Rational actors

0Ross • 27th May 2009 • Learning, Thinking • development, policy, teenage pregnancy

One of the most illuminating insights from the study of economics is that of man as a rational maximiser of utility. Putting aside the valid quirks of organisational limitation and bounded rationality, inherent bias and behavioural economics, the idea that people do what they do because it works for them is very powerful. It’s also very democratic and empowering. People don’t do things you think of as bad or wrong because they are naive or foolish, they do it because, for them, it makes sense.

Treating people as rational means giving them credit to know what’s best for themselves, rather than adopting paternalist policies. If you want to change behaviour (itself a dubious objective requiring much caution) you have to do more than simply educate people. Education only changes behaviour when there was a lack of information before. If there was no dearth of information, education is just the annoying imposition of another viewpoint. It will have little impact except to waste money and annoy those being ‘educated’.

If you really want to change behaviour, give people credit for knowing their own minds, don’t tell them what to think, but change the incentives. This sometimes offers radically different policy solutions.

This theme has recurred a couple of times in the last week: once when examining UK government policy on teenage pregnancy (as part of my MPA studies) and once when reading an article about the book Portfolios of the Poor in The Economist. In the former case, I was struck that government policy both aims to make life better for teenage mothers – providing them with better facilities, better housing, better job and educational opportunities – while also trying to decrease the numbers of teenage mothers through education. Lisa Arai makes a good case that this doesn’t conform to a rational model, where teenage girls have children because that offers them a better life option. In the latter case, people living in poverty have been shown not to be financially naive spendthrifts, but highly sophisticated, rational consumption-smoothers. Applying rational models to these policy challenges produces very different solutions.

In what other areas would assuming rational behaviour make a huge policy difference?