Kay writes that he used to run an economic consultancy business, and they would sell models to corporations. What he realized later on was that nobody was actually using the models for making decisions, but only for rationalizing them after they were made. So far so good – I can totally believe that happening. But now for the disagreeable part:
They have encouraged economists and other social scientists to begin the process of looking at what people actually do rather than imposing on them models of how economists think people should behave. One popular book adopts the title Predictably Irrational. But this title reflects the same mistake that my colleagues and I made when we privately disparaged our clients for their stupidity. If people are predictably irrational, perhaps they are not irrational at all: perhaps the fault lies not with the world, but with our concept of rationality.
- Obliquity, preface
Regarding Kay’s conception of rationality, my first response was whaaat?! Unfortunately, that’s really not a very good counterargument. So what’s the deal? In my view, rationality means maximizing your welfare or utility, looked at from a very long-term and immaterial perspective. This means that things like helping out your friend is fine, giving money to charity is fine. Even the giving of gifts is fine, because you can give value to your act of trying to guess at your friend’s preferences. After all, to me this seems to be a big part of gift-giving: when we get a gift that shows insight into our persona, we’re extremely satisfied.
Since Kay is referring explicitly to Dan Ariely’s Predictably Irrational, it might be sound to look at a few cases of (purported) irrationality that it portrays. Here’s a few examples I found in there:
- We overvalue free products, choosing them even though a non-free options has better value for money (chapter 3)
- We cannot predict our preferences in a hot emotional state from a cold one (chapter 6)
- We value our possessions higher than other people do, so try to overcharge when selling them (chapter 8)
- Nice ambience, brand names etc. make things taste better, but can’t recognize this as the cause (chapter 10)
- We used to perform surgery on osteoarthritis of the knee – later it turned out a sham surgery had the same effect
If Kay wants to say that these cases are alright, that this is perfectly rational behavior, then I don’t really know what one could say to that. With the exception of point 3, I think all cases are obvious irrationalities. The third point is a little bit more complex, since in some cases the endowment effect might be driven by strategic behavior, ie. trying to get the maximum selling price. However, it also includes cases where we give stuff to people at random, with a payout structure that ensures they should ask for their utility-maximizing selling price. But I digress. The point being that if Kay wants to say these examples are okay, then we have a serious disagreement. I firmly believe we’d be better off without these errors and biases. Of course, what we can do about them is a totally different problem – but it seems that Kay is arguing that they are in principle alright.
The second disagreement, as noted above, is about the causes of such behaviors. Kay says the chided their clients ‘stupidity’ for not using the models of rational behavior. Well, I think that most errors arise due to us using System 1 instead of System 2. Our resources are limited, and we’re more often than not paying inadequate attention to what is going on. This makes irrationality not a problem of stupidity, but a failure of our cognitive system. Ok, so intelligence is correlated to some tasks of rational decision making, but for some tasks, there is no correlation (Stanovich & West, 2000). It's patently clear that intelligence alone will not save you from biases. And that’s why calling irrational people stupid is –for want of a more fitting word – stupid.
Ok, so not a strong start from my perspective for the book, but I’m definitely looking forward to what Kay has to say in later chapters. There’s still a tiny droplet of hope in me that he’s just written the preface unclearly, and he’s really advocating for better decisions. But, there’s still a possibility that he’s just saying weird things. I guess we’ll find out soon enough.