The Limits of Knowledge Personal and Public: Human Beings and Governments Typically Make Irrational Decisions. Taking This into Account in Personal Planning and in Policymaking Offers Improved Results

Article excerpt

One of the most basic assumptions underlying much of Western thinking is that individuals are rational beings, able to form judgments based on empirical information and logical deliberations in their quest for a course of action most suited to advancing their goals. This is assumed to be true for personal choices and for societal ones--that is, for public policies. A common narrative is that people used to be swayed by myths, folktales, and rituals (with religion sometimes added in), but the Enlightenment ushered in the Age of Reason, in which we are increasingly freed from traditional beliefs and instead rely on the findings of science. Progress is hence in the cards, driven by evidence. This assumption was first applied to nature, as we learned to crack its codes and employ its resources. For the past 200 years or so, it has also been applied to society. We no longer take society for granted as something to which we have to adapt, but we seek to remake it in line with our designs. For many people, this means such things as improving relations among the races, reducing income inequalities, and redefining marriage, among other actions.

Economics, by far the most influential social science, has strongly supported the assumption of rationality. It sees individuals as people who have preferences and seek to choose among alternative purchases, careers, investments, and other options in ways that best "maximize" whatever they desire. This assumption has also come to be shared by major segments of other social sciences, including not just significant parts of political science (for instance, in the view that voters make rational choices) and sociology (people date to improve their status), but even law (laws are viewed as restructuring incentives) and history (changes in the organization of institutions can be explained in terms of the rational interests of individuals seeking to structure the world so as to maximize net benefits).

But this message is being upended by insights from the relatively new field of behavioral economics, which has demonstrated beyond reasonable doubt that people are unable to act rationally and are hardwired to make erroneous judgments that even specialized training cannot correct. Being created by people, governments have similar traits that spell trouble for rational policymaking and the progress that is supposed to follow. Still, a closer examination suggests that the findings of behavioral economics are not so much a reason for despair as an indication of the need for a rather different strategy. Once we fully accept our intellectual limitations, we can improve our personal decisionmaking as well as our public policies.

Scientific sea change

Some segments of social science never really bought into the progress and rationality assumption. Oswald Spengler, a German philosopher and mathematician best known for his book The Decline of the West, published in two volumes between 1926 and 1928, held that history is basically running in circles, repeating itself rather than marching forward. Social psychologists showed that people can be made to see things differently, even such "obvious" things as the length of lines, if other people around them take different positions. Psychologists demonstrated that we are driven by motives that lurk in our subconscious, which we neither understand nor control. Sociologists found that billions of people in many parts of the world continue to be swayed by old beliefs. However, the voices of these social scientists were long muted, especially in the public realm.

Different reasons may explain why those who might be called the "rationalist" social scientists drowned out the "nonrationalist" ones. These reasons include the can-do attitude generated by major breakthroughs in the natural sciences, the vanquishing of major diseases, and strong economic growth. Progress--driven by reason, rational decisionmaking, and above all, science--seemed self-evident. …