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April 9, 2009

Economist's View - 5 new articles

"Rationality versus Intelligence"

When I was an undergraduate, the spouse of a faculty member told me that she believed universities were created for people who had quite a bit to contribute, but would be pretty much dysfunctional in the real world (her husband was a good example). Consistent with this observation, though perhaps not the suspicion one gets from hanging around universities that intelligence and social skills are often negatively related, this argues that intelligence and other aspects of cognitive functioning aren't necessarily related to each other, and that our focus on intelligence rather than rationality may be misplaced:

Rationality vs. Intelligence, by Keith E. Stanovich, Project Syndicate: ...To be rational means to adopt appropriate goals, take the appropriate action given one's goals and beliefs, and hold beliefs that are commensurate with available evidence. It means achieving one's life goals using the best means possible. ...

Research conducted in my own laboratory has indicated that there are systematic individual differences in ... judgment and decision-making skills ... that are entirely missing from the most well-known mental assessment device in the behavioral sciences: intelligence tests. ... Intelligence tests measure important things, but they do not assess the extent of rational thought. This might not be such a grave omission if intelligence were a strong predictor of rational thinking. But my research group found ... it is a mild predictor at best, and some rational thinking skills are totally dissociated from intelligence.

To an important degree, intelligence tests determine the academic and professional careers of millions of people in many countries. ... Perhaps some of this attention to intelligence is necessary, but what is not warranted is the tendency to ignore cognitive capacities that are at least equally important: the capacities that sustain rational thought and action.

Critics of intelligence tests have long pointed out that the tests ignore important parts of mental life, mainly non-cognitive domains such as socio-emotional abilities, empathy, and interpersonal skills. But intelligence tests are also radically incomplete as measures of cognitive functioning, which is evident from the simple fact that many people display a systematic inability to think or behave rationally despite having a more than adequate IQ.

For a variety of reasons, we have come to overvalue the kinds of thinking skills that intelligence tests measure and undervalue other important cognitive skills, such as the ability to think rationally. ... Intelligence tests measure mental skills that have been studied for a long time, whereas psychologists have only recently had the tools to measure the tendencies toward rational and irrational thinking. Nevertheless, recent progress in the cognitive science of rational thought suggests that nothing ― save for money ― would stop us from constructing an "RQ" test.

Such a test might prove highly useful. Suboptimal investment decisions have, for example, been linked to overconfidence in knowledge judgments, the tendency to over-explain chance events, and the tendency to substitute affective valence for thought. Errors in medical and legal decision-making have also been linked to specific irrational thinking tendencies...

There are strategies and environmental fixes for the thinking errors that occur in all of these domains. But it is important to realize that these thinking errors are more related to rationality than intelligence. They would be reduced if schools, businesses, and government focused on the parts of cognition that intelligence tests miss. ...It is as if intelligence has become totemic in our culture. But what we should really be pursuing is development of the reasoning strategies that could substantially increase human well-being.

It's also possible that some disciplines such as economics would be attractive to people who tend toward rational thinking (where rationality is defined more narrowly than above), and that this self-selection mechanism in terms of who becomes an economist would affect the behavioral models that are built by those within the profession. That is, once a model of rational behavior is built for whatever reason, it would then be attractive to people who think this way. It would be music to their ears in terms of explaining behavior as they understand it. As the rationalists then choose to become economists in greater and greater numbers, the models would become increasingly reliant upon rationality as a behavioral foundation as these two effects - who is attracted to the profession and the type of models that they build - become mutually reinforcing over time (and choices within the profession matter too, e.g. Richard Green's statement that "I am not a macroeconomist. One of the reasons for this, I suppose, is that I was taught a lot of rational expectations overlapping generations stuff in graduate school and while I found it elegant, I did not believe it.").


I Feel Your Pain

Gavin Kennedy of Adam Smith's Lost Legacy recommends this essay on The Theory of Moral Sentiments:

Cut-throat behaviour makes empathy flow, by Nicholas Gruen, Commentary, Sydney Morning Herald: ...Smith's Theory Of Moral Sentiments argued that people seeking their own interests in a society were united by their sympathy or fellow feeling for others. If that sounds a bit lame to you - a monopolist's sympathy for his customers rarely stops him exploiting them - Smith wasn't arguing that people always do the right thing. His point was subtler and more powerful. Smith observed the way we internalise others' values and live enmeshed in social meanings and expectations.

In thrall to Newton's explanation of the movement of planets via a single, uniform principle - that of gravity - he looked for a similar foundation for human behaviour in society. In modern parlance Smith argued that we were hard-wired for sympathy or fellow feeling with others, not in the sense that we always take their side, but in the deeper sense that our understanding and ultimate judgment of them depends on an imaginative sympathy, on the process of being able to place ourselves in their position, to see the world through their eyes.

We feel others' pain and elation (though not usually as strongly as them) but we do so through some act of imaginative sympathy. Horror, fear, pain and elation are all "infectious" in this way, sometimes viscerally so. ...

The whole of human sociality is built on these foundations. Indeed, armed with his theory, Smith argued that those who strive for riches do it not principally because of the utility it buys but because they crave the esteem of others. Smith despaired that we were so impressed by the wealthy. ...

[He also recommends Dan klein's podcast on the same topic- see today's daily links.]


Thomas Friedman is "Head-Slappingly Wrong"

Here's a (shrill) response from Dave Roberts at Grist to the Thomas Friedman article on greenhouse gas legislation:

Somebody hide Tom Friedman's ball, Grist: Tom Friedman has been doing great work on green issues for a while now, certainly given them a higher profile than any mere green blogger could. So I guess he's owed some latitude. But his recent column is just an outright nuclear disaster: head-slappingly wrong on the merits, politically naive and tone deaf to the point of autism, and timed so poorly as to be malicious. Just about every single sentence is a train wreck. ... [...continue reading...]


Counter-Cyclical Regulation

My entry at the Free Exchange Raghuram Rajan roundtable on Counter-cyclical regulation:

Seize the Moment, by Mark Thoma: I've also worried about the regulatory cycles discussed by Raghuram Rajan, but I don't see the problem in quite the same way. How you should view the regulatory cycles he describes depends upon your view of the average level of regulation at the centre of these cycles. Rajan appears to take the view that the regulatory oscillations are centered on the correct level of regulation, leaving us with too much regulation just after the reactionary bad times, and too little regulation during the good times when regulation tends to be eased either implicitly, by the market, or explicitly by regulators.

Rajan's piece has recommendations for ways to offset the regulatory cycles, but if the average level of regulation over the entire cycle is too high or too low, the recommendations would differ, or at least require augmentation. Suppose, for example, that the level of regulation is too low on average, a view I have much sympathy with. ... [...continue reading...]

The lead article is here. There are also responses from Charles Goodhart, Arnold Kling, Hyun Song Chin, and Martin Baily. [Entire roundtable]


links for 2009-04-09

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