Realistic Rationality

Efficiency is often explored at a theoretical level. Even then, it is difficult to define what exactly is regarded as "efficient". Will it be private benefit, social benefit, an average of both, or are there other forms of benefit that can be rationally evaluated? From the Prisoner's Dilemma, it can be seen that rational choices can be exceedingly disadvantageous to the counterparts. It is also established that people are largely law-abiding, though it seems advantageous to kill everyone in sight and take their money.

The thing that keeps most people from doing socially appalling things on a regular basis seems to be social costs in their various forms. They can range from social censure to actual laws. Those serve to hold back the more socially undesirable conducts. If anything, they force irrational conduct. More specifically, they force a response that fits the situation.

If rational actions go unregulated, the negative externalities may well exceed actual gains. This is seen in the rational solution to the Dilemma, whereby both prisoners are disadvantaged while they would create a net overall benefit had they colluded. This does raise the question of what, exactly, rational conduct is. In the presence of inefficiencies and social costs, it is actually rational to be irrational, because the network of costs in an irrational system only maximally rewards appropriately irrational conduct. To be irrational...is to be efficient!

The other common barrier to rational solutions is switching costs. For example, while I may rationally switch from the QWERTY keyboard to a more efficient layout, I am consciously unwilling to do so because that would involve learning a whole new layout all over again. Due to the learning curve, I would be facing reduced productivity until my aptitude increases to match my QWERTY proficiency. Moreover, inefficient information prevents me from knowing for sure whether my switch would provide net benefit, since a whole new massively efficient input paradigm may come out in the next decade thus rendering my new learning moot. In short, switching costs make the irrational decision to stay seem more efficient than the rational one to switch, though in perfect knowledge the decision may be entirely wrong.

Combining the two does seem to provide a basis for why so many seemingly dumb things are being constantly tolerated in the world. If anything, it would prove exceedingly difficult to convince a majority of individuals to switch around to more rational conduct. However, it is not impossible to force change by a drastic change in circumstances. How unfortunate...