Every now and then there’s a study that is alleged to confirm the hypothesis that we are irrational. This should be of interest to philosophers who work in decision theory or epistemology. Here’s another one that as discussed in the LA Times.
However, I don’t see how this shows that people are generally irrational. Here’s a quote from the article.
Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same.
Surprisingly — stunningly, in fact — research shows that the majority of people select the first option; they would rather make twice as much as others even if that meant earning half as much as they could otherwise have. How irrational is that?
The problem is that I don’t see this as irrational. If we’re asked to think in a purely self-interested way, my first thought was to take the first option. (Because I was thinking about the shift in prices).
Then I read the qualification – ‘Assume for the moment that prices of goods and services will stay the same.’
OK – now that I have this qualification in mind the reporter from the LA Times assumes that the obvious rational choice is to take the second option. Why? Because I’d be able to buy more stuff.
But wait a minute. Even if I can buy more stuff isn’t it in my interests for everyone else to not have 2.5 times the purchasing power that I do. There are a number of ways in which that could affect someone negatively – even if the prices stay fixed. Come on. In the second situation, that is a lot of power that everyone else has that I wouldn’t have. Am I missing something here?
I agree with you Andy. It seems that from a prudential standpoint, you gain a lot more from having twice the buying power as other people. I’m in an advantageous situation when I can out-buy the majority of the consumers, so that I may ensure that I live comfortably.
I agree with you on another reason though: The problem with the article’s view I run into deals with when I think about a situation where we implicate real facts into the hypothetical situation:
Suppose X is a 30-year-old, married male with a family, making $50,000/year in the present-day. Other consumers are making $25k/yr, and that should give me sufficiently more buying power over them, except that by today’s standards, even $50,000 isn’t a whole lot considering that I have to support a family (we’ll assume my wife is not working). So, even though my $50,000 is double what a lot of other people are making, it still isn’t enough that I could take an excess of money and negligently spend it on luxuries (e.g. gambling or other vices).
X’s friend Y is also a 30-year-old male with a wife and kids, but he’s making $100,000/yr (we’ll also assume that his wife is not working). Though other people are making $250k/yr in his neighborhood, he is making enough that he can comfortably support his family, even though that it would seem that people making $250k have sufficient buying power over him. Nonetheless, he can adequately support his family and therefore has excess money to invest his money in, like excessive gambling and buying property, etc, and in turn these vices could leave Y in debt, or at least worse off than had he not indulged so much in them.
It would seem that X’s earning less and not being able to have these luxuries was infinitely better for him than if he had taken Y’s route and been able to indulge. It was not the purchasing power that affected the situation but the excessive purchasing power of luxuries that makes one a more rational choice I think.
Now, it’s noteworthy to state that I don’t think that this is the case for all who make more and are able to engage in luxurious activities, nor do I think it’s the case for all that do not have the income and they choose not to indulge; surely both categories have the opposite occur. Still I think that this is a plausible example when trying to figure out exactly why the first one could be a more rational choice. What do you think?
Discussions of rationality are silly. All humans are rational, because all humans have some reason for doing whatever they do. Although generally I fall in the middle on such things – I’m attracted to the idea that we’re both rational and irrational – I can’t escape the sneaking suspicion that deep within all of us, there are reasons for doing the things that we do.