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The Short-Sighted Rational Agent

Allen R. Sanderson lives for the moment. Why don’t you act rationally like he does?

One of the most astonishing ideas in economics is the “rational agent”. This is the proposition that people are little calculating machines, able to grasp intuitively the actions that maximize their utility in any setting (let’s just not really define “utility”, OK?). As Wikipedia explains it:

The action a rational agent takes depends on:

  • the preferences of the agent
  • the agent’s information of its environment, which may come from past experiences
  • the actions, duties and obligations available to the agent
  • the estimated or actual benefits and the chances of success of the actions.
  • This idea is used in more formal terms to create economic models, and neoliberal economists use them to teach us how to behave. The models didn’t work, and led to the Great Crash. But that doesn’t stop economists from telling you that if you aren’t a rational agent, you are stupid, and will make bad decisions. They push this rational agent theory everywhere. Here’s a tiny example from Allen R. Sanderson, a professor of economics at the University of Chicago, published in an insert in the New York Times called Chicago Life. Sanderson sets out the textbook economic theory of buying a hamburger at McDonalds, based on Econ 101 thinking:

    One would expect to come across the following: “The quantity demanded of a good or service is the amount that buyers are willing and able to purchase in a given time period at various prices, ceteris paribus.” Then the author explains what is meant by “holding other things constant” – that list includes factors such as income, tastes and preferences, and the availability and prices of substitutes and complements.

    For example: What determines the demand for a Big Mac meal at McDonald’s? Instructors or texts would explain that the quantity demanded of this [meal] would depend on its price.

    Then the instructor would discuss the alternatives, such as pizza, KFC chicken dinners, or McDonalds salad, and perhaps consider the impact of an imaginary Surgeon General’s report on the dangers of cholesterol. Ah, but those were the glorious old days. Nowadays there are all these pesky “activists, politicians, and special-interest groups” who want you to consider other factors, such as:

  • was it made in America?
  • are products made with union labor?
  • does it meet strict environmental standards?
  • use of pesticides, reasonable treatment of animals, anti-biotic usage, GMO?
  • political activities of the seller?
  • trans-fats, allergens, gluten or lactose intolerance?
  • disclosure of nutritional information?
  • drive-through windows?
  • ads to kids?
  • is this a good choice for consumers as a group, or should we “nudge” them or regulate or ban, like incandescent light bulbs?
  • Sanderson concludes with this: “Are all of these considerations private and personal, or does society have a stake – steak? – in the decisions?”

    In Sanderson’s world, the only “rational” considerations are directly related to you: the price you will pay, your tastes in fast food, your alternatives, your personal satisfaction at this instant. He does admit that you might take into account concerns about your cholesterol, a long-term and prudential concern. But he blows off all your social concerns and your concerns about the externalities of your choices. So what if the company uses vast quantities of paper and styrofoam? So what if it oppresses its workers, or buys tomatoes picked by exploited labor? How do those things affect you and your tastes?

    In Sanderson world, you shouldn’t think it matters that massive injection of antibiotics in farm animals has caused the loss of one of the miracles of the 20th Century as anti-biotic resistance has reached the point that there are no effective weapons against horrible bugs. But so what? So what if the ocean floors are covered with plastic crap? So what if pig feces contaminate the ground, air and water for miles around pig farms? So what if kids are facing an epidemic of diabetes? Sanderson and his ilk don’t care and they think you are stupid to think about those things. Externalities are just the costs not contained in the choices we make, and are visited on the unlucky: people who have to go to the hospital and get killed by a MRSA, people forced to work for inadequate wages, people unable to find jobs because US capitalists build factories to employ foreigners instead of Americans. Bummer for them, but all that matters is you, the only important person in the whole wide world.

    Sanderson lives his theory:

    It’s exhausting just thinking about all this. We may never get to the next chapter. Makes me want to drive my SUV to Chick-fil-A and get a spicy chicken sandwich, waffle fries, and a chocolate shake.

    Who cares if the chicken is 10% additives and laced with antibiotics and estrogen? Who cares if the waffle fries are infused with pesticides, or if the oil is transfats? Who cares exactly what’s in that “shake” (transfats?), and whether it came from a cow or a factory in New Jersey? And who cares if Sanderson is dumping massive amounts of carbon into the air so he doesn’t have to walk across a parking lot? He’s the rational one.

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    I read a lot of books.