Anger or fright, we’re right!

I have shown in the blog posts that have preceded this one how seemingly inexplicable human actions are rational. Now let me extend that into emotions. Are emotions rational? Isn’t anger the irrational emotion and isn’t fright antithetical to rational choice. Surely, we’re not always rational. We do get angry and we do get scared. But are we rational when in anger or in fright.

Let me start with anger. Anger seems irrational but nobody would be angry if it didn’t change a thing. People get angry with others so that they may express discontent on actions of others and force them to amend their ways. If a person isn’t complying with your orders, you may use ‘anger’ as a tool to extract work. But we don’t get angry with everybody, especially not with our teachers or superiors or employers. That is because we’re scared of being too angry and hence spoiling the relationship with that person, especially if that person is critical to your future. There have been psychological experiments that have shown that people don’t drop hot teapots if they perceive it to be expensive. Similarly people don’t get angry if anger is too ‘costly’ as it so often when dealing with superiors. That follows neatly into the second rational emotion in discussion here-“fright”.

Getting scared is the most rational thing ever. In fact if we didn’t get scared of heights or of snakes, we wouldn’t survive in this dangerous world. If we’re scared of heights, that’s because we are overcautious about falling off a cliff. Compared to the loss of life, the cost of ‘fear’ is so low that it is perfectly rational to get scared. Getting scared is very cheap. So unless you’re applying for a job as a skydiver or are trying to impress your girl by jumping between buildings, acrophobia (fear of heights) is rational. Even when fear may seem irrational, it is not. For example, fear of a particular person maybe rational if that person would make your day worse. Fear of examinations is healthy and rational in quest for high grades. But most importantly, fear of death is what makes us all act rationally. Loss of life or lifestyle is the strongest motivation behind employment and fiscal prudence. If we didn’t fear bankruptcy, we would all be spendthrifts. Sure, we fear some things more than other things. That depends on the cost of mishaps. We fear snakes more than houseflies because a housefly is just a nuisance while snakes are agents of death.

Angry people get work done but are seen badly by others. In choosing to be angry, they have just traded off relationship brownie points for discipline. Some people get angry for seemingly petty matters, but that is nothing but an advertisement of their strictness, of their disdain even for trivial errors. Anger is undoubtedly very costly in terms of possible loss of relationships and we use it more often than rational choice would suggest. Maybe that’s because we also value ‘self-respect’ and hence get angry when the respect we thought we ought to get doesn’t come. In that sense, anger or frustration is a rational response to feeling low. It shows that you have a certain amount of resistance to being humiliated and when the threshold is surpassed your willing to risk your relationship with the other person, if that person continues humiliating you. We gamble by being angry so that the other person is aware of the risk of losing their relationship with you and that’s best reason I have for why people get angry with others. Classical game theory works here. When you know that the other person feels negatively about being shouted at, he is disincentivized from doing things that make you angry. For why we get scared, try standing on the edge of a cliff sometime and you will know!

Intoxicants don't make you irrational!

Well, you have nodded your head reluctantly that most people are rational. But hasn’t it occurred to yet that not “most” but “all” people are rational. And that includes drunkards, drug addicts, and even infants.

Let me start with drunkards and drug addicts. Drunkards and drug addicts when in the influence of their respective drugs seem to be acting irrationally. Even more so, it is claimed that these people are so addicted that they would be unaffected by price changes-both monetary and non-monetary. If you believe that these people are indeed irrational, just ask yourself were they before they took these substances?

If you answer yes, then you have accepted that their decision to take up alcohol or drugs was a rational decision. Anybody who gets into drinking or drugs is full aware of the consequences of taking them. If he still continues with it, they he has simply calculated the cost of taking drugs i.e. monetary, psychological etc. to be much less than the benefit rendered by intoxication. This explains why people drink more often than they take drugs or why those who take drugs are more likely to experiment with softer ones than harder ones. Hard drugs have a very high cost compared to the relative benefit it confers. So most people stay clear of it. On the other hand, having a beer occasionally will do little, if any, harm to your body and hence most people do consume it frequently. In some cases, there is asymmetry or it is claimed. Drunkards cannot anticipate the future consequences of drinking well enough to take a rational decision. That is far from the truth. Even if drunkards do not know the exact scientifically precise result of their consumption, they are well aware of the general effects of drinking. We buy cars, televisions, mobile phones and other gadgets without ever having read a page of engineering. Why are drunkards any different? Just like a public course on automobile engineering will not alter the demand for cars by much, a public education project against drinking will hardly stop drunkards from quitting. Most people knew smoking was bad years before any medical journal published the evidence that cigarettes were harmful.

Are infants rational? Why do babies cry to attract attention? Even without the power of language infants are able to satisfy their needs by calling out for assistance.  And while it may seem basic, infants are also able to smile and cry to convey message to their parents, hence assuring them of the optimal care. They don’t cry too often or too infrequently, they use it sparingly yet put their vocal chords to full use to ensure that they are taken care of. As I said, we don’t act rationally because we have fully-developed brains or because we have studied economics, rationality is in our very biology, economics is merely a first step in applying it universally to all our actions. 

To be or not to be (a college graduate)

With many college graduates unemployed in western countries and the relative value of college education declining everywhere, the unchallenged view that college education is primarily for employment needs to be put to sleep. There’s more to college education than just the skills that you acquire there in classes and extracurricular activities.  Of course, college is also a fun place to be, especially if you’re living alone. There’s an abundance of adventure-both academic and non-academic in college. That’s why there is a case to be made that college education should be treated as a “good” like books. Books should also be bought for their entertainment value and not only because they’ll give you smart tricks to make money.

Common sense dictates that people should choose college majors that lead to well-paying jobs yet we find people who study all kinds of majors with seemingly little value. I recently read an article bashing “classical literature” majors for choosing such a worthless major that doesn’t land you any job after graduation. The truth is people go to college for wide variety of reasons- employment being just one of them. So there’s nothing irrational about what specialization you choose. Saying that spending lots of money studying an offbeat subject is irrational is the same thing as attacking people for reading “crime fiction” instead of bestselling books on finance. The only difference is that of degree.

Rationality is not “common” sense in that it doesn’t require public approval. It is often incorrectly assumed that the most rational person would also be the richest. In my opinion, one cannot classify people by their rationality even if you can create billionaire lists simply because all of us are equally rational. To a vacation-freak spending all your money on vacations instead of investing on education for higher returns is rational just like the fact that those who are passionate about research getting a Ph.D. and those with a penchant for sports skipping school to train for competitions are acting perfectly (and equally) rationally. Sure, richer people have more resources to fulfill their wants but that’s getting nowhere since in becoming rich they have squandered opportunities to play sports professionally, do ground breaking research and take off more vacations (and write blogs). The only exception to this is if you inherit a lot of money. That probably explains why most of early renaissance thinkers and scientists happened to be born into nobility. For a person without a bequest, there is choice between chasing money now to do something later or doing something now and foregoing pleasurable activities in the future.

I’ll come back to the topic of colleges. College education does give you an edge in the job market, but that’s no reason to go to college. Those who read books are more likely to win quizzes than those who don’t. Weirdly there’s more value attached to going to college than reading. It’s hard to blame anybody here. Those who think that employment is the sole reason they want to go to college are doing so rationally because they know that those with college degrees are more employable. But those who don’t go to college to go into sports or those who take up a not so promising subject and get a Ph.D. in that too are acting rationally. So what’s the fuss? Nothing. Just don’t assume everybody goes to college to end up employed and don’t praise or criticize college dropouts-those are all individual decisions. Sure, a few college dropouts have made it rich. Yes, but at the cost of not being able to enjoy college life or discuss quantum physics with the best minds. And those not interested in research or other things college helps you get do a professional diploma and end up employed instead of becoming an unemployed graduate. If they are all rational, then why do people end up unemployed after going to college? Good question. Why do gamblers lose money? Those who go to college to get a job are gambling. Some lose, some win, some don’t gamble at all and some are just gambling for fun! (Moral remark: getting Ph.D. is better than gambling for fun. Economic response: “only for you”. )

Bottled Water, Bargaining and Working till you drop

Bottled water is more expensive than filling a bottle at home. Yet people do buy bottled water when they’re out of their homes. Are such people rational? Why can’t they just carry water bottles from home and save on expenses on water. Well, they are rational people after all. Instead of saying they aren’t, let us see why they maybe rational.

What is the probability that you will feel chronically dehydrated one hour after leaving home? Choose a random number (this isn’t really a mathematics blog). Whatever you choose it’s probably much less than one. So carrying your water bottle from home is a toss-up decision, just like deciding where to go this evening. So people who carry water bottles are risk-averse, but rational people. Those who decide against carrying water bottles are risk loving but equally rational. If the person who takes a bottle doesn’t get dehydrated, nobody would call him a fool, just like you don’t call insured homeowners fools for insuring their homes. On the contrary, if a person doesn’t take a bottle with him, he risks dehydration and would be willing to pay a reasonably high price for a bottle of water outside. Given the choice between collapsing out of dehydration and the dollar-cost of buying a bottle, buying a bottle seems the better pick. Such a person is completely rational, only that he would have probably been better off carrying water bottles. Then again an argument can be made that this person simply preferred the cost of buying a water bottle on such occasion to the invisible “physically tiring” cost of carrying bottles from home. A rational person would see whether it is likely or not that he will end up dehydrated and how painful carrying water bottles is in choosing whether or not carry water bottles. But in either case, he/she is perfectly rational.

It may also appear as if a person who bargains for everything is a “smarter” customer than one who doesn’t.  This couldn’t be further from the truth. Choosing between bargaining and paying up a higher price is a choice similar to choosing between bottled water and carrying water bottles from home. In both cases, people are perfectly rational. I don’t liking bargaining with sellers, for I hate wasting my energy on it. I’m not good at it and it’s not very likely that I have the skills to convince the seller to give me his good(s) for less. So I choose not to bargain. Am I rational? Absolutely. Probably I’d be better off financially if had honed my bargaining skills, but like not studying in advance (read my previous post if you haven’t done it yet), it’s my choice. I could have earned something if I had worked instead of writing this blog, but I like doing this and I hate working. I’m just being rational. Next up, why you shouldn't go to college just to get a job! 

Mind behind midnight candles

I had solemnly sworn to myself that I would be more pro-active with studies in the second semester of my first year of college than in the first and that I wouldn’t procrastinate till the last day. I was forced to eat my own words after a couple of months. I realized I couldn’t do it. What I also I realized was that I was acting rationally. Here’s why.

With two months to go for examinations, not studying momentarily has very little effect on final grades. To see why, let me introduce the concept of opportunity cost. Opportunity cost is the cost associated with not doing something. If I spend my 2$ on an ice-cream instead of buying a chocolate, the opportunity cost of one ice-cream is one chocolate. Similarly, the opportunity cost of studying is “not studying”. So when I study, I lose out on the chance to take it easy and relax. Moreover, several months before the examinations, the ‘cost’ of “not studying” is low in that if I don’t study I get the benefit of being relaxed without paying as much for it with ‘lower’ marks since I can always study later. As time progresses however “not studying” becomes costlier as the timer ticks towards the examination day.

This explains why I and most students burn the midnight candle. Studying early maybe rational over a long time frame but momentarily it is less valuable than “not studying”. For every hour I study, I lose out on one hour of relaxation. Studying is rational only when the cost of relaxation is high as it often is during the last day before the examination. However relaxing is cheap early on and so you are being rational when you procrastinate. If you had the choice between buying the same ice-cream now when its 2$ or later when its 4$, you would definitely choose the former. Similarly when the cost of “not studying” is lower, you might as well enjoy your time without studying earlier on and making up for it later on.

This probably isn’t a story with too many morals. Studying without procrastinating might lead to better results but we tend to think about short term returns more than long term ones. I will take this statement further in the next post to show you how you can be perfectly rational and yet totally stupid when it comes to buying bottled water.

A class apart

Have you ever wondered why most tourists travel economy class while corporate employees with much less salary fly in a higher class on airlines? Well you’re not alone. You say that’s because their companies pay for their tickets, I respond why do the companies buy “business class” tickets while “economy class” tickets would come at a cheaper price-tag.  You are smarter and you retort, “That’s because the company is in a non-price competition for employees with other corporates”. Well done, but why can’t the company just pay higher wages? What’s so special about flying your employees in style?

The answer is employees like comfort. And when they’re comfortable, they work better. Giving them a permanent source of comfort such as a nice cabin would incentive them to work harder and be more loyal as they are unlikely to find a better job with similar comfort elsewhere. But temporary comfort provided by a class upgrade on a flight has a similar albeit more immediate effect. My mom was always given “economy class” tickets for domestic flights but “business class” for international ones by her employer. This might seem bizarre, as domestic flights are cheaper. But first-class travel/business class travel on international routes with several hours of flight time tends to be more comfortable. But what does her employer gain? Well her company gets an employee who lands fresh after a long flight for a meeting. But my mom too now has greater incentives to want to attend such meetings for they entitle her to business class travel. While a good cabin would have made my mom more loyal on the long run, business class travel makes my mom more willing to go on foreign trips to attend meetings. Since travelling for ten hours or more is a real discomfort, my mom’s company effectively compensates her by offering a better service class on the airline. Unlike other benefits a company offers, business class travel has immediate effects on an employee’s productivity because the employee can now travel more comfortably and arrive fresh for a meeting. The employee also has an incentive to travel and be away from his/her family.

Instead of having disgruntled and/or tired employees attending your meetings at a foreign location, it is better to buy them a “business class” ticket. An employee is more likely to look forward to a meeting when he is flown in and out in style! Business class is the “efficiency wage” model of our times. Now, surprise yourself. Next up, why do you study right before exams and not earlier despite several self-promising resolutions made to the contrary? 

The cost of getting married

I have wondered, oft times, why on earth are Indian marriages so extravagant and why they are so expensive. It seems that there are several lay-man explanations for it. The most common one is that expensive marriages are not a choice but a duty prescribed by tradition. I however tend to disregard such arguments for they don't offer a reasonably sound explanation for expensive marriages. The next popular one is that marriage is an opportunity for rich people to show off their wealth, but that doesn't answer the question at all for there are many ways to be ostentatious. For example, why not just have a super-extravagant house party or drive around in a limousine?


Marriages are a way for parents to fulfill their parental obligations is an argument that is at least understandable but it still fails to explain why a bequest of the same amount would be any worse. In fact most sons and daughters would prefer bequest to an expensive marriage. One other reasonable argument is that marriages confer many benefits packaged into one-marraiges bring families together, help rich people show off their wealth and fulfill religious obligations as well. The only problem with this argument is that all these benefits can be enjoyed in any religious function or a family gathering, why bother spending it all on a marriage?


My explanation for expensive marriages is that it acts as an insurance against divorce and/or family break up. To see why, say suppose a family spends 100,000$ (a huge amount for indians) on a marriage. The longer the marriage survives, the lesser the cost-per-succesful-year-of-marriage. Say this particular marriage survives for 40 years, the average cost is 2,500$. On the contrary, if the marriage survives only a year, the average cost is 100,000$. Any heir who cares about his family wealth will want to reap the benefit of marriage for as long as possible, so as to keep the average cost down. If this explanation is hard to stomach, consider the allegory of the train pass. When you a purchase a year-long   train pass and travel only for a day, you lose. You're better off using the train service more frequently or not buying the pass at all! Marriage is a one-time investment, to make the most of it, you need to be married longer. Couples will then only consider divorce if the benefits of marriage are out-weighed by the benefits of living alone and the cost of marriage is less than what it would cost to keep the family together. Some might consider marriage itself expensive if all marriages become expensive and decide to remain single, which might be less costlier than a huge extravagant marriage with thousands of people.


Dowries have a similar rationale. I don't think dowry is a good idea, for unlike voluntary splurges on marriages, parents who have to pay the dowry don't think about the longitivtiy of the marriage. They only think of it is a due that must be paid. But in any case, dowries act in a similar fashion. A girl whose parents have paid a huge dowry to get her married will be more careful with her marriage. However there is also a catch. Dowries incentivize the boy's family to harass the girl since they know that the girl would stick on despite being harassed. To prevent this asymmetry, I am totally against either the boy's or girl's family taking up all the cost of the marriage. An even spread would ensure that the costs of marriage weigh upon the decisions of the respective families when they decide to severe ties! Also, dowries when shared equally are better than just marriages for if they are in the form of money or investments, they can be re-used for other important expenses. I don't like the word ''dowry", "mutual pre-marital colletaral" sounds better. Next up, why do employees "on-duty" fly business class more often than tourists? 

We are all rational?

I don't claim to pioneer a tradition of applying rational choice models- I have far more successful, serious and older economists as models to look up to- Levitt, Landsburg, Becker and many others.  Yet, I was inspired by them to consider blogging about what I see around me. While they may offer better explanations to the events I observe, they cannot possibly theorize what I see around me in my cultural context and everyday life. Therefore, I have attempted to do just that and I encourage the readers of my blog to do the same. 

It seems impossibly absurd, never mind controversial to suggest that we are all rational. Some among us spend millions on marriages, smoke cigarettes, drive recklessly and all of us take risks we're not supposed to take like traveling without a ticket on a train or skipping a traffic signal while driving, all fully aware of the consequences. In all of the above cases, we're perfectly rational creatures balancing risks and returns, comparing costs and benefits and doing things only if they are worth the risk. We sometimes do it badly, I admit. We sometimes think the benefit of an extra cigarette is greater than the cost of cancer (seemingly an irrational choice), yet this is not an example of how irrational we are but how rational we are that we at least did the calculation. We don't always do this calculation on calculators (in fact, it would be hilariously stupid of us to calculate the probability of meeting with an accident using calculators while driving), but rather we do it in our heads, just like tennis players anticipate where their opponents are going to hit without ever using game theory (maybe their coaches do use it!).  We being rational is natural to us humans (and also animals who successfully hunt and dodge hunters). What makes us irrational (if that's even possible) is that we fail to apply this rationalism to everything we do and everything others do. 

Paraphrasing an old saying that everything happens for a reason, I'll sum up my first post this way- We believe that everything we do has a reason behind it, a rationale, or else we simply wouldn't do it or we would do something else or do the same thing differently! Apply it to every creature you see around and you will realize that those creatures are doing what they're doing because they know its rational! Let me start with why people spend fortunes on marriages and why the system of dowries is more than just an old tradition!