When Cost-Benefit Analysis Fails – Econlib

  • I call having a child a wild problem—a fork in life’s road where it’s not clear which path is right, where the joy and pain of choosing one path over another is ultimately hidden from us, where the path we choose determines who Who we are and who we can be. Wild problems are the big decisions we have to deal with as we go through life.
  • – Russ Roberts, Wild problems: A guide to defining our decisions, p. 2

Wild problem A book on making tough decisions. Should you get married? Should you have children? Are you getting into a potentially exciting extramarital affair? Should you change careers? Should your parents quit religious observance?

Russ Roberts spent most of his career as an economist. Accordingly, you can expect wild problem Many methods of economics include: choice based on costs and benefits; risk-reward trade-offs; Data-driven analytics and statistical modeling.

But Roberts deliberately discards the standard economic tool kit for dealing with these problems. He explains,

  • In most areas of life, especially important areas, our desires are not usually as fixed as economists think. Many of our wills conflict. We all have urges to indulge and sometimes these urges sit uncomfortably with us. Sometimes we long to limit our urges, whether it’s food, sex, money, or the apps on your phone that you compulsively spend time on. We have a good dog and a bad dog that fight each other. Feed the good dog. P. 156

It struck me while reading the book that all the wild problems that Roberts describes are in our intimate world. That is, they involve friends, loved ones and colleagues. In contrast, many of the problems that economists like to work on are in our remote world. That is, they involve the allocation of resources by business executives, policy makers, and markets. These decisions mostly affect people who are not known to the decision maker.

To advise on remote worlds, economists try to calculate the optimal decision given the trade-offs involved. For example, economists may try to determine the best policy to reduce carbon emissions. These calculations assume, either explicitly or implicitly, that the individuals affected by the decision can be abstractly represented as a “general agent”.

When it comes to making decisions in the intimate world, Roberts cautions, we can’t assume everyone is normal.

  • But what would it be good for? you-The real you and some average experience by others—not a flesh-and-blood person who will live the experience in real time? P. 25

“Suppose you read about a survey showing that people in their 30s and 40s are happier on average than people in their childless age group. Does it tell you not to have children?”

For example, suppose you read a study showing that people in their 30s and 40s are happier on average than people in their childless age group. Does it tell you not to have children?

First, you have no idea how respondents interpreted the survey. Were they asked to pick a number between 1 and 7 to describe their general happiness at that moment? Or were they asked to reflect on how their specific decision to have or not to have children affected their happiness?

Second, you don’t know whether their reasons for being happy or unhappy will apply yours Illustration. A couple may have decided not to have children because they prefer to be able to go skiing more often. You may have different priorities. You don’t know how to ski.

Finally, you never know how people will feel in the afterlife. Suppose that a different survey found that grandparents are much happier than older people who do not have grandchildren. What does this tell you about the decision to have children?

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What this implies is that there is a difference between momentary happiness and what Roberts calls prosperity. he writes,

  • Economist and moral philosopher Adam Smith believed that prosperity, and the satisfaction it produces, is more complex than it appears. Among his lesser-known masterpieces Theory of Moral Sentiments, he wrote that “man naturally desires, not only to be loved, but also to be beautiful.” By “love” he meant not only caring but admiring, praising, admiring and respecting. We want to matter. And by “beautiful” Smith means worthy of praise, admiration, admiration, and respect…
  • Smith observed that there are two ways – two ways of earning people’s praise, admiration, admiration and respect. One way is to become rich, powerful and famous. The other is to be wise and virtuous. P. 86

Roberts emphasizes that knowledge and virtue are most evident in the intimate world. It’s not in our politics, but in the way we treat people personally. he writes,

  • The rule is simple: privilege your policies.
  • Your decisions define who you are. Don’t make trade-offs when it comes to your essence. Live with integrity. Do the right thing and respect yourself. P. 145

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We all face what Roberts calls the “wild problem.” Reading his book will help remind you to step away from your smart phone and your immediate urges and follow your conscience when you come across these situations.

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