I'm with Eastwest: that was an utterly fascinating diavlog. I used to read Tim's "Undercover Economist" column on FT.com, but somehow lost track. No more, thanks to RSS. I see that he now also has a blog on FT.com. And, while looking for the site I remembered, I came across his personal site (which also has a feed): http://timharford.com/ Note that the Slate link on the video page is unhelpful. These might be of more use: http://www.slate.com/id/2182089/
http://www.slate.com/id/2182089/entry/2182090/ And, oh yeah, I gotta get that new book. Busy, busy, busy.

Harford is a canny dude.

It is interesting that the libertarian approach to the empirical falsification of traditional neo-classical assumptions about rationality is to continually redefine the term. While Harford is right that individual approaches often tend to rationalize themselves after half a day or so, this really can only be applied to rote & predictible situations. It is no coincidence that employment is the example that he references. Yet, the evidence suggests that the introduction of even simple day to day uncertainty seems to burst this rationalist bubble. Behavioral Economists have indeed demonstrated "real world" irrationalities in many non-routine decisions, even incredibly consequential decisions like pension plan payout arrangements. It would seem that only repetitive practice can make markets work their magic. Ultimately, this suggests that 1) "Market Design," as a discipline, is about to move to the forefront of the Economics field. 2) Contrary to CATO's position, rational market-based economies depend heavily on government regulation and political consensus and 3) Economic politics is now likely to come into prominance in this country in a way that has not been seen in a generation. Thanks for a great diavlog!

Brendan, You gonna take this from Mr. Harford? http://bloggingheads.tv/diavlogs/834...8&out=00:52:20
Seriously, though, it was a great diavlog.

Quoting Malthus: It is interesting that the libertarian approach to the empirical falsification of traditional neo-classical assumptions about rationality is to continually redefine the term.

There's a similar problem with the definition of "adaptation" in biology, and a constant temptation to resort to lazy, untestable just-so stories. Still, it's clear that human behavior lies somewhere between Mr. Spock and "people just do crazy things all the time," and there's certainly room to make Hartford's argument that we're more Vulcan than we give ourselves credit for. At least "rational" doesn't have quite the same normative freight as "fascist."

that the assumption of rationality could be jettisoned altogether, and economics could simply be reduced to discussing how incentive structures in certain situations are constructed. It isn't that important to harp on the idea that rational people respond to incentives over and over again-we could just say, people respond to incentives, and not pretend that rationality has anything in particular to do with it.

I would agree with your suggestion that we look into potentially revising our assumptions about rationality. However, depending on how it is done, the move could put many Economists into a tight spot. Defenses of the principle of laissez-faire, and optimal market outcomes, ultimately rest entirely on the assumption that people are rational. In other words, rationality is the cornerstone of market libertarianism- completely jettison it and strong free market political advocates are likely to find themselves scrambling for a new intellectual framework.

At a certain level, "rational" just means "responds to incentives that we can explain." As behavioral and neurological methods expand economics' explanatory power, the meaning of "rational" expands.

Abu Noor:

Brendan,

You gonna take this from Mr. Harford?

LOL! Nice catch. I am almost over hearing my name used in contexts other than addressing me. When I was a kid, no one had my name and most people had never even heard of it, but a couple of decades later, it became somewhat popular. Still makes me jump, just a little, though.

http://bloggingheads.tv/diavlogs/834...0&out=00:46:47
So, can we get either of the Freakonomics guys on here now that they have been officially mentioned? Dubner or Levitt either one would be great to have as a BloggingHeads guest, perhaps interviewed by Will. They have a prolific blog at http://freakonomics.blogs.nytimes.com/ if that helps.

The problem I have, to get more specific, with the touting of "rationality" as some sort of theoretical cornerstone of economics is that it's just too loose a term to begin with. Rationality can be pointed at to explain why a father abandons his family as well as why he stays with it, or why a person passes a penny on the side of the road or why a person stops to pick it up. Anything that can be used to justify opposing conclusions is scientifically meaningless. We basically accept that people will decide for their own reasons why they will do x or y. Economics, an inherently statistical science, can't really talk about the specific decisions that individuals make, and all attempts to do so ultimately fall outside of economics. If I decide to take a $2 bill out of my wallet and set it on fire, I can say I just wanted to see Monticello burn. You can try to paint this behavior as irrational, saving yourself the difficulty of explaining what seems economically foolish, or you can try to find some aspect of my society or self-conception that

testo: I agree with a lot of what you say. The one thing that I had a problem with in this diavlog is that the theory seemed to explain too much.

I read Tim's last book, The Undercover Economist, and I really liked it. Even better than Freakonomics, I thought (I liked both). Economics is called "the dismal science" but I found both of these books to be page-turners. I shall buy Tim's new book once it's out in paperback because I'm poor and I read while commuting by train (I live in Yokohama, work in Tokyo). ETA: Speaking of 'spiky' urban agglomerations, I live in the biggest one. And I must say that it's a very nice place to live.

Yaeh, this was a great one. Will is a very good interviewer (though i would have loved to have heard Bob Wright's take on alot of this stuff). To echo Brendan's sentiments (as I often do), I agree that this rational outlook of the world is very intriguing, but it strikes me that something essential is left out. In a word, emotion. Though Tim could probably come up with explanations of phenomenon like suicide bombers that could show a rationality behind an action that would seemingly contradict "rationality", I see the role of emotion playing a much greater role in the decisions we make. Especially the ones that often times directly contradict our own best interests from a rational perspective. There is a great book called Deep Survival: Why Some People Survive and Others Don't. It's about desperate survival situations and how people adapt or react. And one of the most interesting themes that is repeated throughout the book is that people will often do things that are completely irrational based on emotion. The best example that I can remember being a Navy Seal who decides to go kayaking

Malthus said:

I would agree with your suggestion that we look into potentially revising our assumptions about rationality. However, depending on how it is done, the move could put many Economists into a tight spot. Defenses of the principle of laissez-faire, and optimal market outcomes, ultimately rest entirely on the assumption that people are rational.

In other words, rationality is the cornerstone of market libertarianism- completely jettison it and strong free market political advocates are likely to find themselves scrambling for a new intellectual framework.

This hasn't been true for a good while (if it ever was) and is now really a straw man. Most sophisticated defenses of market libertarianism rely on the more modest contentions that: (i) market actors will usually perform better than state actors, i.e. that economic markets generally work better than political markets; and (ii) it is very difficult to identify cases in which state actors might do a better job. Therefore we are better off keeping the role of state actors as circumscribed as possible. Will's diavlogs continue to impress me.

Will's diavlogs continue to impress me as well. You may be right at the level of popular dialogue. However, there is an extensive economic literature around market optimality theories. These formal proofs of superior market efficacy are the cornerstone of laissez faire academics and do indeed assume people, on average, to be fully rational in mathematically specifiable ways. It is these specific assumptions about rationality that are being empirically falsified and among economists, at least, it is a big deal.

Are we to believe that employers are just acting irrationally when not calling back equally qualified "black" applicants? Especially because if this cycle Tim describes is real, then they should be able to hire such people at a discount. It seems more likely that employers are behaving rationally and discounting "black" applicants resumes because they know affirmative action is rampant and thus do not believe that these "black" applicants with similar education/experience are in fact similarly qualified. This would be particularly true if most elite education is more signaling-related than skills-acquiring-related as many economists have argued. Thus, it would seem affirmative action is the CAUSE of this negative feedback loop rather than a RESULT.

I'm not going to watch this diavlog as I've just ordered Harford's book off Amazon. I really want to read it first. This might just spoil the plot. Anyway, speaking of economic actors, you might enjoy a book about sex tourism, entitled "Naked in Haiti: A Sexy Morality Tale About Tourists, Prostitutes & Politicians". You can find it at www.dankingbooks.com.

Quoting DWAnderson: Malthus said:

This hasn't been true for a good while (if it ever was) and is now really a straw man. Most sophisticated defenses of market libertarianism rely on the more modest contentions that: (i) market actors will usually perform better than state actors, i.e. that economic markets generally work better than political markets; and (ii) it is very difficult to identify cases in which state actors might do a better job. Therefore we are better off keeping the role of state actors as circumscribed as possible.

Will's diavlogs continue to impress me.

Assuming that people are (usually) rational actors does not mean that unregulated markets are always the best solution. Tim's book, The Undercover Economist, talks about various situations where unregulated or inadequately regulated markets produce sub-optimal outcomes: externalities, assymetrical information, and monopolies or trusts are sub-optimal. (We've had anti-monopoly and anti-trust laws for a long time, and they are pretty non-controversial. What does libertarian economic theory think about anti-monopoly and anti-trust laws? Without such laws gas station owners, for example, could agree to set uniform high prices in an area and extract very high profits to the detriment of the general economy.) The markets

I always suspected this was true. My name is Jerome, but im white. This is so unfair. I know i get poor call back response compared to the resumes i send out. And it really does confuse people when they first meet me. usually they cant help commenting. I have to get it changed.