Rational Perspective: Decision Making Based on Reasoning

Understanding Policies (10700193-90)

Yue Hu

Tsinghua University

Challenge time

Overview

Rational Choice

• Economic Rational-Choice

Beyond rationality

• Bounded Rational-Choice
• Muddling Through Model

Rational Choice

Classic Rational-Choice Model

Assuming you are a Savior

Your Choice?

Which one do you choose?

https://www.youtube.com/watch?v=c26wIhnDK9Q

Define Rationality

Goal ⇒ preference ⇒ decisions

• Axiom I: Fixed goal: Utility = Earning - Cost;
  • \(\mathrm {E} [u(X)]=\sum _{i}\;u(x_{i})\;P(x_{i}).\)¹
• Axiom II: To be rational = MAX(Utility)
  • Expected utility theory
  • Opportunity-capability theory

1. i is the option; P(x) is the probability of x.

Group discussion

Is Lei Feing rational?

毫不利己，专门利人：白求恩 一个人做一件好事并不难，难的是一辈子做好事： 吴玉章

Does being self-interest mean selfish? No, being selfish is satisfying one’s own needs at the expense of others.

Your Choice?

Let’s Try Again

Allias Paradox

By Maurice Allais, Nobel Prize in Economics in 1988

Experiment on real people: more people pick blue pile and yellow piles

People should consistently select left or right strategy, rather than blue and yellow or red and green.

The experiment shows most people chose blue plus yellow, indicating that people choose what to gain or loose right now, not on the final outcome, and certainty over risk.

Beyond Rationality

Adjusting the Rational Choice Model

Bounded Rationality (Hebert Simon)

Goal : Utility Satisficing (Satisfy + Suffice)

Simon, American political scientist, whose work also influenced the fields of computer science, economics, and cognitive psychology.

• Why people can’t be rational
  • Lack of information
  • Cognitive limitation
  • Time constraint

e.g., decision making in drug safety, inventory control(存货管理), system modeling, game strategy

Cognitive Limitation: difficulty to evaluate data

• One step → Multiple steps
  1. Intelligence Phase: Problem identification
  2. Design Phase: Developing alternatives
  3. Choice Phase: Choosing the option

• Intelligence Phase: Collective information, formulating the situation
• Other adjustments:
  • Heuristics
  • Prospect theory

Denying rationality

Rationality is just a conjecture of economists¹

Bureaucratic organization model

Belief system

Incremental Model

Lindblom, Charles E. 1959. The Science of Muddling Through.

1. See rationalists’ defense in, e.g., Bueno de Mesquita, Bruce, et al. 2003. The Logic of Political Survival. Cambridge, MA: The MIT Press.

Muddling through how

Simon

1. Intelligence
2. Design
3. Choice

Lindblom

• Identification
• Development
• Selection
  • Judging
  • Analyzing
  • Bargaining
  • Authorizing
• Dynamic Factors

Experience based model: No goal + conservative

Example: Space Shuttle：Rational or Muddling?

Surface appearance:

• Presidential mandate (JFK, 1961)
• National goal: Beat Soviets to the Moon
• NASA + DoD partnership
• ~$25 billion budget

Lindblom’s diagnosis:

Not rational — Muddling Through

This slide sets up the puzzle: the space program LOOKED rational on the surface, but Lindblom’s framework reveals it was actually incremental muddling.

Placed after Gagarin (加加林), Bay of Pigs

猪湾事件（英语：Bay of Pigs Invasion），是1961年4月17日，在中央情报局的协助下流亡美国的古巴人，在古巴西南海岸猪湾（吉隆滩，Playa Girón），向菲德尔·卡斯特罗领导的古巴革命政府发动的一次失败的入侵。猪湾事件标志着美国反古巴行动的第一个高峰。

对美国来说这次失败的行动不但是一次军事上的失败，而且也是一次政治上的失误。肯尼迪误信CIA过分乐观的情报外，也不打算派美军收拾反而切割卸责，使得国内外对这次行动的批评非常强烈，刚刚上任90天的约翰·肯尼迪政府为此大失信誉，相反的卡斯特罗政权和古巴革命得到巩固。由于古巴担心美国再次进攻，因此古巴开始与苏联靠近，最终导致了1962年的古巴导弹危机。

1. Identification：Experience, Not Planning

Why space? Why now?

• Apr 12, 1961: Gagarin orbits Earth → US humiliated
• Apr 17, 1961: Bay of Pigs disaster → JFK needs a win
• May 25, 1961: JFK announces Moon mission

Muddling Through Feature

Experience-based: Decision triggered by immediate crises, not by rational assessment of long-term national priorities

2. Development：Coalition, Not Blueprint

NASA led the fight and construct a broad coalition of scientists, military, aerospace companies, international partners, presidential advisers, some members of congress.

Muddling Through Feature

Bargaining replaces planning: NASA had to sell the program to each constituency separately. The budget bureau doubted the benefits — yet the coalition held through politics, not logic.

3. Selection: “Everyone Is a Shuttle Designer”

	Rational	Muddling
Goal	Pre-set	None agreed
Process	Optimize	Bargain
Scope	Comprehensive	One step

• Officials pursue similar goals for different reasons
• Program satisfies multiple constituencies with unresolved interests

⇓

Programs with conflicting and often forgotten objectives, funded with insufficient resources

4. Dynamic Factors — Incremental Drift

We must think of (space activities) as part of a continuing process…and not as a series of separate leaps, each requiring a massive concentration of energy… —Richard M. Nixon (March 7, 1970)

Where Muddling Through Led

The increased complexity of a shuttle designed to be all things to all people created inherently greater risks than if more realistic technical goals had been set at the start…The greatest compromise NASA made was…with the premise of the vehicle itself. — Columbia Accident Investigation Board (2003)

Lesson: No goal + conservative increments + bargaining → design captured by politics, not engineering

Take-Home Points

Rationality Model

• Rational Choice Models: Max(E(Utility))

Beyond Rationality

• Bounded rational: Satisfying
• Irrationality Models
  • Muddling through model

Announcing the Presenter

Appendix: Other Irrationality Models

Heuristics and Bias

Whilst heuristics can speed up our problem-solving and decision-making processes, they can introduce errors and bias judgements.
—Dale 2015

• Hueristics:
  1. Representativeness
  2. Availability
  3. Anchor

举不举得起来，用脚踢

Tversky & Kahneman 1974

This article described three heuristics that are employed in making judgments under uncertainty: (i) representativeness, which is usually employed when people are asked to judge the probability that an object or event A belongs to class or process B; (ii) availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development; and (iii) adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available. These heuristics are highly economical and usually effective, but they lead to systematic and predictable errors. A better understanding of these heuristics and of the biases to which they lead could improve judgments and decisions in situations of uncertainty.

Prospect Theory

Also, reference dependency model

• Endowment effect
• Status quo bias……

Look at where you are sitting!

Kahneman and Tversky 1979

individuals disproportionately stick with the status quo, which is an important reference point

Loss aversion + Reference dependency

people make decisions based on the potential gain or losses relative to their specific situation (the reference point) rather than in absolute terms; this is referred to as reference dependence.

Faced with a risky choice leading to gains, individuals are risk-averse, preferring solutions that lead to a lower expected utility but with a higher certainty (concave value function). Faced with a risky choice leading to losses, individuals are risk-seeking, preferring solutions that lead to a lower expected utility as long as it has the potential to avoid losses (convex value function).

Agenda Setting

A collection of problems, understandings of causes, symbols, solutions, and other elements of public problems that come to the attention of members of the public and their governmental officials.

boundaries of the system agenda represents the limit of legitimate jurisdiction of existing governmental authority—changing over time

Nature of Agenda Setting

Three faces of power:

1. Coercive
2. Blocking
3. Shutting-up

Appalachian coal miners

e.g., of the third face: Appalachian coal miners. The mining company remains dominant and the miners cannot conceive of a situation. When the miners show some signs of rebelling, the dominant interests are able to ignore pressure for change. In the long run, people may stop fighting as they become and remain alienated from politics; quiescence is the result.

Hey

Going Public

Appealing to Higher Level

Appealing to higher level

1. Going public with a problem by using symbols and images to induce greater media and public sympathy for their cause.

《爆炸新闻》 Fox CEO Roger Ailes sexual scandal

1. Groups that lose in the first stage of a political conflict appealing to higher decision-making level, such as when losing parties appeal to state and then federal institutions for an opportunity to be heard, hoping that in the process they will attract others who agree with them and their cause

Seven gop-led states bid to overtern Biden’s win

https://www.dallasnews.com/news/politics/2020/12/10/trump-hosts-lunch-for-texas-paxton-and-other-ags-trying-to-void-10m-votes-and-overturn-bidens-election/

Timing Matters

Kingdon, John W. 2013. Agendas, Alternatives, and Public Policies. Pearson Education Limited.

1. Problem stream: The power of the society
2. Political stream: The power of politicians
3. Policy stream: The power of interest groups

a.k.a., Simon’s intelligence phase and Lindblom’s identification phase

e.g., Obamacare

e.g., the Space shuttle case.

Why is gun-control not successful (still) in the U.S.?

Political stream, strong democratic & policy stream, constitution

Windows

spillover

Johnson’s “Great Society” program

1960 Lyndon Johnson (after JFK) administration’s Great Society program, which contained a package of policies that sought to attack poverty, poor health, racial discrimination, and urban decline, among other problems. This package of programs was made possible by an aggressively activist president and a large Democratic majority in the Congress