Thoughts on economics and liberty

Category: Science

Are we rational or irrational?

Below is an extract from the draft manuscript for DOF. I have mulled over various issues and arrived at the view that we are self-interested, hence rational. It might conflict many observations of reality, but it is a better assumption to make than one of human irrationality. I seek comments on this, should you have evidence either way. 

Which part of our brain predominates?

Despite enormous computational capacities of the human brain, its perceptual and cognitive capacity, and capacity for good judgement, is not unlimited. The higher brain does not always dominate in our actions. I’m not talking about simple things like optical illusions, but about serious ‘failures’ of judgement. The sciences of neuropsychology and neuroeconomics are at the frontier of such analysis. In their Nobel Prize winning studies, Kahneman and Tversky found that we can draw erroneous conclusions based on the different ways in which information is presented. These include the biases of anchoring, availability, framing and representativeness. Other biases include the base rate fallacy, conjunction fallacy, loss aversion, peak-end rule, preference reversal, status quo bias and fundamental attribution error. Thus, a recent study demonstrated that we make systemic errors in purchase decisions that are framed as special deals.[1] In addition, we easily slip into logical fallacies. Our mind doesn’t necessarily think as rationally as it could, once properly trained to spot errors of reasoning.
[For an excellent overview of these and other human biases, and to find why our decisions are often flawed, I suggest Jason Zweig’s book, Your Money & Your Brain (2007), and Nassim Nicholas Taleb’s at times very wrong but also at other times insightful books – Fooled by Randomness (2001) and The Black Swan (2007).]
Rephrasing some of the situations in a more natural or ‘intuitive’ manner has been shown to overcome at least some of them[2]. In other cases, it has been shown that such failures of rationality only occur under new circumstances. People arrive at the rational solution after a while and don’t repeat earlier mistakes. It is therefore not sufficient to use this information as a basis to argue that we are irrational. Indeed, the concept of rationality itself needs to be better understood.
The way we are designed, emotion sometimes triumphs reason. For instance, many of us don’t invest in shares even though over the long run it is almost certain that these will yield the highest return. We are afraid of the low probability of loss than excited about the pleasure we might feel with a gain. Loss aversion is the sinking feeling in our guts when we lose money, no matter how little. To avoid that feeling we take the seemingly irrational option of investing in bonds instead of shares. Rationality can’t be narrowly construed in terms of a simplistic equality of loss and gain. When the crunch comes and we are at the receiving end of loss, then all concepts of probabilities become irrelevant. The loss is uniquely ours and we, individually, suffer the consequences – consequences that can sometimes be fatal. In the evolutionary sense we are far better off by eliminating losses, before indulging in pipedreams. Of course, with good education in economics, we might agree to take carefully calculated risks. Rationality must work in tandem with emotion to yield the most satisfactory outcome for emotions are often rational in the evolutionary sense (which, arguably, is far more important than mere ‘logic’).
Our lower and mid-brain can, of course, in moments of extreme emotionality, lead us dangerously astray, even to suicide. We remain the only animal known to take its own life, albeit rarely. Miasmas that beset us include worries (real or imagined), self-consciousness, and stress. As a result, advocates of hatred have a gala time. Our rational mind is easily overpowered by fears. But that does not deny the self-interested rational underpinnings of our behaviour in most cases. I know that my ‘faith’ in reason is challenged everyday when I look around the world. But if we restrict the meaning of rationality to an attempt to be reasonable in achieving one’s self-interest, then almost all human behaviour is rational.
Note, too, that rationality does not require perfection. A demand that we must arrive at the right answer if we are ‘truly’ rational is like asking why don’t tennis games go on for ever, because in a perfect world no one should ever return the ball badly and anticipate the other player’s returns. Reason, or rationality, is not a guarantee of truth. We can reason wrongly – but that is still a kind of reason!
Our cerebellum undertakes fine-tuned movements by (unknown to us) making enormously complex mathematical calculations that would defeat all known computers. So also our behaviour is often driven by an underlying calculation or reason – at times a reason that is deliberately hidden from us by our brain. For instance, Gerd Gigerenzer believes that ‘love at first sight’ is a rational solution to the problem of finding a mate, by preventing us from undertaking a seemingly rational search for partners that often becomes counter-productive, and hence harm our evolutionary chances. A good example he gives is of Kepler who, in 1611, ‘after an arranged and unhappy first marriage, …began a methodical search for a second wife.’ He ‘‘investigated eleven possible replacements within two years. Friends urged him to marry candidate number four, a lady of high status and a tempting dowry, but he persisted with his investigation. Insulted, this suitable match rejected him for toying with her.’[3]
Those familiar with dynamic programming know that finding a solution to the simple ‘parking problem’ (namely, deciding whether to park in the first empty spot or to move on and look for a spot closer to one’s destination) can quickly become mathematically intractable. The problem of marriage is effectively a two-sided parking problem, with both sides searching for a match (place to park), and with significantly greater uncertainty in the relevant parameters (including strategic gaming). Even the rational solution might turn out – once we have done the maths – to be to decide within the first three or four marriage opportunities. Either way, humans tend to marry within the first few partners they investigate, with ‘a third of Americans born even as recently as the 1960s and early 1970s’ marrying their first partner[4].
In particular, it can be supra-rational to ‘fall in love’ and deliberately block so-called rational thinking, which can only create doubt. We might never even know that we have blocked all other options off! The fact is that if we were purely rational we could never marry, beset by permanent doubt. Hence we would never reproduce. Therefore, [o]ften what looks like a reasoning error from a purely logical perspective turns out to be a highly intelligent social judgment in the real world’[5]. Supra-rational decisions (like falling in love) are whole-body-mind rational methods to enhance survival. Often our ‘gut feelings themselves have a rationale based on reasons’[6]. Unconscious reasoning (implicit rationality) is often at the heart of rapid-fire gut feeling.
Consider another rational fact – that time has value. Teenagers know that the fun they are having won’t come back again, so they ignore calls to forego this fun. That doesn’t mean they are irrational: just that they prefer a bird in hand to two birds in the bush. Indeed, once time is taken into account, the implicit rationality of many of our decisions becomes even more evident – particularly when we account also for our (hidden) personal knowledge of our local circumstances. Since deliberate rational thought takes time, it is not suitable for most day-to-day decisions. People rationally take imperfect decisions on minor matters. Our mid-brain also ‘observes’ many things subliminally – things that do not register on our conscious brain: hence we are using whole-body ‘knowledge’ when we decide on most matters.
By now a large stream of literature, including the seminal work of Gary Becker, demonstrates that major aspects of individual behaviour can be best explained by assuming self-interested rationality, even though, on the surface, no such rationality might be evident. The behaviour of drug addicts, criminals (and even animals in some cases) has been shown to abide by the predictions of rationality. Standard economic models therefore continue to provide great value. [An excellent discussion is provided in David M. Kreps’s introduction to his 1990 A Course in Microeconomic Theory.] Models of rational choice are always aware of their limitations – that they do not perfectly predict human behaviour. Those who have convincingly demonstrated the predominance of rationality include: Steven Levitt and Stephen J. Dubner’s [Freakonomics (2005) and SuperFreakonomics (2009)] and Tim Hartford [The Logic of Life (2008)].
The standard rational choice model therefore remains the best way to investigate human behaviour. Taleb is wrong when he says that: ‘Legions of empirical psychologists of the heuristics and biases school have shown that the model of rational behaviour under uncertainty is not just grossly inaccurate but plain wrong as a description of reality’.[7] He is wrong because rational choice models are an approximation of what human behaviour if likely to be. Rationality is not a claim on perfection but of self-interested optimisation subject to one’s local circumstance. A decision that is perfect and accurate in retrospect (and for ever after!) is not the standard of human rationality. I therefore assume in this book that despite the complexity of the human brain and its limitations, humans are predominantly rational and strategic.
            Noting that, we must also acknowledge that our brain is a two-edged sword. With the motivational engine of emotion but an imperfect ability to think and plan, we are led to heroic deeds and great poetry, or, at times, to terrible crime. Chimpanzees can’t inflict the harm that humans can inflict with atom bombs, but so also they can’t build skyscrapers or write sonnets. Without emotion, all the romance, drama, poetry, art and ‘colour’ will drain out of our lives, making us an insipid and boring package. But we remain capable of justifying everything.[8] We are a unique entity, with potential both for good and for evil. Political principles must recognise and build on this confounding complexity of the human situation. 

[1]The Impact of Price Frames on Consumer Decision Making”, Office of Fair Trading, UK May 2010 []

[2]Pinker, Steven, How the Mind Works, London: Penguin Books, 1999, p.343-348.

[3] Gigerenzer, Gerd, Gut Feelings, London: Penguin, 2007, p.58.

[4] Gigerenzer, Gerd, Gut Feelings, London: Penguin, 2007, p.54.

[5] Gigerenzer, Gerd, Gut Feelings, London: Penguin, 2007, p.103.

[6] Gigerenzer, Gerd, Gut Feelings, London: Penguin, 2007, p.192.

[7] Taleb, Nassim Nicholas, The Black Swan, London: Penguin Books, 2007, p.185.

[8] In this category would be the ‘extreme rationality’-based thinking attributable to Hegel, Nietzsche, Heidegger: the kind of thinking which ultimately created Hitler. Evil does not believe it is evil. Sometimes evil does not even agree that there are values.

Continue Reading

The sun’s primacy in climate change – a simple and logical proof – the LAG EFFECT

The sun takes time to heat up the earth. I've mentioned similar things in my previous post re: the sun, but it is worthwhile clarifying this issue further, particularly as I believe that this basic phenomenon is not sufficiently well understood.

Daily heat lag

It is common knowledge that it takes time for the sun to heat up the earth on an average day. The rays hit the ground, then infra-red radiation is released from the earth. Thus, while the sun is most intense at the zenith, the average day is MUCH hotter AFTER NOON than pre-noon.

Seasonal heat lag

Not only does the earth (and water) heat up slowly on a given day, there is residual heat stored in the surface of the earth (in earth and water). This means that even though the shortest day (in the northern hemisphere) occurs on December 21 and the longest on June 20/21, the seasonal response is not a precise reflection of the total quantum of the sun's rays that fall on earth. The autumn takes longer to 'die out' into winter and the spring takes longer to 'kick in' after winter. 

Decadal heat lag

EXACTLY the same principle applies to the effects of the impact of changes in the sun's intensity over time. There is a HUGE multi-decadal effect at work. When the sun warms up, heat enters the deepest waters of the sea. Over time, some of this is radiated back, but this takes time. 

This lag can be seen clearly from data on sun-spots below. 


The sun started revving up after a very stagnant performance between 1600 and 1725 AD. The little ice age kicked in after a lag of around 50 years. Once the sun started warming up (and became MUCH more active in the earlier part of the 20th century), it took time to warm up the earth with a much longer lag – between 50-100 years

Studies that look at precise annual correlations between sunspot activity and global temperatures will fail. There is only a weak correlation between these two at the annual level. Instead, we need NONLINEAR MOVING AVERAGE of some sort that controls for baseline conditions of temperature on earth. For instance, the initial heating up will take longer to impact, and the later increase in intensity should impact quicker. Only such a study – that mimics the ACTUAL process of heating of the earth, will produce worthwhile results. I suspect, from the data that I've seen, that such a study will almost entirely wipe out the share attributed to CO2 in climate change. (CO2 affects are logarithmic, and steeply peter out after a much lower concentration level than what is found in the atmosphere  today). 

Other factors

In addition, of course, as I've already pointed out, there are many other factors that drive climate. So no single variable is going to fully explain changes in climate. But nothing alarming is going on at the moment. Alarmists, though, tend to get all the press. That's just the nature of the human mind. Let us spend the next 100 years understanding it better, instead of running about like headless chooks, claiming that the sky is falling down.


Paper demonstrates solar activity was at a grand maximum in the late 20th century

Continue Reading

Political science, the “science” behind IPCC

IPCC has "assigned high confidence to statements for which there is very little evidence, has failed to enforce its own guidelines, has been guilty of too little transparency, has ignored critical review comments and has had no policies on conflict of interest". (See this report).

This is not news to me. It  confirms the low esteem in which I hold IPCC. I believe it is engaged in political science, or voodoo science (as Rajendra Pachauri labelled those who questioned him), not science as we know it. This is science from a political perspective, science with a vested interest, science with a view to one's personal bank balance. It is dangerous for its potential to harm the world's economies and in particular, the poor.

IPCC falsehoods and exaggerations have been, unfortunately, accepted at face value by many economists like Stern who ought to have known better. But unfortunately, 95% of economists are not trained as critical thinkers. They follow anyone in authority. They serve their leaders, they do not think independently. (Of course there are a few economists like Steven Landsburg and Steven Levitt who do know how to think!). That means you need to be a critical thinker to investigate all authorities.  NEVER accept authority figure claims at face value. Investigate. Question. If you accept anyone's statements without question you are finished.  

I'd be very concerned if I could clearly see that increased CO2 is likely to be dangerous for mankind. I'd be the first to jump out of my seat and claim that we ought to do something about. But I'm very relaxed about it. My views on climate change are clear, being informed by science, not voodoo science:

a) The greenhouse gas effect is real. But it is very small (being logarithmic), and it can't ever become life-threatening.

b) Increased CO2 is good for the world. It will increase crop (and animal) yields and increase the human population (The IPCC severely plays down the positive impacts of CO2)

c) The harm caused by increased CO2 is small or non-existent.


What's wrong with IPCC's 'science'?

There's so much material out there that shows what is wrong with IPCC science that I can't possibly do it justice. In brief:

  • IPCC relies heavily on non-peer reviewed material. “Dr Rajendra Pachauri, was to claim that everything in its report was “peer-reviewed”, having been confirmed by independent experts. But a new study put this claim to the test. A team of 40 researchers from 12 countries, led by a Canadian analyst Donna Laframboise, checked out every one of the 18,531 scientific sources cited in the mammoth 2007 report. Astonishingly, they found that nearly a third of them – 5,587 – were not peer-reviewed at all, but came from newspaper articles, student theses, even propaganda leaflets and press releases put out by green activists and lobby groups.”
  • It is prone to massively exaggerating the current changes in climate, as something exceptional. It is not. They are pretty much consistent with what has happened in the past. The medieval and Roman warming events are conclusively proven. By real scientists. Not voodoo scientists. The first IPCC report (1990) had a clear mention of medieval warming:
  • The IPCC is prone to grossly exaggerate sea level projections (see Don't forget that sea levels have been going up and going down for millions of years and will continue doing so. IPCC has spread the myth has been spread that malaria would increase with increases in global warming. This is highly exaggerated (see  IPCC has spread the myth that corals would be dramatically impacted by acidification. This is false. Corals love heat. They are flourishing. And the oceans are not going to become acidic.   

Some articles to read if you are interested

(I'll keep adding to this list as time permits. There is TONS of material out there to educate yourself should you want to think on your own)

The United Nations' IPCC reports have been regularly discredited over various exaggerations and unproven claims, most recently that Himalayan glaciers were melting, a claim that even the UN had to admit was false. (From The Detroit News:

CSIRO predictions that don't come true:

Lamb's graph:

Important :

Continue Reading

Telepathic and spiritual fraud prevention agency

James Randi set up a foundation in 1996 to fights charlatans, uninformed media, and as Randi says, “woo-woos” (!) including faith healers, miracle mongers, and such frauds. Randi's long-standing challenge to psychics now stands as a $1,000,000 prize administered by the Foundation. It remains unclaimed. His website says: "He is the world's most tireless investigator and demystifier of paranormal and pseudoscientific claims. He has pursued "psychic" spoonbenders, exposed the dirty tricks of faith healers, investigated homeopathic water "with a memory," and generally been a thorn in the sides of those who try to pull the wool over the public's eyes in the name of the supernatural."

One of the biggest problems in India is charlatans in the guise of religion. Even the educated are not exempt because our educational system is deplorable and does not inculcate the scientific attitude. Even Indian scientists are easily hoodwinked. 

Long many years Chanakya's suggested that "Deceptive occult practices shall be used to frighten the enemy. It is also said that these can be used against one's own people in case of revolt in order to protect the kingdom" (Rangarajan's famous Penguin translation of Arthashastra1987,1992, p.504).

India has a huge industry of petty magic tricksters. Whatever else you see on Youtube, do see this. Thereafter you can marvel at the  fraud being committed by some famous 'babas' and gurus. 

The basic unchallenged truth is that THERE IS NO SUPERNATURAL INTERVENTION IN THE UNIVERSE. All the laws of nature were created at the moment of the big bang. That energy continues eternally, never ever diminished, only transferred from one form to another. The constants in nature inevitably lead to life and then to evolution, and then to what we are today. Note that this does not mean that spirituality is false. Just that MIRACLES, OR DISTORTIONS OF THE LAWS OF NATURE, ARE IMPOSSIBLE

I have no evidence to deny or accept a "God" and so I am comfortable with the idea of people believing whatever they wish. Plus spirituality is a personal matter. There is nothing in nature that denies the existence of a God, should one wish to believe in it.

I'm therefore comfortable with a range of non-magical views such as Advaita and others who speak on a logical basis about spiritual belief. BUT I am not comfortable with people being taken for a ride. I detest fraud of any sort. I detest "religious" preachers who claim to have supernatural healing powers. Such fraud, I gather, is extremely prevalent in India among missionaries. Faith healing is the usual method used to perpetrate such fraud (I trust you've seen, by now, the Youtube video I cited above).

Telepathic and spiritual fraud prevention agency

Consumer laws protect us against fraud of all kinds. We need a law to protect gullible innocent people (including many science PhDs in India who have no scientific attitude!) from cheap magic tricks being projected as mystical power.

I believe that India ought to (and all societies ought to!) establish a publicly funded institute to prevent telepathic and spiritual fraud. This should be populated by scientists who license anyone who purports to have supernatural powers. All "God" men and "God" women will need a licence to ply their obnoxious and fraudulent "trade". I am 100% CERTAIN that no license will ever be issued. Such an agency would protect us against fraudulent magicians who make money from the gullible, or "convert" others to their 'religion'. 

People ought to be free to complain to this agency if any supernatural claims are made during the conversion process. I think it is time to call the bluff and end the nonsense that is perpetrated by 'religions' on innocent gullible tribals in the various corners of India. Such fraud makes it difficult for "religions" to argue that they are the custodians of morality.

(I have an extensive discussion on DOF to show how religions and morality are poles apart. Have a read of it. You might be surprised.)  

Continue Reading
Social media & sharing icons powered by UltimatelySocial