Behavioral Economics, Ep 3: Why Do We Make Bad Choices?- Learn Liberty

Behavioral Economics, Ep 3: Why Do We Make Bad Choices?- Learn Liberty

[MUSIC] Making rational choices is expensive. It takes time and energy to collect
the information necessary for rational thought, and it takes mental effort to apply rational
thinking to the information we gather. To defray these costs, humans rely on
mental shortcuts to make decisions. We call these heuristics. For example, we might choose options that
our friends choose, choose the same thing we’ve chosen in the past, or
choose the first time we encounter. Employing heuristics doesn’t
require the time, energy or mental effort that rational
thought requires, but the probability of making a bad choice
is higher when employing heuristics.>>Compared to rational thought,
heuristics present a tradeoff. They are easier to employ, but
more likely to yield poor choices. And it turns out that humans tend to
employ heuristics, well, rationally. We’re more likely to employ heuristics
rather than rational thought when the effort we save from employing them
outweighs the cost of making a poor decision.>>In practice, we usually employ
a combination of heuristics and rational thought. For unimportant decisions,
like choosing a disposable pen, we rely more heavily on heuristics. We just pick the one that
attracts our attention first or the one we recognize from past use. For more important decisions
such as buying a house, we rely more heavily on rational thought.>>But occasionally,
humans rely too heavily on heuristics when we should be relying
more on rational thought. When this happens, we say that the humans
have succumbed to cognitive biases. Cognitive biases are errors in decision
making caused by an inappropriate reliance on heuristics.>>In 2002, a teenager committed suicide by flying a
private plane into a building in Florida. An investigation revealed that the
teenager was taking a prescription drug for severe acne. Further investigations revealed other
instances throughout the country in which teenagers who were on the same
drug also committed suicide. In response to this news,
many people wanted to ban the drug. This is an example of a heuristic at work. Instead of collecting more information,
people chose to call for a ban, based on the first
information they encountered. But the choice to band a prescription
drug has grave implications. And when a choice involves
grave implications, over reliance on heuristics
can lead to cognitive bias.>>The cognitive bias in this case
was that people’s emotional reactions prevented them from asking
an important question. How many teenagers taking
the medication did not commit suicide? Subsequent research showed that teenagers
who look the prescription drug were not at greater risk of suicide. In fact, it appeared more likely that
the cause of the suicides was despair over severe acne rather than
the drug used to treat the acne. Yet because of a public outcry
driven by a cognitive bias, we came dangerously close
to banning this drug.>>When used inappropriately, heuristics result in cognitive biases
that lead us to make poor decisions. The decisions are poor not because
the humans are irrational, but because we’ve misapplied a tool that
evolved to help us make complex choices. Because poor choices have consequences, we
have incentive to learn from our mistakes. Where the consequences of
making a mistake are great, and they fall on those making the mistakes,
they learn faster. Where the consequences are less,
or when they fall on others, the actors learn more slowly. This process of making choices and
enduring the consequences encourages us to make better choices and provides
the dynamic force that is the engine of this wonderous enterprise we call,
the economy. [MUSIC]

10 thoughts on “Behavioral Economics, Ep 3: Why Do We Make Bad Choices?- Learn Liberty

  1. This is one of the hardest things to explain to people (usually far left liberals) who know just enough economic terms that they think they know economics, but are still tragically economically illiterate. All choices are rational from the perspective of the chooser. It's what they want, they place value on it, and so they seek it out. YOU may not value it, but that doesn't make it an irrational choice. After all, the question isn't whether or not you want it. It's whether or not THEY want it.

  2. Sin.

    1 Corinthians 6:9-10
    "Or do you not know that the unrighteous will not inherit the kingdom of God? Do not be deceived: neither the sexually immoral, nor idolaters, nor adulterers, nor men who practice homosexuality, nor thieves, nor the greedy, nor drunkards, nor revilers, nor swindlers will inherit the kingdom of God."

  3. i took myself this drug for one year, i totaly agree with them, i'm so happy they didn't ban it in my country, for many teenager and Young adults that's really the only solution to end the nightmare of late acnea

  4. Another great video! The head is all in this, consider including more heart, Michael Cloud's "political cross-dressing."

  5. "But occasionally, humans rely too heavily on heuristics, when we should be relying more on rational thought."

    Ah, there's that word "should". That is opinion. The Pretense of Knowledge, the Sin of Pride.

    "Should" is a claim made by someone who thinks they know better than you. This is the doorway through which government regulations are rationalized, that the "experts" know better than you what you should and should not do.

    And that doesn't mean they're wrong, only that it does indicate opinion, and maybe just as wrong as any other opinion. I use the word myself, I strive to use it as a communication of opinion and not hold other people accountable for it no matter how much I believe the would benefit thereby.

  6. "When applied to the means chosen for the attainment of ends, the terms rational and irrational imply a judgment about the expediency and adequacy of the procedure employed. The critic approves or disapproves of the method from the point of view of whether or not it is best suited to attain the end in question. It is a fact that human reason is not infallible and that man very often errs in selecting and applying means. An action unsuited to the end sought falls short of expectation. It is contrary to purpose, but it is rational, i.e., the outcome of a reasonable–although faulty–deliberation and an attempt–although an ineffectual attempt–to attain a definite goal. The doctors who a hundred years ago employed certain methods for the treatment of cancer which our contemporary doctors reject were–from the point of view of present-day pathology–badly instructed and therefore inefficient. But they did not act irrationally; they did their best. It is probable that in a hundred years more doctors will have more efficient methods at hand for the treatment of this disease. They will be more efficient but not more rational than our physicians." ~Ludwig von Mises, Human Action, p. 20

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