...Archive for September 2012

Rational astrologies

Suppose that you are transported back in time several hundred years. You start a new life in an old century, and memories of the future grow vague and dreamlike. You know you are from the future, but the details are chased away like morning mist by a scalding sun. You marry, have children. You get on with things.

Suddenly, your wife becomes ill. She may die. You consult the very best physicians. They discuss imbalances of her humors, and where and how she should be bled. You were never a doctor or a scientist. The men you consult seem knowledgeable and sincere. But all of a sudden you get a flash of memory from your forgotten future. The medicine of this era is really bad. Almost none of what they think they know is true. Some of their treatments do some good, but others are actively harmful. On average, outcomes are neither better nor worse with than without treatment.

You know your insight from the future is trustworthy. Do you let the doctors treat your wife, even pay them handsomely to do so?

Of course you do. With no special scientific or medical talent, you have no means of finding and evaluating an alternative treatment. You do have the option of turning the doctors away, letting nature take its course. From a narrowly rationalistic perspective, you understand that nontreatment would be “optimal”: Your wife’s chances would be just as good without treatment, and you would save a lot of coin. That doesn’t matter. You pay the most respected doctors you can find a great deal of money to do whatever they can do. And it is perfectly rational that you should do so. Let’s understand why.

You know that your wife’s expected medical outcome is unchanged by the treatment. But your “payoff” is not solely a function of that outcome. Whether your wife lives or dies, your future welfare turns crucially on how your actions are viewed by other people. First and foremost, you must consider the perceptions of your wife herself. Your life will be a living hell if your beloved dies and you think she had the slightest doubt that you did everything possible to help her. Your wife has no mad insights from the future. She is a creature of her time and its conventions. She will know your devotion if you hire the best doctors of the city to attend her day and night. She may be less sure of your love if you do nothing, or if you listen to the neighborhood madwoman who counsels feeding moldy bread to the ill.

Moreover, it is not only your wife’s regard to which you must attend. Your children and friends, patrons and colleagues, are observing your behavior. If you call in the respected doctors, you will have done everything you could have done. If you do nothing, or take a flyer on a madwoman, you will not have. Your behavior will have been indefensible. Perhaps you are a freethinker, an intellectual, a noncomformist. That makes for lively dinner conversation. But you are human, and when things get serious, you depend upon the regard of others, both to earn your keep and to shape and sustain your own sense of self. If your wife dies and it is the world’s judgment that you permitted her to die, rationalizations of your actions will ring hollow. You will be miserable in your own skin, and your position in your community will be compromised.

The mainstream medicine of several centuries ago was what I think of as a rational astrology. A rational astrology is a set of beliefs which one rationally behaves as if were true, regardless of whether they are in fact. Rational astrologies need not be entirely fake or false. Like bullshit, the essential characteristic of a rational astrology is the indifference to truth or falsehood of the factors that compel ones behavior. Some rational astrologies may turn out to be largely true, and that happy coincidence can be a great blessing. But they are still a rational astrologies to the degree the factors that persuade us to behave as though the beliefs are true are not closely related to the fact of their truth. The beliefs that undergird modern medicine may represent a well-founded characterizations of reality. But, now as centuries ago, most of us act as if those beliefs are true regardless of own judgments, especially when giving advice or making decisions for other people. Medicine remains a rational astrology. We hope that our truth-seeking institutions — universities and hospitals, the scientific method and peer review — have created convergence between the beliefs we behave as if are true and those that actually are true. But we behave as if they are true regardless.

There is nothing very exotic about all this. It is obvious there can be advantage in deferring to convention and authority. But rational astrologies are a bit more interesting, and a bit more insidious, than wearing a tie to get ahead in your career. When an aspiring banker puts on a suit, he may compromise his personal fashion sense, but his intellect and integrity are intact. He knows that he is conforming to a fairly arbitrary convention, because that is what is socially required of him. Rational astrologies refer to conventional beliefs adherence to which confers important benefits. In order to gain the benefits, an individual must persuade himself that the favored beliefs are in fact true, or else pretend to believe and know himself to be a cynical prevaricator. Either choice is problematic. If one embraces an orthodoxy as true regardless of the evidence, one contributes to what may be a misguided and destructive consensus. If one pretends whenever obeisance is socially required, it becomes hard to view oneself as a person of integrity, or else one must adopt a very sophisticated and contextualized notion of integrity. The vast majority of us, I think, avoid the cognitive dissonance and gin up a sincere deference to the conventional beliefs that it is in our interest to hold. When confronted with opposing evidence, we may toy with alternative viewpoints. But we stick with the consensus until the consensus shifts. And, after all, who could blame us?

After all, who could blame us? That is what drives rational astrologies, the fixative that seals them into place. In financial terms, behavior in accordance with conventional wisdom comes bundled with extremely valuable put options that are not available when we deviate. If, after an independent evaluation of the evidence, I make a medical decision considered “quack” and it doesn’t work out, I will bear the full cost of the tragedy. The world will blame me. I will blame myself, if I am an ordinarily sensitive human. If I do what authorities suggest, even if the expected outcome is in fact worse than with the “quack” treatment, then it will not be all my fault if things go bad. I will not be blamed by others, or put in jail for negligent homicide. The consolation of peers will help me to console myself that I did all that could and should have been done. If you understand how to value options, then you understand that the value of hewing to convention is increasing in uncertainty. If I am certain that the “quack” treatment will work, I will lose nothing by showing the imposing men in white coats an upraised middle finger. But even if I am quite sure the average outcome under the quack treatment is better than with the conventional treatment, if there is sufficient downside uncertainty surrounding the outcomes, the benefit of convention will come to exceed the cost.

If you knew with perfect certainty that a conventional cancer treatment had a 10% likelihood of success and a crazy unconventional “quack” treatment had a 10.1% likelihood, which one would you choose for a loved one? I’d like to think I’m good enough and courageous enough to choose door number two. But I like to think a lot of things. In the real world, of course, we never know with perfect certainty that conventional beliefs are wrong, and we can always console ourselves that we are imperfect judges and perhaps it is the best strategy to defer to social consensus. In any given case, that may be true or it may not be. But it is certainly convenient. It allows us to collect a lot of extremely valuable put options, and compels us to believe and behave in very conventional ways.

I see rational astrologies everywhere. I think they are the stuff that social reality is made of, bones of arbitrary belief that masquerade as truth and shape every aspect of our lives and institutions.

We crave rational astrologies very desperately, so much that we habitually and quite explicitly embed them into our laws. Regulations often provide “safe harbors”, practices that may or may not actually live up to the spirit and intent of the legislative requirement, but which if adhered to immunize the regulated parties from sanction. People grow quickly indifferent to the actual purpose of these law but very attentive to the prerequisites for safe harbor. Rational astrologies are conventional beliefs adherence to which elicits provision of safe harbor by the people around us, socially if not legally.

The inspiration for this post was a wonderful conversation (many moons ago now) between Bryan Caplan and Adam Ozimek on the value of “sheepskin”, a college degree. Caplan is a proponent of the “signalling model” of higher education, which suggests that rather than “educating” students in a traditional sense, college provides already able students with a means of signalling to employers preexisting valuable characteristics like diligence and conformity. Ozimek is sympathetic to the traditional “human capital” story, that we gain valuable skills through education and achievement of a college degree reflects that accomplishment. Both of them are trying to explain the wage premium that college graduates enjoy.

I’m pretty agnostic to this debate — I think people really do learn stuff in college, but I think attaining a degree also reflects and signals all kinds of preexisting characteristics about the sort of people who do it. I’d add the “social capital” story to the mix, that college students make connections, with peers, faculty, and institutions, that increase their likelihood of being placed in high-wage positions. (And, I’d argue, actual graduation is an important consummation of membership in “the club”, so post-college social and institutional connections are weaker for those who don’t collect their sheepskin.)

But even if none of those stories were true, “rational astrology” would be sufficient to explain a large college wage premium.

Suppose that it is merely conventional to believe that college graduates are better job candidates than non-graduates, and that graduates of high-prestige colleges are better than graduates of low prestige colleges. Suppose that in fact, the distribution of degrees is wholly orthogonal to the ability of job candidates to succeed, but that outcomes are uncertain and there is no sure predictor of employee success.

Consider the situation of a hiring decisionmaker at a large firm. She reads through a lot of resumés and interviews candidates. She develops hunches about who is and isn’t good. Our decisionmaker has real ability: the people she thinks are good are, on average, substantially better than the people she thinks are not so good. But there is huge uncertainty surrounding hiring outcomes. Often even people in her “good” group don’t work out, and each failed hire is an emotionally and financially costly event for the firm. How will our hiring agent behave? If she is rational, whenever possible, she will choose people from her “good” pile who also went to prestigious colleges. She will be entirely indifferent to the actual untruth of the claim that Harvard grads are “good”. She will choose the Harvard grad whenever possible, because if a Harvard graduate doesn’t work out, she will be partially immunized from blame for the failure. If she had chosen a person who, according to her judgment, was an equally promising or even better candidate but who had no college degree, and that candidate didn’t work out, her choice would be difficult to defend and her own employment might be called into question. Thus, whenever possible, hiring decisionmakers rationally choose the Harvard man over similar or even slightly more promising candidates without the credential, and would rationally do so even if she understands that a Harvard degree contains no information whatsoever about the quality of the candidate, but that it is conventional to pretend that it does. People hiring for more prestigious and lucrative positions attract larger pools of applicants, and have greater ability to find Harvard grads not very much less promising than other applicants, and so rationally hire them. People hiring for less remunerative positions attract fewer prestige candidates of acceptable quality, and so must do without the valuable protection a candidate’s nice degree might confer. Candidates with prestige degrees end up disproportionately holding higher paid jobs, for reasons that have nothing to do with what the degree says about them, and everything to do with what the degree offers to the person who hires them.

This is not rocket science. It is a commonplace to point out that “no one ever got fired for going with [ Harvard / Microsoft / IBM / Goldman Sachs ]“. An obvious corollary of that is that it would be very valuable to become the thing that no one ever got fired for buying. One way of becoming the safe choice is by being really, really good, sure. But I don’t think it’s overly cynical to suggest that actual quality is not always well correlated with being the unimpeachable hire, and that once, somehow, an organization gains that cachet, a lot of hiring occurs that is somewhat insulated from the actual merit of the choice. [ Harvard / Microsoft / IBM / Goldman Sachs ] credentials may be informative of quality, or they may not, but they are very valuable regardless, once it becomes conventional to treat them as if they signify quality.

Rational astrologies are very difficult to dislodge. People who have relied upon them in the past have a stake in their persisting. More importantly, present and future decisionmakers require safe harbors and conventional choices, and unless it is clear what new convention is to be coordinated around, the old convention remains the obvious focal point. Very visible anomalies are insufficient to undo a rational astrology. There needs to be a clear alternative that is immune to the whatever called the old beliefs into question. The major US ratings agencies are a fantastic example. They could not have performed more poorly during last decade’s credit bubble. But regulators and asset managers require some conventional measure of quality around which to build safe harbors. Lacking a clearly superior alternative, we prefer to collectively ignore indisputable evidence of inadequacy and corruption, and have doubled down on the convention that ratings are informative markers of quality. Asset managers still find safety in purchasing AAA debt rather than unrated securities on which they’ve done their own due diligence. We invent and sustain astrologies because we require them, not because they are true.

The process by which rational astrologies are chosen is the process by which the world is ruled. The United States is the world’s financial power because it is conventional to pretend that the US dollar is a safe asset, and so long as it is conventional it is true and so the convention is very difficult to dislodge. Economics as a discipline has not performed very well from the perspective of commonsensical outside observers like the Queen of England. But the conventions of economic analysis are the rational astrology of technocratic government, and decisions that can’t be couched and justified according to those conventions cannot be safely taken by policy makers. Policy is largely a side effect of the risk-averse behavior of political careerists, who rationally parade their adherence to this moment’s conventions as enthusiastically as noblemen deferred to pronouncements of a court astrologer in an earlier time. We can only hope that the our era’s conventions engender better policy as a side-effect than attention to the movement of the stars. (As far as I am concerned, the jury is still out.) But it is not individuals’ independent judgment of the wisdom of these conventions that guides collective behavior. Our behavior, and often our sincere beliefs, are largely formed in reaction to the terrifying accountability that comes with making consequential choices unconventionally. Our rational astrologies are at the core of who we are, as individuals and as societies.