On the title of this blog

Some of you might be wondering, what does he mean by “Boundless Rationality?” Does he think that this blog is a Fountain of Truth and Objectivity? Well, let me explain.

Once upon a time, economists made their models based on the assumptions that humans made rational choices with perfect information and attempted to always maximize utility. In other words, they would have their utility function laid out to them with the sum of the products of the expected utilities and their respective probabilities. But alas, it was not so.

It turns out, most humans don’t really think that way. Some of the reasons:

1) Incomplete information and incorrect methods of reasoning lead to highly inaccurate inferences.

2) People have an inconsistent set of beliefs about the world around them.

3) People are emotionally attached to certain choices.

4) People are more likely to remain close to previously proposed solutions than to propose completely new ones.

etc, etc. So somewhere along the way, Herbert Simon proposed a new kind of model, bounded rationality, which took into account all of those aforementioned problems. Therefore, rather than looking for optimized rational models, bounded rationality theory searches for more realistic models on how humans make choices. But you’ll see more on that later.

So essentially, the title is a kind of a joke, or play on words. Boundless Rationality is an irrational thing to hope for. It doesn’t exist, because we can never actually have perfect information about the world around us, and even if we did, it would be far too costly to compute and make sense of it all.

Nevertheless, there are mathematicians and researchers who manipulate inductive probabilities (ie. weather forecasting, “There’s a 70 percent chance of rain tomorrow”) according to mathematical laws. The fact that I’m stating that might seem a bit surprising because it seems obvious. But it’s not. People continue to treat inductive probabilities in a sort of wishy-washy way which ends up in sub-optimal decision-making.

But it doesn’t have to be that way. There are and have been a number of researchers – Harsanyi, Jaynes, Tversky, Kahneman… – who have specialized in studying the ways that we treat incomplete information and try to come up with coherent and consistent ways to makes sense out of it. And they’ll be discussed a lot here

So that’s basically the idea of boundless rationality. It’s a practically and theoretically impossible ideal but it’s the right direction to look towards.

NB. But don’t worry, that’s not ALL this blog’s about!

Further Reading:

Bounded Rationality – Bryan D. Jones, U Washington

A Perspective on Judgment and Choice – Daniel Kahneman, Princeton University

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2 Responses to On the title of this blog

  1. Ian Hoke says:

    OK, I’m following you here. I’m saving the game theory piece for later. I must say that I’m most interested in the boundary lands here, which is why I’ve been blogging much of David Brooks’s writing on “the social animal.” He’s got a book by the same title out, covered as well in this longer piece in The New Yorker: http://goo.gl/FyOxh Anyway, it’s interesting territory – we need not be Ayn Rand/Alan Greenspan uber-rationalists, running society like a slaveship running full steam towards icebergs. Keep up the writing.

  2. ltakacsi17 says:

    Yeah, I read that article. Fascinating stuff – it relates to evolutionary psychology, which is something I’ve been reading about recently. Interestingly enough, it references Daniel Kahneman, who I also refer to and read a lot of (check out “Further Reading”).

    I guess an important point to make here is that this “rationality” isn’t Randian. Rather, I revise rationality to mean “whatever works well.” Many aspects of human cognition are illogical, or even arational altogether. So when dealing with the importance of emotion and sentimentality, you have to employ a different set of prior beliefs and motivations. The fundamental mistake of Rand and Greenspan (I think) was to apply their own convoluted logic to the more nuanced less logical system of human society and interaction. A skilled politician who plays public opinion, makes popular and useful decisions, and holds onto his or her electorate while remaining inconsistent or murky about their own beliefs (for example, FDR had no real political philosophy) is far more “rational” because they’ve done a good job of what they were supposed to.

    There’s a saying that goes something like “Outside the laboratory, every scientist is just a regular person” – For example, the doctor who buys a lottery ticket each week. I think this saying is pretty true – scientists should familiarize and adapt themselves to the nuances of human interaction rather than treat it as a perfect logical system.

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