Hello, everyone, and welcome to week three of The Mind Is Flat roundup session. So Jess, what are the issues that we’ve been talking about this week? So the topic for this week was rationality, which I think, as with a lot of the terms in this course, is a word that has a lot of different associations and connotations, and different people might interpret in different ways. So perhaps we could just start off by you explaining what exactly you mean by rationality in the context of this course, and why it’s important. Yeah, so rationality is indeed a very overloaded term with lots and lots of slightly contradictory meanings.
From the point of view of this course, what rationality is about is essentially consistency. So, it’s not in itself irrational, for example, to buy large amounts of food and let it rot in your fridge. It seems like a strange thing to do. But it’s not in itself irrational if that’s consistent with some strange purpose you have. For example, if you’re wanting to create some kind of terrifying artwork, sort of damaging the… about the damage that the consumer society can create. But if you’re actually intending to save as much as possible and eat as well as possible, then it is starting to look like an irrational thing to do.
So the thought is that individual actions, or indeed individual beliefs or individual desires, aren’t themselves irrational. But they can be irrational when you put them together and think, hang on. These don’t fit together in a sensible way. If you wanted this and you wanted that, then why would you do this? And it’s that process of keeping everything coherent. And I guess it’s useful to clarify that there are different things that can be inconsistent, right? So you can have two beliefs that are inconsistent. You can believe, like, I want to eat as healthily as possible, but also believe, like, I want to eat chips all of the time. I mean, that’s not really a belief, that’s more a desire. But like…
or you can have beliefs and actions be inconsistent. So you can, like, believe I want to not… like, it’s bad for me to smoke. But then also, like, go and smoke because you want. So it’s good to clarify there are various different kinds of inconsistencies you might have. So one of the examples you gave at the beginning of course this week to kind of illustrate this sort of paradigm pace over rationality and consistency, is this idea of a money pump.
So the idea that if you have these inconsistent or circular preferences, someone else could come along and pump you for money by getting you to make these repeated trades where you, perhaps, pay money to swap options, but end up with the same thing because you’ve got these strange circular preferences. And the example that you gave was of someone trading hot chocolate and paying a little bit of money to have a slightly less expensive but slightly indistinguishably tasty hot chocolate. And I think it makes sense in abstract, but a lot of people thought well, like, I wouldn’t go and do that in practise. I would notice what’s going on.
So could you perhaps say a bit about why you think the idea of a money pump is actually important in real life? And perhaps in cases in real life where it might be a real problem? I mean, people might actually fall prey to this. Yes, so I think there are two things about that. The first is that it’s true that if you are actually doing some endless hot chocolate swapping, you’d think, this is a bit fishy. What’s going on here? And you’d probably stop. But that doesn’t mean that the preferences would still not be irrational.
And what the money pump is saying is that if you really held onto these preferences and went through with them, then you’d do something crazy. Now halfway through, you’d think, this is going wrong. This can’t be right. I’m stopping. And in some sense, then you’re giving up on some of your preferences, or at least not following them through. So you’re sort of violating original choices. And that’s exactly right. That’s what you should do. When you notice an irrationality, you should fix it. And we’re actually pretty good at doing that, in general. Exactly. We are always on the lookout for devious trickery. But that doesn’t mean that we don’t have the irrationalities and inconsistencies… Exactly. If you had the irrationality…
…in the beginning …in the first place, we could fix them. And the other thought is that these things do occur a lot, particularly, for example, in financial markets. So if it is the case that I can buy grain or shares and then I can find someone who will swap some other thing for my grain or my shares, and I find someone else who will swap again and swap again in a little circle, then I will make lots of money. And there are people in the financial world who are continually looking out for opportunities like this. And often they’re known as arbitrary opportunities. They’re ways to make money.
Now of course, as soon as one of those get spotted, people pile in and close it pretty quickly. Because as soon as I realise I can do that swapping, then the prices tend to adjust themselves. People’s preferences tend to adjust themselves so that opportunity disappears, just like in the case of the hot chocolate. So as soon as the market realises, hang on, there’s free money here, then suddenly the free money disappears. But that’s a case of the market, as it were, recognising the irrationality and correcting it.
But still the basic logic that if there’s, as it were, if you have a set of preferences or beliefs or whatever, which is such that you’re going to hand money freely to somebody else, then you better change them. And as soon as you realise that’s what’s happening to you, you will. I mean, one thing, I think, one distinction there’s also to draw there with the financial markets example is that it’s not the case of you found one person who has these inconsistent preferences that you can repeatedly trade with, right? It’s like, the fact that overall, there were like 10 people who have different preferences.
And so there’s a kind of inconsistency in general that you can exploit, which makes it slightly different. That’s right. One other thing that I thought was that there are cases, perhaps, a little bit more subtle and complex than the case with the hot chocolate. Where you do actually have inconsistencies in one individual’s preferences rather than just across a bunch of different individuals. And one case that you discussed in the course this week was how one individual can have different preferences at different times, for things at different times in the future, and how that can create these kinds of inconsistencies and perhaps exploitation. Could you maybe say a little bit about that and how that works?
Yes, I think that’s a very important issue. Whenever, essentially, a sense of impatience or excessive focus on the present can get the better of us. So if you’re trying to sell me a cake when I’m on a diet, you may successfully sell me a cake. But of course, I may then regret eating it. And so, I might actually want to try to avoid going near your shop, in fact, to try to not fall into this inconsistency. If I was a completely consistent being, I’d think, oh, I’m on a diet. I can walk past as many cake shops as I like. That’s not a problem. Once I realise I’m potentially inconsistent, then I have to manage my behaviour very carefully.
Another example would be things like payday loans. Where if I’m thinking strategically, I might think, I really must be very, very careful about payday loans, because they can explode very quickly and I’ll be in trouble. But at an intuitive level, if you run out of money, then getting a payday loan looks like a good idea. So I think these tensions between our long term interests and our short term immediate interests often do cause us real problems in finance and in health, and in many other areas. Yeah, and I think in our lives in general. Most people can identify with the idea of procrastinating, right?
Like, if I were to take a long term view, I would write this essay or this report right now. But right now I feel like sitting in front of the TV and eating ice cream. And then you kind of do have this inconsistency amongst yourselves. Yes, so I suppose to finish with, one piece of advice, which all of us actually who knows the advice, still struggle to actually keep to. But still, one piece of advice we should try is to try to step out of one’s immediate situation and think, what would I wish I had done in five years? So if you’re thinking about the cake– Or even in two days. Or even in two days.
You don’t get too far. Or like an hour. Yeah, thinking, let me step out from my immediate feelings right now and imagine what I would prefer to do, and try and do that. Easier said than done. So, thank you very much everybody for your attention. And we’ll see you next time.