What is rational behaviour? It seems to me that rational behaviour is simply about making good choices – having the intention to make choices that we are prepared to endorse at a high level of reflection and being prepared to learn from our mistakes.
Economists often assume in their theoretical models that the world is populated by people who are a bit like Dr Spock from Star Wars. In Dan Ariely’s words: “Standard economics assumes that we ... know all the pertinent information about our decisions, that we can calculate the value of the different options we face, and that we are cognitively unhindered in weighing the ramifications of each potential choice” (“Predictably Irrational”: 239). Economists have reasons for making such assumptions in their models, but there are also good reasons why real people don’t behave like this. If we were to attempt to calculate the value of all the options every time we made a decision, the transactions costs (including time required) would be huge. Most of us have better things to do with our lives.
However, some of the evidence that Dan Ariely has presented suggests that humans often fail to make choices that would be capable of passing a much weaker test of rationality. We have predictable tendencies to make mistakes in decision-making and we often tend to make the same mistakes over and over. (I have written previously about Ariely’s book here).
While thinking about the question of whether self-actualization would help people make better choices I decided to revisit “Predictably Irrational” to see if I could find any relevant discussion. My hopes were raised when I found this: “If we all make systematic mistakes in our decisions, then why not develop new strategies, tools and methods to help us make better decisions and improve our overall well-being?” Unfortunately, the discussion that follows is mainly about what governments and employers etc could do to help us rather than about what we can do to help ourselves. However, Ariely does acknowledge that it might be possible for us to help ourselves: “Once we understand when and where we may make erroneous decisions, we can try to be more vigilant, force ourselves to think differently about these decisions, or use technology to overcome our inherent shortcomings” (244).
Why do I think it is worth thinking about whether self-actualization would promote greater rationality in market behaviour? It seems to me that people who rate highly in terms of self-actualization might be more competent in dealing with their own irrational tendencies e.g. in relation to gaps between wanting and liking (discussed here and here) and persuasion techniques used by others (including advertising agencies).
Instruments have been created to measure self-actualization (the POI or personal orientation inventory) and dimensions of personal well-being related to eudaimonia i.e. growth towards achieving the best that is within us and the exercise of practical wisdom. For example, Carol Ryff’s six-factor model of personal well-being covers self-acceptance, autonomy, personal growth, relations with others, purpose in life and environmental mastery (described here). I don’t claim to know much about measurement of such factors, but this model seems to have conceptual coherence. The six factors correspond broadly to the content matrices in Michael Hall’s matrix model (see: “Self-Actualization Psychology”, Chapter 11). (Hall’s matrix model provides a comprehensive framework for considering how the meanings that we attach to self, powers (potential), others, time and the market/environment/context relate to the beliefs, values, understandings, perceptions etc that make up our internal models of the world.)
As far as I am aware research relating to measurement of self-actualization etc. has not yet been used in behavioural economics research. It would be interesting to know whether the aspects of “practical wisdom” being measured in the self-actualization research correspond to enhanced rationality in market behaviour.
Thursday, October 9, 2008
Monday, October 6, 2008
Can happiness be obtained by seeking it?
Please Note: A revised version of this post is available here.
John Stuart Mill is often quoted as an authority on the question of whether happiness can be obtained by seeking it. He wrote:
“Those only are happy ... who have their minds fixed on some object other than their own happiness; on the happiness of others, on the improvement of mankind, even on some art or pursuit, followed not as a means, but as itself an ideal end. Aiming thus at something else, they find happiness by the way” (“Autobiography”, here).
How can this view that happiness cannot be obtained by seeking it be reconciled with Mill’s conviction “that happiness is the test of all rules of conduct, and the end of life”? That was no problem for J.S. Mill: “the happiness which forms the utilitarian standard of what is right in conduct, is not the agent's own happiness, but that of all concerned. As between his own happiness and that of others, utilitarianism requires him to be as strictly impartial as a disinterested and benevolent spectator” (“Utilitarianism”, here).
Not content to let that proposition rest on its dubious merits, Mill enlisted the support of a widely-esteemed authority: “In the golden rule of Jesus of Nazareth, we read the complete spirit of the ethics of utility. To do as you would be done by, and to love your neighbour as yourself, constitute the ideal perfection of utilitarian morality”. So there!
Coming back to the original question, it is actually not clear to me that J.S. was strongly of the view that happiness could not be obtained by seeking it. He regarded some pleasures as being higher than others (for my discussion of his views on pushpin and poetry see here and here) and he saw the development of “noble character” as intimately linked to the higher pleasures. At one point he seems to suggest that development of a noble character is an avenue to happiness. He writes: “... if it may be doubted whether a noble character is always the happier for its nobleness, there can be no doubt that it makes other people happier ...” (“Utilitarianism”). His personal experience is also relevant here. He reports that he helped himself to regain some measure of happiness after suffering a nervous breakdown when he was a young man by reading the poetry of William Wordsworth. He wrote:
“What made Wordsworth's poems a medicine for my state of mind, was that they expressed, not mere outward beauty, but states of feeling, and of thought coloured by feeling, under the excitement of beauty. They seemed to be the very culture of the feelings, which I was in quest of” (“Autobiography”). For an example of what Mill was writing about, see this poem by Wordsworth (here).
It seems to me that Mill’s take on the question of whether happiness can be obtained by seeking it stems from his conception of happiness as having to do solely with seeking pleasure and avoiding pain. Mill seems to accept that happiness could be obtained by cultivating tranquillity:
“the conscious ability to do without happiness gives the best prospect of realizing, such happiness as is attainable. For nothing except that consciousness can raise a person above the chances of life, by making him feel that, let fate and fortune do their worst, they have not power to subdue him: which, once felt, frees him from excess of anxiety concerning the evils of life, and enables him, like many a Stoic in the worst times of the Roman Empire, to cultivate in tranquility the sources of satisfaction accessible to him, without concerning himself about the uncertainty of their duration, any more than about their inevitable end”.
In his autobiography Mill reports that it was after his nervous breakdown that he came to the view that personal happiness cannot be obtained by seeking it. Kieran Setiya suggests that Mill displays a lack of self-knowledge because he became unhappy even though he had already met his own condition of aiming not at his own happiness, but at the happiness of others (here). However, my reading of Mill’s account suggests that he saw his problem as stemming from the moment when he asked himself whether he would be happy if all his objects in life were realized. Mill implies that his mistake was to question his own happiness:
“Ask yourself whether you are happy, and you cease to be so. The only chance is to treat, not happiness, but some end external to it, as the purpose of life. Let your self-consciousness, your scrutiny, your self-interrogation, exhaust themselves on that; and if otherwise fortunately circumstanced you will inhale happiness with the air you breathe, without dwelling on it or thinking about it, without either forestalling it in imagination, or putting it to flight by fatal questioning”.
How should we view this? Should we treat it as an assertion that the way to be happy is to live a “meaningful” life? Or, should we treat it as an invitation by Mill to follow his example by avoiding any problems we might have in accepting our emotional states by losing ourselves in furthering causes that seem much more important than our own happiness? Should we view Mill’s fear of self-awareness as a symptom of low self-esteem?
Leaving those questions aside, what is my answer to the question I began with? Can happiness be obtained by seeking it? It seem to me that the answer depends on what you mean by happiness. You do not harm your chances of happiness by seeking to live a good life.
John Stuart Mill is often quoted as an authority on the question of whether happiness can be obtained by seeking it. He wrote:
“Those only are happy ... who have their minds fixed on some object other than their own happiness; on the happiness of others, on the improvement of mankind, even on some art or pursuit, followed not as a means, but as itself an ideal end. Aiming thus at something else, they find happiness by the way” (“Autobiography”, here).
How can this view that happiness cannot be obtained by seeking it be reconciled with Mill’s conviction “that happiness is the test of all rules of conduct, and the end of life”? That was no problem for J.S. Mill: “the happiness which forms the utilitarian standard of what is right in conduct, is not the agent's own happiness, but that of all concerned. As between his own happiness and that of others, utilitarianism requires him to be as strictly impartial as a disinterested and benevolent spectator” (“Utilitarianism”, here).
Not content to let that proposition rest on its dubious merits, Mill enlisted the support of a widely-esteemed authority: “In the golden rule of Jesus of Nazareth, we read the complete spirit of the ethics of utility. To do as you would be done by, and to love your neighbour as yourself, constitute the ideal perfection of utilitarian morality”. So there!
Coming back to the original question, it is actually not clear to me that J.S. was strongly of the view that happiness could not be obtained by seeking it. He regarded some pleasures as being higher than others (for my discussion of his views on pushpin and poetry see here and here) and he saw the development of “noble character” as intimately linked to the higher pleasures. At one point he seems to suggest that development of a noble character is an avenue to happiness. He writes: “... if it may be doubted whether a noble character is always the happier for its nobleness, there can be no doubt that it makes other people happier ...” (“Utilitarianism”). His personal experience is also relevant here. He reports that he helped himself to regain some measure of happiness after suffering a nervous breakdown when he was a young man by reading the poetry of William Wordsworth. He wrote:
“What made Wordsworth's poems a medicine for my state of mind, was that they expressed, not mere outward beauty, but states of feeling, and of thought coloured by feeling, under the excitement of beauty. They seemed to be the very culture of the feelings, which I was in quest of” (“Autobiography”). For an example of what Mill was writing about, see this poem by Wordsworth (here).
It seems to me that Mill’s take on the question of whether happiness can be obtained by seeking it stems from his conception of happiness as having to do solely with seeking pleasure and avoiding pain. Mill seems to accept that happiness could be obtained by cultivating tranquillity:
“the conscious ability to do without happiness gives the best prospect of realizing, such happiness as is attainable. For nothing except that consciousness can raise a person above the chances of life, by making him feel that, let fate and fortune do their worst, they have not power to subdue him: which, once felt, frees him from excess of anxiety concerning the evils of life, and enables him, like many a Stoic in the worst times of the Roman Empire, to cultivate in tranquility the sources of satisfaction accessible to him, without concerning himself about the uncertainty of their duration, any more than about their inevitable end”.
In his autobiography Mill reports that it was after his nervous breakdown that he came to the view that personal happiness cannot be obtained by seeking it. Kieran Setiya suggests that Mill displays a lack of self-knowledge because he became unhappy even though he had already met his own condition of aiming not at his own happiness, but at the happiness of others (here). However, my reading of Mill’s account suggests that he saw his problem as stemming from the moment when he asked himself whether he would be happy if all his objects in life were realized. Mill implies that his mistake was to question his own happiness:
“Ask yourself whether you are happy, and you cease to be so. The only chance is to treat, not happiness, but some end external to it, as the purpose of life. Let your self-consciousness, your scrutiny, your self-interrogation, exhaust themselves on that; and if otherwise fortunately circumstanced you will inhale happiness with the air you breathe, without dwelling on it or thinking about it, without either forestalling it in imagination, or putting it to flight by fatal questioning”.
How should we view this? Should we treat it as an assertion that the way to be happy is to live a “meaningful” life? Or, should we treat it as an invitation by Mill to follow his example by avoiding any problems we might have in accepting our emotional states by losing ourselves in furthering causes that seem much more important than our own happiness? Should we view Mill’s fear of self-awareness as a symptom of low self-esteem?
Leaving those questions aside, what is my answer to the question I began with? Can happiness be obtained by seeking it? It seem to me that the answer depends on what you mean by happiness. You do not harm your chances of happiness by seeking to live a good life.
Sunday, September 28, 2008
Are the world's poor motivated solely by survival needs?
The answer to this question might seem fairly obvious. If people are living on less that a dollar a day, or even on less that two dollars a day, everything they do is likely to be motivated by survival needs. Right?
Actually, a recent working paper by Abhijit Banerjee and Esther Duflo suggests that perception is not correct. The paper is based on household surveys conducted in 13 low-income countries (‘Economic lives of the poor’, MIT working paper 06-29).
Those in poverty typically spend between about half and three-quarters of their income on food. The food they buy is not always the lowest cost way of obtaining nutrition – for example, where millets represent best nutritional value for money they also spend significant amounts on rice, wheat and sugar. They also spend significant amounts on tobacco and alcohol. Most surprisingly, they spend a substantial proportion or their incomes on entertainment e.g. television, religious festivals and weddings, and on funerals.
Does this mean that the world’s poor are eating enough? Not according to standards relating to such things as calorie intake and body mass indexes. The poor frequently suffer from illness related to malnutrition and many say that they often feel so weak that it is difficult for them to carry out daily activities.
Are they happy? The proportions reporting that they are worried, tense or anxious are relatively high. In general, however, the world’s poor are apparently not extremely unhappy, except when they have to go without meals.
Why do they spend on entertainment instead of spending more on food? Banerjee and Duflo suggest that this cannot be attributed to lack of self control because much of the entertainment spending of the poor tends to involve planning and saving. The authors argue that spending on entertainment is a strongly felt need and possibly associated with a desire of the poor to keep up with their neighbours. Whatever the reason, it is clear that the world’s poor do not focus exclusively on satisfying their physiological and security needs.
Why did these results surprise me? It must have been because I had faulty preconceptions about what it means to be very poor. As an undergraduate I learned about Engel’s law that the proportion of income that people spend on food tends to decline as incomes rise. At various times of my life I have also been exposed to Maslow’s pyramid of needs, which implies that people need to satisfy their basic physiological needs and their needs for safety and security before they become motivated by belonging and love needs, esteem needs and self actualization needs. Although Engel’s law and Maslow’s pyramid are broadly consistent with reality, they do not help people to understand that, like the rest of humanity, the very poor are not motivated entirely by physiological needs.
I read the paper by Banerjee and Duflo some time ago, but it has come to mind again as I have been reading Michael Hall’s book, “Self-Actualization Psychology” (Neuro-Semantic Publications, 2008). Hall is respectful of Abraham Maslow’s theories, but suggests that Maslow did not fully appreciate the importance to motivation of the meaning that people give to their circumstances. For example, Maslow admitted that it was a great mystery to him why affluence releases some people for personal growth while others stay fixated at a strictly materialistic level. Hall comments:
“Today, we can answer that puzzle. The experience of affluence is just an event or experience. What it means to any given person determines how that person will regard and feel about affluence” (91).
Hall emphasizes the importance of “meaning” as follows:
“Meaning is the most critical factor in human nature. There’s nothing more essential or core to our nature and experiences. In the end, no experience and no event makes us feel anything. In itself, no experience means anything. Meaning is not inside events” (90).
That provides food for thought. It also seems to me to help explain why very poor people do not focus their efforts exclusively on survival. Even though they are malnourished, living means a lot more to them than just survival.
Actually, a recent working paper by Abhijit Banerjee and Esther Duflo suggests that perception is not correct. The paper is based on household surveys conducted in 13 low-income countries (‘Economic lives of the poor’, MIT working paper 06-29).
Those in poverty typically spend between about half and three-quarters of their income on food. The food they buy is not always the lowest cost way of obtaining nutrition – for example, where millets represent best nutritional value for money they also spend significant amounts on rice, wheat and sugar. They also spend significant amounts on tobacco and alcohol. Most surprisingly, they spend a substantial proportion or their incomes on entertainment e.g. television, religious festivals and weddings, and on funerals.
Does this mean that the world’s poor are eating enough? Not according to standards relating to such things as calorie intake and body mass indexes. The poor frequently suffer from illness related to malnutrition and many say that they often feel so weak that it is difficult for them to carry out daily activities.
Are they happy? The proportions reporting that they are worried, tense or anxious are relatively high. In general, however, the world’s poor are apparently not extremely unhappy, except when they have to go without meals.
Why do they spend on entertainment instead of spending more on food? Banerjee and Duflo suggest that this cannot be attributed to lack of self control because much of the entertainment spending of the poor tends to involve planning and saving. The authors argue that spending on entertainment is a strongly felt need and possibly associated with a desire of the poor to keep up with their neighbours. Whatever the reason, it is clear that the world’s poor do not focus exclusively on satisfying their physiological and security needs.
Why did these results surprise me? It must have been because I had faulty preconceptions about what it means to be very poor. As an undergraduate I learned about Engel’s law that the proportion of income that people spend on food tends to decline as incomes rise. At various times of my life I have also been exposed to Maslow’s pyramid of needs, which implies that people need to satisfy their basic physiological needs and their needs for safety and security before they become motivated by belonging and love needs, esteem needs and self actualization needs. Although Engel’s law and Maslow’s pyramid are broadly consistent with reality, they do not help people to understand that, like the rest of humanity, the very poor are not motivated entirely by physiological needs.
I read the paper by Banerjee and Duflo some time ago, but it has come to mind again as I have been reading Michael Hall’s book, “Self-Actualization Psychology” (Neuro-Semantic Publications, 2008). Hall is respectful of Abraham Maslow’s theories, but suggests that Maslow did not fully appreciate the importance to motivation of the meaning that people give to their circumstances. For example, Maslow admitted that it was a great mystery to him why affluence releases some people for personal growth while others stay fixated at a strictly materialistic level. Hall comments:
“Today, we can answer that puzzle. The experience of affluence is just an event or experience. What it means to any given person determines how that person will regard and feel about affluence” (91).
Hall emphasizes the importance of “meaning” as follows:
“Meaning is the most critical factor in human nature. There’s nothing more essential or core to our nature and experiences. In the end, no experience and no event makes us feel anything. In itself, no experience means anything. Meaning is not inside events” (90).
That provides food for thought. It also seems to me to help explain why very poor people do not focus their efforts exclusively on survival. Even though they are malnourished, living means a lot more to them than just survival.
Thursday, September 25, 2008
Will the financial crisis lead to more protectionism?
In opening the WTO’s Public Forum for 2008, which is taking place in Geneva at the moment, Pascal Lamy, director-general or the WTO referred to newspaper headlines heralding a potential Great Depression Two. He noted that policy-makers in the United States and across the globe, are desperately seeking to avoid the series of mis-steps that accentuated the financial crisis of the 1930s. Lamy then added:
“They are all stressing that lessons from the Great Depression have been learned, and that the many policy mistakes that were associated with it will be avoided. But one of the important lessons of the Great Depression, which we must not forget, is that “protectionism” and economic isolationism do not work. They are policies of the past, which should have no place in our future” (here).
I suppose that quite a few economists who are concerned about the current financial crisis have recently revisited what Milton Friedman had to say about the origins of the great depression. My conclusion after re-reading the relevant chapter of “Capitalism and Freedom”, is that the policy mistakes that led to the great depression are unlikely to be repeated. I am less sure that the U.S. will avoid the policy mistakes that Japan made at the beginning of the 1990’s - but that is not what I want to write about at the moment.
After I had read what Friedman had to say about the origins of the great depression I then found myself reading his comments on trade liberalisation in the following chapter about international finance and trade. If Pascal Lamy has good cause to be concerned about a rise in protectionism in the current environment – as I think he has - it seems to me that the best way to defend against it would be to revive efforts toward trade liberalisation. The following comments by Friedman on approaches to trade liberalization seem to me to be particularly relevant in the light of the recent failure of international trade negotiations:
“Given that we should move to free trade, how should we do so? The method we have tried to adopt is reciprocal negotiation of tariff reductions with other countries. This seems to me a wrong procedure. In the first place, it ensures a slow pace. He moves fastest who moves alone. In the second place, it fosters an erroneous view of the basic problem. It makes it appear as if tariffs help the country imposing them but hurt other countries , as if when we reduce a tariff we give up something good and should get something in return in the form of a reduction in the tariffs imposed by other countries. In truth the situation is quite different. Our tariffs hurt us as well as other countries. We would be benefited by dispensing with our tariffs even if other countries did not. We would of course be benefited more if they reduced theirs but our benefiting does not require that they reduce theirs. Self-interests coincide and do not conflict” (Friedman, 1982: 73).
Friedman made it clear in the following paragraphs that he was using “tariff” to cover non-tariff impediments to trade as well as tariffs.
It is difficult for those who share Friedman’s views about trade liberalization not to view WTO negotiations as vaudeville. The negotiation process seems to exist to allow politicians to clown around on the world stage keeping their domestic audiences amused, while behind the scenes they continue to pander to narrow interest groups favouring high protection.
Does this mean that the WTO is worse than useless? Not necessarily. The WTO has potential value as a forum that can help member countries to resist the pressures of domestic interests seeking to retain or even increase trade barriers. It seems to me that it is not beyond hope that WTO processes could be used to help individual countries to develop trade negotiation strategies that would achieve the benefits potentially available to them through unilateral reductions in protection. If many countries can induce each other to do this simultaneously, all can also obtain the benefits flowing from reductions in trade barriers of other countries.
How this could happen? The best ideas I have seen are in a contribution to the WTO Public Forum by Bill Carmichael, former chairman of Australia’s Industries Assistance Commission (here).
“They are all stressing that lessons from the Great Depression have been learned, and that the many policy mistakes that were associated with it will be avoided. But one of the important lessons of the Great Depression, which we must not forget, is that “protectionism” and economic isolationism do not work. They are policies of the past, which should have no place in our future” (here).
I suppose that quite a few economists who are concerned about the current financial crisis have recently revisited what Milton Friedman had to say about the origins of the great depression. My conclusion after re-reading the relevant chapter of “Capitalism and Freedom”, is that the policy mistakes that led to the great depression are unlikely to be repeated. I am less sure that the U.S. will avoid the policy mistakes that Japan made at the beginning of the 1990’s - but that is not what I want to write about at the moment.
After I had read what Friedman had to say about the origins of the great depression I then found myself reading his comments on trade liberalisation in the following chapter about international finance and trade. If Pascal Lamy has good cause to be concerned about a rise in protectionism in the current environment – as I think he has - it seems to me that the best way to defend against it would be to revive efforts toward trade liberalisation. The following comments by Friedman on approaches to trade liberalization seem to me to be particularly relevant in the light of the recent failure of international trade negotiations:
“Given that we should move to free trade, how should we do so? The method we have tried to adopt is reciprocal negotiation of tariff reductions with other countries. This seems to me a wrong procedure. In the first place, it ensures a slow pace. He moves fastest who moves alone. In the second place, it fosters an erroneous view of the basic problem. It makes it appear as if tariffs help the country imposing them but hurt other countries , as if when we reduce a tariff we give up something good and should get something in return in the form of a reduction in the tariffs imposed by other countries. In truth the situation is quite different. Our tariffs hurt us as well as other countries. We would be benefited by dispensing with our tariffs even if other countries did not. We would of course be benefited more if they reduced theirs but our benefiting does not require that they reduce theirs. Self-interests coincide and do not conflict” (Friedman, 1982: 73).
Friedman made it clear in the following paragraphs that he was using “tariff” to cover non-tariff impediments to trade as well as tariffs.
It is difficult for those who share Friedman’s views about trade liberalization not to view WTO negotiations as vaudeville. The negotiation process seems to exist to allow politicians to clown around on the world stage keeping their domestic audiences amused, while behind the scenes they continue to pander to narrow interest groups favouring high protection.
Does this mean that the WTO is worse than useless? Not necessarily. The WTO has potential value as a forum that can help member countries to resist the pressures of domestic interests seeking to retain or even increase trade barriers. It seems to me that it is not beyond hope that WTO processes could be used to help individual countries to develop trade negotiation strategies that would achieve the benefits potentially available to them through unilateral reductions in protection. If many countries can induce each other to do this simultaneously, all can also obtain the benefits flowing from reductions in trade barriers of other countries.
How this could happen? The best ideas I have seen are in a contribution to the WTO Public Forum by Bill Carmichael, former chairman of Australia’s Industries Assistance Commission (here).
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