prior probability

In our previous post, we included several links describing Richard Thaler’s major contributions to economics, finance, law, and other fields. (Thaler was awarded a “Nobel Prize” in economics earlier this week.) Rather than engaging in hero-worship or the usual congratulatory blather, we will instead use this post to offer two friendly criticisms of Thaler’s behavioral approach to economics. 

First off, although Thaler and his many behavioral disciples are right to point out the many, many ways in which human behavior deviates from perfect rationality (see image below for a sampling of these quirks), upon closer inspection it turns out that many of these deviations from rationality run in opposing directions! By way of example, behavioralists like to point out how people tend to be overly optimistic, systemmatically underestimating significant risks (such as texting while driving), but at the same time, behavioralists have also shown that people tend to overestimate very small risks (such as the risk of a mass shooting or an act of terrorism). The problem, however, is that these tendencies or heuristics run in different directions. When two heuristics collide with each other, which one prevails, or do they just end up cancelling each other out?

Another critique we have of behavioralists is their implicit elitism or “expert bias.” Specifically, when behavioralists are busy designing new public policies to promote retirement savings or incentivize organ donations (their favorite, well-worn examples), they often assume a condescending “we know best” attitude about people’s preferences. But beyond these low-hanging fruit, people’s policy preferences are not always homogenous. So, instead of ignoring or discounting our heterogeneous preferences, behavioralists should concede that their psychological models and preferred policies might have many shortcomings …

In honor of Richard H. Thaler receiving the 2017 Nobel Prize in Economics (or the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, to be more precise):

1. Thaler’s memoir and approach to economics (free Kindle ebook via Amazon)
2. Press release dated 9 October 2017 (via the Swedish Royal Academy)
3. Tyler Cowen’s review of Thaler’s contributions to economics (via Marginal Revolution)
4. Kevin Bryan’s review (via A Fine Theorem)
5. Gregory Karp’s review (via The Chicago Tribune)
6. Find your cello (commencement address by Richard Thaler)

Today, we are resuming our review of the new Routledge Handbook of Libertarianism. The four essays we have reviewed thus far have all focused on various abstract aspects of libertarian theory. By contrast, the next few papers we will review can be categorized as essays about public policy, i.e. “applied libertarianism” as opposed to “theoretical libertarianism.” In particular, let’s begin with Javier Hidalgo’s essay “The libertarian case for open borders.” (Dr Hidalgo, a professor at the University of Richmond, studies the ethics and political philosophy of immigration.) Prof Hidalgo points out a major contradiction in applied libertarian thought: many free-market libertarians are committed to the free movement of goods but are simultaneously opposed to the free movement of peoples. For his part, Dr Hidalgo argues that most restrictions on immigration are not justified. Why not? Because immigration restrictions prohibit many mutually beneficial economic and personal exchanges between people of different nationalities. Moreover, Hidalgo anticipates and persuasively refutes many pro-libertarian objections to free and open immigration.

To his credit, Prof Hidalgo is that rare breed: an intellectually-honest libertarian, for he candidly and openly acknowledges that libertarians are perfectly willing to restrict individual liberty when such restrictions are justified, and he offers this dramatic example: “most libertarians would deny that you have a right to own, say, a tank or nuclear warhead.” Therein lies the main weakness with Dr Hidalgo’s argument in favor of open borders: where do we draw the line between “justified” restrictions of individual liberty, such as laws that prohibit me from owning an F-16 fighter jet, and “unjustified” restrictions of liberty, such as laws that prohibit me from hiring an illegal alien? Yet, as we mentioned in a previous post (regarding assault rifles), reasonable men and reasonable women might measure the potential harms and prospective benefits of open borders differently. For our part, we would emphasize two points. First off, we already have a limited form of “open borders”; for the most part, people inside the USA are free to travel and work in any U.S. State and to ship most goods across State lines, so the real question is: should our domestic “open border” policy be expanded to include other countries, like our neighbors Mexico and Canada? Secondly, any transnational open-border policy should ideally be a reciprocal one: other countries must agree to open their borders too.

You can check out more of Mari Andrew’s art here. (We are taking Sunday off to finish reading “Moral Machines”; we will resume our review of the Routledge Handbook of Libertarianism on Monday.)

We are interrupting (again) our review of the new Routledge Handbook on Libertarianism to shout out the general release of the new Blade Runner sequel (now showing at a movie house near you!), which we are hoping to see this weekend. Also, to mark this momentous occasion, we are posting a link to our old paper “Clones and the Coase Theorem,” published in 2011 in the Journal of Law & Social Deviance (LSD). See excerpts below. Enjoy!

    

 

In this post, we will review Ilya Somin’s intriguing essay “How political ignorance strengthens the case for libertarianism,” published in the new Routledge Handbook of Libertarianism. (By the way, Somin, a law professor at George Mason University, has written an entire tome about political ignorance. See book below.) First off, Prof Somin begins with the problem of voter ignorance. It’s not that voters are stupid; rather, it’s an incentive problem. Since there is a tiny probability that one’s vote will be the decisive one, it doesn’t make sense to spend a lot of time and effort acquiring relevant information and studying the issues. So, why do people vote at all? According to Somin, voting is more like pro sports: a chance to express support for one’s favorite political team! (On a personal note, having lived in Puerto Rico for many years, where island politics is the national pastime, we love this expressive explanation of voting.)

Next, Prof Somin identifies the problem of expert ignorance. As Somin correctly notes, we can’t rely on experts to “nudge” us in the right direction because people have radically diverse preferences about whatever problem or issue the experts are trying to fix. More fundamentally, as the “socialist calculation debate” of the mid-Twentieth century showed, expert knowledge is an oxymoron. (For what it’s worth, we’ve blogged about the socialist calculation debate before and have tried to apply the lessons of this great debate to the empirical economics movement of today.)

So, given how pervasive and deep the problem of ignorance is, what is to be done? Unfortunately, the rest of Somin’s essay is very weak here. Somin’s solution is to let people vote with their feet (or with their wallets) by choosing where to live and which products and services to buy: “It is easier to vote with your feet to a different city or State …, and easier still to vote in the private sector.” But in a world in which every major city has some form of occupational licensing, and in a world of giant Internet monopolies like Google and Facebook and boilerplate contracts, how much freedom do we really have to vote with our feet or wallets?

Today, we are interrupting our series of blog posts on the new Routledge Handbook of Libertarianism to offer a friendly critique of libertarian theory. Mass shootings like the one in Vegas point out a huge potential flaw with libertarianism. After all, a logically-consistent and intellectually-honest libertarian should be opposed to any and all legal restrictions on the purchase and sale of military-grade weapons, such as the Uzi sub-machine gun pictured below (our all-time favorite), since such restrictions would interfere with the liberty interests of gun dealers and gun owners. Most persons, however, favor some set of sensible restrictions on this particular form of liberty, such as background checks and waiting periods. The controversy, then, is where should these restrictions end and liberty begin? (See here, for example.) What types of restrictions, if any, are “sensible” in this context? (A separate question is whether any such restrictions would save any lives. See this.) Again, a true libertarian might say that no restrictions–or very few ones–should be imposed. (As an aside, it’s worth noting that the Second Amendment is of no help here because constitutional rights are not absolute–even the fundamental right to speech does not protect child pornographers.) What we libertarians need is a general theory of harm, one that would allow us to make principled exceptions to our liberty interests. Unfortunately, even with a general theory of harm, reasonable men and reasonable women might still disagree about its application. After all, whatever the potential harms of assault rifles might be, what about their potential benefits? Furthermore, such harms and benefits might be incommensurate (i.e. hard to compare on the same scale of measurement), and even if they weren’t incommensurable, how would we begin to predict the frequency of such future harms or weigh their magnitude? Given this theoretical stalemate, libertarian theory becomes circularly self-confirming or totally unhelpful. Either we allow everyone to do what they want (including the liberty to buy and own as many military-grade assault rifles as one wants), or we impose limits on this liberty in the name of protecting innocent life.

In this post, we will review John Thrasher’s intriguing essay on the relation between libertarian theory and social contract theory, one of the best essays in the collection of essays published in the new Routledge Handbook of Libertarianism. (Professor Thrasher is a philosopher at Monash University in Melbourne, Australia.) Among other things, Thrasher identifies two fundamental problems with libertarian theory (emphasis by us): “The first is the foundational problem of whether to base libertarian conclusions on some deontological basis (e.g., natural rights) or to adopt a consequentialist justification. The second is how to square a strong presumption against coercion with any system of collective choice and governance, that is, how to adjudicate between the anarchist and minimal government strands in libertarian thought.” In other words, what are the moral foundations of libertarian theory? (Is there, for example, an absolute moral duty to respect a person’s liberty and property?) And secondly, how does one reconcile the libertarian fetish for liberty as the sine qua non of politics against the reality that all laws limit or restrict our freedoms in one way or another?

For his part, Prof Thrasher offers a Rawlsian or contractarian solution to both of these theoretical problems. In fact, according to Thrasher, social contract theory is able to solve both of these foundational problems at once. How? Simply put, by basing the moral foundations of libertarianism on social contract theory, and not on absolute Kantian moral duties or relativistic Humean consequentialism, any restriction on our liberties would thus be self-imposed–the product of a purely voluntary social contract. In the words of Dr Thrasher, “If rational individuals have reason to endorse and comply with the rules in a contractual society, we can then use the contractual test to evaluate the rules and institutions of our own society. The social contract acts as a tool to evaluate existing and possible social rules and institutions.”

Putting aside the fact that such a social contract is a complete fiction (cf. David Hume’s classic essay, “On the original contract”), there is another major blind spot with Prof Thrasher’s social contract solution. After all, even if we were to agree with him that “agreement is the only basis of a free society,” we still have to answer the following foundational question of social contract theory: what is the moral basis of the social contract itself? (That is, “the foundational problem of whether to base libertarian conclusions on some deontological basis (e.g., natural rights) or to adopt a consequentialist justification” that Thrasher identifies in relation to libertarian theory applies equally to social contract theory as well!) Likewise, the second problem of libertarianism that Thrasher identifies (“how to square a strong presumption against coercion with any system of collective choice and governance”) also applies to social contract theory. After all, in the real world, courts routinely interfere with or refuse to enforce many agreements for reasons of public policy or when such bargains are illegal. So unfortunately for Thrasher (and for Rawls), social contract theory does not get us very far …

In honor of Catalan Insurrection Day:

1. #CatalanReferendum, via Twitter
2. Facts about Catalonia, via Marginal Revolution (Tyler Cowen)
3. Spain’s limited options for Catalan secessionism, via the University of Sydney (Ryan D. Griffiths, Pablo Guillen, and Ferran Martinez i Coma)
4. Why secessionist nationalists want to stay in the European Union, via the Volokh Conspiracy (Ilya Somin)
5. Want to secede? First, take this test, via Bloomberg View (Tyler Cowen)