Austrian "definition" of rationality is the only objective standard, and that is that all non-instinctual human action is rational. If you want to redefine the word rational, that's fine, but then don't expect rational to be relevant to Austrian economics anymore. All that you've done here is basically re-assert the definition and then claim the status of objectivity. Not only do we run into the obvious problem at the semantic level that there is no such thing as an objective definition, but we're left with a simple assertion ("all non-instinctual human action is rational"). How is this assertion proved? Via appeal to the definition. We're left with a circle. Since Austrian methodology is so extreme aprioristic, it can do little more than define its terms arbitrarily and then make deductions.
Absolutely. For some reason, Austrians don't realize they're doing an elaborate circle jerk with synonymy.
To get back to the broader issue, Tyler Cowen has an interesting paper titled "How Do Economists Think About Rationality?"
"I'm not a fan of Murray Rothbard." -- David D. Friedman
I basically deny that the weighing of costs and benefits works as a universalizable description of non-instinctual human action. My evidence is basically everything the field of psychology has been doing since the 19th century ended.
Okay, and what evidence is this?
You are missing the point. Whatever definition is re-definition is irrelevant, because we are talking about the definition relevant to Austrian economics. I'm not sure what's so difficult to understand here.
For some reason, Austrians don't realize they're doing an elaborate circle jerk with synonymy.
What does this even mean?
I basically deny that the weighing of costs and benefits works as a universalizable description of non-instinctual human action. My evidence is basically everything the field of psychology has been doing since the 19th century ended, and any mundane experience any individual has of life. To be frank, I think Austrians are often guilty of the fallacy of the homo economicus.
As for re-defining rationality, I find the use of this phrase to be loaded, especially considering that, as I initially said, it is the Austrians who have re-defined rationality relative to common linguistic practise. While one may wish to brush aside all other usages as "subjective", the Austrian usage is no more "objective". The main difference is that the Austrians are making a much broader claim (placing all purposeful decisions in the "rational" box) while maintaining the pretense of neutrality. But I suspect that the main function or purpose of this definition is essentially a trump card to pull out in response to any counter-example presented to one's ideology, which makes it quite "subjective" if you ask me.
I completely agree. So? It does not invalidate their argument. They (poorly) chose a word to describe thier ideas. They were also pretty damn clear about what those ideas are. Why not attack their ideas rather than quibble about their misuse of a word?
I have quite a bit of respect for you. The fact that I disagree with you 90% of the time does not matter. You make me think, and re-evaluate my own positions, and come up with better arguments, and for that, I thank you. Because of that, I think you are (or should be) above petty, and ultilimately insignifivant, definitions arguments. You're better than that.
Jonathan M. F. Catalán: For some reason, Austrians don't realize they're doing an elaborate circle jerk with synonymy. What does this even mean?
Probably more blatant trolling.
In Austrian economics as it has been developed through Mises 'rationality' is synonymous with 'goal-directed conduct.'
It is a formal definition with no reference to the particular goal sought and no reference to the means utilized.
It is not the same conception of rationality as that used by objective/normative ethics and objective/normative moral theories.
The notion that the Austrian definition of rationality might be trivial or meaningless probably rests on the premise that tautologies are 'empty' or meaningless. But tautologies need not be considered empty or meaningless.
24 = 2 x 12 = 4 x 6 = 3 x 8 is tautological. But three groups of eight may not be immediately apparent upon an apprehension of twenty four.
Logical or tautological reasoning fleshes out the implications of given suppositions, and these implications are important for action and life.
Aprioristic reasoning is purely conceptual and deductive. It cannot produce anything else but tautologies and analytic judgments. All its implications are logically derived from the premises and were already contained in them. Hence, according to a popular objection, it cannot add anything to our knowledge.
All geometrical theorems are already implied in the axioms. The concept of a rectangular triangle already implies the theorem of Pythagoras. This theorem is a tautology, its deduction results in an analytic judgment. Nonetheless nobody would contend that geometry in general and the theorem of Pythagoras in particular do not enlarge our knowledge. Cognition from purely deductive reasoning is also creative and opens for our mind access to previously barred spheres. The significant task of aprioristic reasoning is on the one hand to bring into relief all that is implied in the categories, concepts, and premises and, on the other hand, to show what they do not imply. It is its vocation to render manifest and obvious what was hidden and unknown before. (Human Action)
In the Misesian conception, just as mathematics expounds the tautological implications of 24, praxeology expounds the tautological implications of goal-directed conduct or rationality or intentionality or human action (all terms here considered synonymous).
"The analytic method is simply a way of discovering necessary consequences of complex collocations of facts---consequences whose counterpart in reality is not so immediately discernible as the counterpart of the original postulates. It is an instrument for "shaking out" all the implications of given suppositions. Granted the correspondence of its original assumptions and the facts, its conclusions are inevitable and inescapable."
(Robbins, An Essay on the Nature & Significance of Economic Science)
In Austrian economics, at least in the Misesian interpretation, the fundamental original assumption is that an actor faces a situation that he is attempting to replace with a different situation. The attempt to change the situation he is confronted with to a different situation is called 'rational action' or simply "rationality." The study of the formal implications of rational action results in a science of 'given relations.' which means a science that instructs on what must accompany a given situation should it occur. E.g., the law of marginal utility expressing a relationship between an actor coming into a supply or unit of supply, and a 'value' experience that accompanies his coming into that supply.
Normative ethics, whether of the state, of the right, or of the left, must attack praxeology and value-free social science (usually disparaged as 'utilitarianism') because these provide a comprehensive framework for understanding social phenomena while not offering any support to the normative conclusions and "objective" values that the state, the right, or the left, want to enforce.
Value-free social science is seen as an enemy by objective and normative ethics, since value-free science is a rival paradigm that explains social phenomena comprehensively with no room left for classifying those with whom we disagree as immoral, evil, and criminal.
"Bewildered, people had to face a new view of society. They learned with stupefaction that there is another aspect from which human action might be viewed than that of good and bad, of fair and unfair, of just and unjust."
"Human action and social cooperation seen as the object of a science of given relations, no longer a normative discipline of things that ought to be---this was a revolution of tremendous consequences for knowledge and philosophy as well as for social action."
(Human Action)
"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)
In Austrian methodology, circular reasoning is championed; synonyms are exchanged for one another, endlessly switching positions but without knowledge being generated.
For instance, let's try to be more precise; you claim that "all non-instinctual human action is rational." What specifically qualifies "instinctual" behavior? Furthermore, how does one know that one's behavior was not automatic or instinctual?
libert student:Probably more blatant trolling.
At least I linked to a respected economist's paper on "rationality."
You... well, once again, you didn't add anything.
Brainpolice:I basically deny that the weighing of costs and benefits works as a universalizable description of non-instinctual human action. My evidence is basically everything the field of psychology has been doing since the 19th century ended. To be frank, I think Austrians are guilty of the fallacy of the homo economicus.
Oke; can you give us some evidence of this 'everything in the field of psychology'?
And can you give us an alternative description of (some) non-instinctual human action that doesn't fit 'costs and benefits'?
The state is not the enemy. The idea of the state is.
What circular reasoning is that? Is it reasoning relevant to this discussion? Please, add some substance to your comments.
By the way, linking to papers doesn't substantiate your argument (this is especially true in regards to Cowen's paper, which added nothing which hasn't already been said). Can you please substantiate in your own words?
What does this have to do with circular reasoning?
Non-instinctual behavior is pre-meditated behavior, while instinctual behavior is behavior based on human instinct (instinct usually being defined as something produced from our nervous system, or an automatic reaction by our brain, as opposed to reason [which is still biological, in any case]).
He actually is. He's adding valuable quality control, because your first response was tantamount to trolling.
StrangeLoop: In Austrian methodology, circular reasoning is championed; synonyms are exchanged for one another, endlessly switching positions but without knowledge being generated. For instance, let's try to be more precise; you claim that "all non-instinctual human action is rational." What specifically qualifies "instinctual" behavior? Furthermore, how does one know that one's behavior was not automatic or instinctual?
This is a nice knee jerk-reaction. Why do you give such a response?
Why would it be relevant for the development of austrian economics if wether or not at a certain instance it's not clear certain behavior is 'automatic' or 'instinctual'?
StrangeLoop: libert student:Probably more blatant trolling. At least I linked to a respected economist's paper on "rationality." You... well, once again, you didn't add anything.
I'm on a website populated by hundreds if not thousands of papers and articles on Misesian conceptions of rationality. I don't need to drop sources for something every reasonably competent Austrian (or critic) already understands.
AdrianHealey: StrangeLoop: In Austrian methodology, circular reasoning is championed; synonyms are exchanged for one another, endlessly switching positions but without knowledge being generated. For instance, let's try to be more precise; you claim that "all non-instinctual human action is rational." What specifically qualifies "instinctual" behavior? Furthermore, how does one know that one's behavior was not automatic or instinctual? This is a nice knee jerk-reaction. Why do you give such a response? Why would it be relevant for the development of austrian economics if wether or not at a certain instance it's not clear certain behavior is 'automatic' or 'instinctual'?
It's relevant insofar as a proponent of Austrian economics (e.g., Jon Catalan) includes the detail in his defense of rational behavior. Furthermore, the distinction is prominent in Mises's own writings.