Links - Emotions Are Misleading
I feel like you aren't thinking clearly.
Consider two seemingly similar questions that are really quite different:
How do you feel?
What do you think?
Both are important and have their place. But they are not perfect substitutes for each other.
Let’s start with Paul Bloom:
Stories are how we communicate. I use stories all the time in this Substack—to amuse, to illustrate, and to persuade. And it’s hardly illegitimate to use stories to draw our attention to the suffering of individuals. This has moral weight; it’s worth knowing about.
But we are making a terrible mistake when we let the details of the stories and the skill of the storytellers determine what we judge to be most important. The American toddler stuck in a well is much more moving to most of us than many thousands dying of famine in a distant country. But it’s really not more important. The lurid tales of victims of crimes can stir up our hatred, but we’re better off looking at the actual statistics. We are more moral people—kinder, more compassionate, more just—when we are wary of the storytellers, and when we work hard to use our System 2.
The post is “I know it has a 4 in it”. This is an important essay examining the different modes of thought regarding empathy and the implications of such. His point is that when it comes to empathy and its call to action, choose thinking over feeling. Feeling (emotions) are misleading. They push us toward the more superficially salient and away from the more substantively meaningful.
[related: Paul Bloom on EconTalk]
What we think is highly susceptible to how we feel. When thinking becomes overly influenced by feeling, our judgement becomes clouded, our thinking misled. What matters, well, matters. What doesn’t must also be understood. Leading us to the second link, which is from Scott Sumner, The “it doesn’t matter” perspective:
Clearly lots of things matter, lots of things are important. But economics provides a different way of looking at the world, which often leads to the conclusion that things don’t matter in the way that common sense might suggest.
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[his first example]
#1: Consider a simple six period example for price gouging. Assume that every 6th day there is a shortage of a good such as bottled water. Sellers have to decide whether to price gouge when there is a shortage, or to continue charging the normal price. We can think of two pricing options:
Price gouging: $4, $4, $4, $4, $4, $10
No price gouging: $5, $5, $5, $5, $5, $5
The exact figures I’ve chosen are arbitrary, but the key point is that due to the assumption of competition and free entry into retailing, we assume zero economic profits in the long run. This means that firms experience normal accounting profits in the long run. In my example, water sellers need to receive revenue equal to $30 for the total sales over 6 days, for each 6 bottles sold. If they are not allowed to price gouge on days when there are shortages, then they need to charge more during normal times.
People often find these sorts of examples to be implausible, but I suspect that’s because they misunderstand the purpose of economic models. The point of an economic model is not to explain how real people in the business world make decisions—I’m quite certain that almost no real world retailer thinks of things in precisely this way. Rather the point is to explain how underlying economic principles such as competition lead (through a sort of “invisible hand”) to certain outcomes. If the retailer that avoids price gouging doesn’t charge $5 every day, he or she eventually goes broke.
Most people don’t think deeply enough about the implications of our models. Thus even some opponents of price gouging will concede too much to the other side. They might say, “Yes, the poor might benefit from a cap on prices when price gouging occurs, but it’s not worth the efficiency cost of misallocation of goods and shortages.” In fact, the poor will pay the exact same $30 for water over a 6-day period, regardless of whether price gouging is or is not allowed.
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My baseline assumption is that most economic policy issues are 99% about efficiency and 1% about distribution. That’s because I see the world as mostly being about issues such as the price-gouging example discussed at the top of the post. You can interfere in the free market as much as you wish, just don’t expect it to matter very much for income distribution.
While hard to excerpt, this is a truly excellent post. Many great, subtle insights. As a fan of “it doesn’t matter” thinking, I find myself in deep alignment with all of this. It is an important part of why magnitude matters.
PS: Don’t miss his review of Japan from his recent trip there.