Limit of Rationality of Evil
I like the rational choice assumption of human nature in addressing general economic issues. It provides a nice foundation with utility optimization for further analysis. Utility optimization renders an elegant mathematical proof in linking microeconomics and macroeconomics in general equilibrium theory, without actually specifying exact individual preferences. I admit that my fondness toward rational choice theory is also reflected in my STEM academic background.
Gary Becker (1930–2014) was an economist from the University of Chicago, who probably broadened the rational choice theory the most to issues beyond traditional general economics. He received the Nobel prize in economics in 1992 “for having extended the domain of micro-economic analysis to a wide range of human behavior and interaction, including non market behavior”. Among them, he applied the rational choice theory to areas of family and household relations and to crime and punishment. He viewed the family as a “small factory” unit and applied profit making characteristics of the factory to analyze family members’ rational behavioral responses. Similarly, Instead of regarding criminal activity as irrational behavior associated with the specific psychological and social status of an offender, he analyzed criminality as rational behavior under uncertainty.
Gary Becker had said that he began to think about crime as a rational behavior response after his own personal experience. He was driving to be present at an oral exam of a student at the university, when he realized that he was running late for it. He could not find any normal parking spot and so decided to park in an illegal spot. He made a rational judgement that both the probability of him getting a parking ticket and the costs of fine were low enough to take the risk of illegal parking in that situation.
One stark example of his application of rationality to non market issues is exemplified in the interview he had with Ronald Coase on the topic titled “Consumer Behavior” conducted for Ideas channel. In this episode, Ronald Coase asked Becker how he could explain the rise of Hitler with rational choice under utility optimization theory. Becker responded that then German voters had limited information about the candidates and costs of knowing more about the politics were prohibitive given other opportunity costs. They therefore voted with the rational choice under that uncertainty. In some sense, Becker was actually arguing for bounded rationality in human nature, a concept that is more aligned to behavior theory in economics. Behavior theory highlights limitations of rationality without fully refuting the rational choice theory. It should also be emphasized that Becker was not justifying but explaining Hitler’s rise.
One would think that Ronald Coase would have accepted Becker’s rational choice explanation for Becker’s response to his question. After all, Ronald Coase (1910–2013) was also another University of Chicago economist. Moreover, he also won a Nobel prize in 1991 for his theory of firm based on underlying transaction costs analysis. Firms exist to reduce transaction costs in searching and assembling required input resources in a market setting when capital investments need to be made in uncertainty.
Instead of accepting, Coase strongly objected to Becker’s rational choice explanation, citing his own personal experience during the Nazi era. He told Becker that he happened to be at a Nazi rally during that time where he was almost lynched for not acquiescing with the mob. Coase believed that Hitler received enthusiastic support even when Coase understood then that it was destructive to German people themselves and others. To Coase, their behavior could not be explained as rational choice behavior.
Becker continued to put forth the argument that even the mob behavior can be explained through rational behavior logic. In insisting on his rational choice with utility maximization logic to encompass all human nature, Becker implicitly ruled out other human emotions like hatred and jealousy, especially when they are stoked and fomented by external sources such as mob settings. On the flip side, Becker also insisted that the rational choice theory dominated over and above John Locke’s natural rights of human beings that Coase implicitly appealed to in his case against.
In a separate but related to the same topic incident, Hannan Arendt, who had fled Germany during the rise of Hitler, wrote a report in 1963 “Eichmann in Jerusalem: A Report on the Banality of Evil” for New York times. The report covered Eichmann’s court trial in Jerusalem that she had attended earlier. Eichmann was one of the major organizers of the holocaust. He defended his actions during the Nazi era as he was just “doing his job”. The banality of evil that Hannan Arendt saw in Eichmann’s court trial in Jerusalem cannot be explained away with any rationality. This was the case then and it is still the case now.
As much as I enjoy studying “dismal science”, I believe that it has its own limit in explaining human nature and reaching broader descriptive and normative conclusions in human welfare. I cannot define exactly where that limit is. But, as US Supreme Court Justice Potter Stewart in a different context said, “I know it when I see it”.
