Economics Essay 76: Rational Actor

Discuss the view that individual economic agents will always act as rational decision makers so as to maximise their utility.

To properly discuss the view that individual economic agents will always act as rational decision-makers to maximize their utility, it's important to define and explain the key terms involved.

1. Rational Decision-Making: Rational decision-making refers to the process of making choices that are consistent with one's preferences and objectives, based on a careful evaluation of available information and the expected outcomes of different options. Rational decision-makers aim to optimize their choices to maximize their expected utility.

2. Utility: In economics, utility represents the satisfaction or value that individuals derive from consuming goods or services. It is a subjective measure of individual preferences and can vary from person to person. Utility can be expressed in different ways, such as happiness, well-being, or satisfaction.

Now, let's discuss the view that individual economic agents will always act as rational decision-makers to maximize their utility.

Supporters of this view argue that individuals possess rationality and have a clear understanding of their own preferences. They believe that individuals carefully assess the available choices, evaluate the costs and benefits associated with each option, and select the one that maximizes their utility. The rational decision-making model assumes that individuals have perfect information, are able to process information accurately, and act in their self-interest.

However, critics of this view highlight several limitations and challenges to the assumption of universal rationality:

1. Bounded Rationality: Human beings have cognitive limitations, and their ability to process information and make decisions is bounded. Limited time, cognitive biases, and imperfect information can lead to decision-making that deviates from the rational model.

2. Emotion and Psychology: Emotional factors and psychological biases can influence decision-making. People may make choices based on non-economic factors, social norms, or irrational beliefs, even if they are not in their best economic interest.

3. External Influences: The decisions of individuals are influenced by external factors such as social pressure, cultural norms, and advertising. These influences may divert individuals from making strictly rational choices.

4. Risk and Uncertainty: Rational decision-making assumes that individuals can accurately assess the risks and uncertainties associated with different options. However, people often face situations of uncertainty where the outcomes and probabilities are unknown, leading to decision-making based on imperfect information.

In reality, individuals exhibit a combination of rational and non-rational behavior, and their decision-making is influenced by a range of factors. While economic theory often assumes rationality, behavioral economics has highlighted the importance of understanding human behavior in a more realistic and nuanced way.

In conclusion, while the view that individuals always act as rational decision-makers to maximize their utility provides a useful framework for analyzing economic behavior, it is important to recognize the limitations and deviations from rationality that exist in real-world decision-making. Understanding the complexities of human behavior can provide valuable insights into economic outcomes and policy interventions.

Fallacies of Capitalism 7: The Rational Actor Fallacy

How does the "rational economic actor" fallacy overlook the role of cognitive biases, imperfect information, and bounded rationality in decision-making within a capitalist system? 

The "rational economic actor" fallacy assumes that individuals in a capitalist system always make decisions in a perfectly rational and self-interested manner. However, this belief overlooks the influence of cognitive biases, imperfect information, and bounded rationality, which can lead to suboptimal decision-making. Let's understand this concept with simple examples:

1. Cognitive biases: Humans are prone to cognitive biases, which are systematic errors in thinking that affect decision-making. For example, the availability bias occurs when people rely on easily accessible information rather than considering a broader range of data. In a capitalist system, this bias can lead individuals to make decisions based on recent news or vivid examples rather than carefully analyzing all relevant information. This can result in suboptimal choices, such as investing in trendy but risky assets without considering their long-term potential.

2. Imperfect information: In many economic transactions, individuals do not have access to complete and accurate information. For instance, when buying a used car, the seller may withhold information about the vehicle's hidden problems. This information asymmetry can lead to suboptimal decisions. Buyers, lacking complete knowledge, may overpay for a faulty car. In a capitalist system, imperfect information can distort market outcomes and hinder individuals from making fully rational choices.

3. Bounded rationality: Bounded rationality recognizes that individuals have limited cognitive abilities to process information and make complex decisions. People often rely on simplifying heuristics and rules of thumb instead of undertaking thorough analysis. For example, when choosing a product, individuals may rely on brand reputation rather than researching all available options. In a capitalist system, bounded rationality can lead individuals to make decisions based on incomplete information or superficial analysis, resulting in suboptimal outcomes.

4. Emotional influences: Human decision-making is also influenced by emotions, which can deviate from strict rationality. For example, investors may be driven by fear or greed during market fluctuations, leading to irrational investment decisions. In a capitalist system, emotional biases can contribute to market volatility and inefficient allocation of resources.

5. Social influences: People's decisions are often influenced by social factors, such as peer pressure or social norms, which may override individual rationality. For instance, individuals may conform to popular trends or engage in conspicuous consumption to fit into a particular social group. In a capitalist system, social influences can drive individuals to make choices that prioritize social acceptance over their own best interests.

In summary, the "rational economic actor" fallacy overlooks the role of cognitive biases, imperfect information, bounded rationality, emotional influences, and social factors in decision-making within a capitalist system. Recognizing these limitations is crucial for understanding that individuals do not always act in perfectly rational and self-interested ways. Policymakers and market participants should consider these factors to design regulations, incentives, and interventions that account for the complexity of human decision-making and promote better outcomes in the capitalist system.

The Media Created a Monster. Now They Want to Wash Their Hands Off Him

 

Our cult of personality is leaving real life in the shade

George Monbiot in The Guardian

By reducing politics to a celebrity obsession – from Johnson to Trump to Corbyn – the media misdirects and confuses us 

Illustration: Ben Jennings


What kind of people would you expect the newspapers to interview most? Those with the most to say, perhaps, or maybe those with the richest and weirdest experiences. Might it be philosophers, or detectives, or doctors working in war zones, refugees, polar scientists, street children, firefighters, base jumpers, activists, writers or free divers? No. It’s actors. I haven’t conducted an empirical study, but I would guess that between a third and a half of the major interviews in the newspapers feature people who make their living by adopting someone else’s persona and speaking someone else’s words.

This is such a bizarre phenomenon that, if it hadn’t crept up on us slowly, we would surely find it astounding. But it seems to me symbolic of the way the media works. Its problem runs deeper than fake news. What it offers is news about a fake world.

I am not proposing that the papers should never interview actors, or that they have no wisdom of their own to impart. But the remarkable obsession with this trade blots out other voices. One result is that an issue is not an issue until it has been voiced by an actor. Climate breakdown, refugees, human rights, sexual assault: none of these issues, it seems, can surface until they go Hollywood.

This is not to disparage the actors who have helped bring them to mainstream attention, least of all the brave and brilliant women who exposed Harvey Weinstein and popularised the #MeToo movement. But many other brave and brilliant women stood up to say the same thing – and, because they were not actors, remained unheard. The #MeToo movement is widely assumed to have begun a year ago, with Weinstein’s accusers. But it actually started in 2006, when the motto was coined by the activist Tarana Burke. She and the millions of others who tried to speak out were, neither literally nor metaphorically, in the spotlight.

At least actors serve everyone. But the next most-interviewed category, according to my unscientific survey, could be filed as “those who serve the wealthy”: restaurateurs, haute couturists, interior designers and the like, lionised and thrust into our faces as if we were their prospective clients. This is a world of make-believe, in which we are induced to imagine we are participants rather than mere gawpers.

The spotlight effect is bad enough on the culture pages. It’s worse when the same framing is applied to politics. Particularly during party conference season, but at other times of the year as well, public issues are cast as private dramas. Brexit, which is likely to alter the lives of everyone in Britain, is reduced to a story about whether or not Theresa May will keep her job. Who cares? Perhaps, by now, not even Theresa May.

Neither May nor Jeremy Corbyn can carry the weight of the personality cults that the media seeks to build around them. They are diffident and awkward in public, and appear to writhe in the spotlight. Both parties grapple with massive issues, and draw on the work of hundreds in formulating policy, tactics and presentation. Yet these huge and complex matters are reduced to the drama of one person’s struggle. Everyone, in the media’s viewfinder, becomes an actor. Reality is replaced by representation.

Even when political reporting is not reduced to personality, political photography is. An article might offer depth and complexity, but is illustrated with a photo of one of the 10 politicians whose picture must be attached to every news story. Where is the public clamour to see yet another image of May – let alone Boris Johnson? The pictures, like the actors, blot out our view of other people, and induce us to forget that these articles discuss the lives of millions, not the life of one.

The media’s failure of imagination and perspective is not just tiresome: it’s dangerous. There is a particular species of politics that is built entirely around personalities. It is a politics in which substance, evidence and analysis are replaced by symbols, slogans and sensation. It is called fascism. If you construct political narratives around the psychodramas of politicians, even when they don’t invite it, you open the way for those who can play this game more effectively.

Already this reporting style has led to the rise of people who, though they are not fascists, have demagogic tendencies. Johnson, Nigel Farage and Jacob Rees-Mogg are all, like Donald Trump, reality TV stars. The reality TV on which they feature is not The Apprentice, but Question Time and other news and current affairs programmes. In the media circus, the clowns have the starring roles. And clowns in politics are dangerous.

The spotlight effect allows the favoured few to set the agenda. Almost all the most critical issues remain in the darkness beyond the circle of light. Every day, thousands of pages are published and thousands of hours broadcast by the media. But scarcely any of this space and time is made available for the matters that really count: environmental breakdown, inequality, exclusion, the subversion of democracy by money. In a world of impersonation, we obsess about trivia. A story carried by BBC News last week was headlined “Meghan closes a car door”. 

The BBC has just announced that two of its programmes will start covering climate change once a week. Given the indifference and sometimes outright hostility with which it has treated people trying to raise this issue over the past 20 years, this is progress. But business news, though less important than environmental collapse, is broadcast every minute, partly because it is treated as central by the people who run the media and partly because it is of pressing interest to those within the spotlight. We see what they want us to see. The rest remains in darkness.

The task of all journalists is to turn off the spotlight, roll up the blinds and see what’s lurking at the back of the room. There are some magnificent examples of how this can be done, such as the Windrush scandal reporting, by the Guardian’s Amelia Gentleman and others. This told the story of people who live far from where the spotlight falls. The articles were accompanied by pictures of victims rather than of the politicians who had treated them so badly: their tragedies were not supplanted by someone else’s drama. Yet these stories were told with such power that they forced even those within the spotlight to respond.

The task of all citizens is to understand what we are seeing. The world as portrayed is not the world as it is. The personification of complex issues confuses and misdirects us, ensuring that we struggle to comprehend and respond to our predicaments. This, it seems, is often the point.

Guftagoo with Boman Irani

What really makes a good teacher?

Barnaby Lenon in the Telegraph

A NASUWT poll last week found that the majority of parents wanted ‘qualified teachers’ to teach their children. Unsurprising really, until you consider what that word ‘qualified’ really means.

In independent schools, recognised as being among the best in the world, we are free to choose our own teachers. In 2013, pupils in independent schools achieved 32 per cent of all A* grades at A-level.

Our success lies in the quality and expertise of our teachers, yet some may not have a teaching qualification. So what makes a good teacher?

They have four characteristics.

First, they love their subject and have excellent subject knowledge (the two go together). Last year Professor Rob Coe and the Sutton Trust published research into the qualities of the best teachers and this came top of the list.  

It is the reason that some schools are happy to appoint an excellent graduate in a subject like physics even if they don’t have a teaching qualification. They are classified as ‘unqualified’, even though they possess the most important quality of all.

Good subject knowledge matters not only because at the top of the ability range you need to be able to stretch pupils but also because teachers with good knowledge tend to make lessons for younger children more interesting. They have more substance to be interesting about.

Secondly, they need to have the right personality. Teaching is partly acting, and acting ability helps greatly. Above all you need to be able to control a class, because without good discipline nothing worthwhile can be achieved.

So that means good teachers are those whom pupils will respect - and slightly fear if necessary. They are completely in control of what’s going on around them.

Pupils know the teacher will notice if they are misbehaving or if their work is incomplete or copied from another child and will take action - punish the child, perhaps, or require the work to be redone.

But the best teachers are not disciplinarians. They are a velvet hand in an iron glove. Pupils come to know, over time, that they are warm and generous. But they are not to be messed with. Discipline has to come first.

There are other personality traits that matter too. Good teachers are very hard working, putting a huge effort into preparing lessons, marking work and giving extra time to children who need it.

They are able to manage stress. They are passionate about their school and their pupils, keen for all to do well. They are highly organised, because switching in a few seconds from one class to another, keeping track of individuals, remembering which extra duties they are down for, managing record-keeping and databases - all this requires good organisation.

Thirdly, they need to have certain classroom skills. This is why all ‘unqualified’ teachers need some training, both before they start and throughout their first year of teaching.

They need to be shown how to deliver a lesson with pace and interest, how to use digital resources effectively, how to mark work and record those marks, how to write reports, how best to teach tricky concepts, how to ask questions of pupils in the most effective way.

Finally, they need to have high expectations of their pupils. This is a characteristic of all the best teachers. They are determined that every pupil will master their subject. This attitude sets the scene for everything which follows.

Pupils who produce unsatisfactory work must be made to redo it until they achieve a good level. Pupils will be regularly tested to see whether they have understood and learnt the work; those who do badly will be retested.

Excellent teachers believe that it is pupil effort and teaching quality which determine how well a child does, not the ability of the child. The less able children will get there in the end.

So these are characteristics of the best teachers. In terms of weighting, perhaps 30 per cent is subject knowledge, 30 per cent is personality, 30 per cent is level of expectations, 10 per cent classroom skills. Of these, only the last need be the subject of teacher training.