Published in the Eastern Economic Journal 26(2), Spring 2000, pp.191-211.
Abstract: Critics of behavioral economics often argue that apparent irrationality arises mainly because test subjects lack adequate incentives; the defenders of behavioral economics typically reply that their findings are robust to this criticism. The current paper presents a simple theoretical model of "rational irrationality" to clarify this debate, reducing the neoclassical-behavioral dispute to a controversy over the shape of agents' wealth/irrationality indifference curves. Many experimental anomalies are consistent with small deviations from polar "neoclassical" preferences, but even mildly relaxing standard assumptions about preferences has strong implications. Rational irrationality can explain both standard, costly biases, as well as wealth-enhancing irrationality, but it remains inconsistent with evidence that intensifying financial incentives for rationality makes biases more pronounced.
Published in Kyklos 54(1), 2001, pp.3-26.
Abstract: Beliefs about politics and religion often have three puzzling properties: systematic bias, high certainty, and little informational basis. The theory of rational ignorance (Downs 1957) explains only the low level of information. The current paper presents a general model of "rational irrationality," which explains all three stylized facts. According to the theory of rational irrationality, being irrational - in the sense of deviating from rational expectations - is a good like any other; the lower the private cost, the more agents buy. A peculiar feature of beliefs about politics, religion, etc. is that the private repercussions of error are virtually nonexistent, setting the private cost of irrationality at zero; it is therefore in these areas that irrational views are most apparent. The consumption of irrationality can be optimal, but it will usually not be when the private and the social cost of irrationality differ - for example, in elections.
Published in Public Choice 107(3/4), June 2001, pp.311-331.
Abstract: Models of inefficient political failure have been criticized for implicitly assuming the irrationality of voters. (Wittman 1999, 1995, 1989; Coate and Morris 1995) Building on Caplan's (1999a, 1999b) model of "rational irrationality," the current paper maintains that the assumption of voter irrationality is both theoretically and empirically plausible. It then examines microfoundational criticisms of four classes of political failure models: rent-seeking, pork-barrel politics, bureaucracy, and economic reform. In each of the four cases, incorporating simple forms of privately costless irrationality makes it possible to clearly derive the models' standard conclusions. Moreover, it follows that efforts to mitigate political failures will be socially suboptimal, as most of the literature implicitly assumes. It is a mistake to discount the empirical evidence for these models on theoretical grounds.
Published in Rationality and Society 15(2), May 2003, pp.218-42.
Abstract: Many political failure arguments implicitly assume that voters are irrational. (Wittman 1995, 1989; Coate and Morris 1995) This paper argues that this assumption is both theoretically and empirically plausible: In politics, rationality, like information, is a collective good that individuals have little incentive to supply. In consequence, voters are frequently not only rationally ignorant but also "rationally irrational." Rational irrationality leads to both demand side and supply side political failures: Competition not only pressures politicians to act on voters' biased estimates, but selects for politicians who genuinely share those biases. The analytical framework also sheds new light on log-rolling, political shirking and advertising, and politicians' human capital.
Published in the Review of Political Economy 17(1), January 2005, pp.79-105.
Abstract: The political economy of Ludwig von Mises and Frederic Bastiat has been largely ignored even by their admirers. We argue that Mises' and Bastiat's views in this area were both original and insightful. While traditional public choice generally maintains that democracy fails because voters' views are rational but ignored, the Mises-Bastiat view is that democracy fails because voters' views are irrational but heeded. Mises and Bastiat anticipate many of the most effective criticisms of traditional public choice to emerge during the last decade and point to many avenues for future research.
Submitted to Public Choice, May 2006.
Abstract: Critics often argue that government poverty programs perversely make the poor worse off by discouraging labor force participation, encouraging out-of-wedlock births, and so on. However, basic microeconomic theory tells us that you cannot make an agent worse off by expanding his choice set. The current paper argues that familiar findings in behavioral economics can be used to resolve this paradox. Insofar as the standard rational actor model is wrong, additional choices can make agents worse off. More importantly, existing empirical evidence suggests that the poor deviate from the rational actor model to an unusually large degree. The paper then considers the policy implications of our alternative perspective.
Published in Hussain, Syed, ed. Encyclopedia of Capitalism. 2004. (NY: Facts on File).
Forthcoming in Younkins, Edward, Ayn Rand's "Atlas Shrugged": A Philosophical and Literary Companion,
Forthcoming in Bostrum, Nick, and Milan Cirkovic, eds. Global Catastrophic Risks
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