Empiricism vs. human nature

Ah the David Brooks I've come to know and love showed up today: "...the current financial crisis — how so many people could be so stupid, incompetent and self-destructive all at once... the crisis has delivered a blow to classical economics and taken a body of psychological work that was at the edge of public policy thought and brought it front and center.

In this new body of thought, you get a very different picture of human nature. Reason is not like a rider atop a horse. Instead, each person’s mind contains a panoply of instincts, strategies, intuitions, emotions, memories and habits, which vie for supremacy. An irregular, idiosyncratic and largely unconscious process determines which of these internal players gets to control behavior at any instant. Context — which stimulus triggers which response — matters a lot.

This mental chaos explains how people can respond so quickly and intuitively to so many different circumstances. But it also entails a decision-making process that is more complicated and messy than previously thought.

For example, we don’t perceive circumstances objectively. We pick out those bits of data that make us feel good because they confirm our prejudices. As Andrew Lo of M.I.T. has demonstrated, if stock traders make a series of apparently good picks, the dopamine released into their brains creates a stupor that causes them to underperceive danger ahead.

Biases abound. People who’ve been told to think of a high number will subsequently bid much more for an item than people who’ve been told to think of a low number. As Jonah Lehrer writes in his forthcoming book, “How We Decide,” there are certain circumstances (often when there are many options) in which gut instincts lead to the best decisions, while there are other circumstances (sometimes when there are a few options) when calm deliberation is best.

Most important, people seek relationships more than money. If behaving a certain way helps a stock trader or a regulator fit in with his crowd, he’s likely to keep doing it without too much rigorous self-examination.

A thousand mental shortcomings contributed to the financial meltdown. Republicans have tried to explain it by pointing to irresponsible policies at Fannie Mae. But that only explains a piece of what’s happening.

This crisis represents a flaw in the classical economic model and its belief in efficient markets. Republicans haven’t begun to grapple with the consequences.

For years, Republicans have been trying to create a large investor class with policies like private Social Security accounts, medical savings accounts and education vouchers. These policies were based on the belief that investors are careful, rational actors who make optimal decisions. There was little allowance made for the frailty of the decision-making process, let alone the mass delusions that led to the current crack-up.{...}

Mechanistic thinkers on the right and left pose as rigorous empiricists. But empiricism built on an inaccurate view of human nature is just a prison."

Brooks has a repeating meme in his columns: everyone thought that X issue was settled and clear, but in fact they were wrong, it's much more complicated and messy and now everyone is dismayed and shocked and it's forcing them to re-examine their previously held beliefs. This was his frame for the failure of the Neocons, the collapse of the Republicans, and now the financial collapse.

That I happen to agree with him (not only on this column, but on his others as well) is not to say I accept the frame. I never held any illustions that people were neat and orderly, that the exercise of power or the expenditure of money always achieves the desired result, or that individuals are "rational" actors. So I'm not dismayed and shocked. But it does give me a visceral pleasure to see Brooks affirm the validity of my worldview again and again.