Rational Actors and Irrational Actions

It is a postulate, in the field of economics that actors are rational.

This, on the face, appears ridiculous. Rational choices are not always made by the business, foolish investments are made, CEOs embezzle from their seven-figure jobs, people quit their only source of income, business refuse to hire or serve people on a frivolous basis. Discrimination along racial or sexual grounds is frequently pointed to as a response to this postulate. The claim is something to the effect of: “How can a law firm refusing to hire women possibly be rational?”  

This question, like some many important questions, is answered by another: “What does it mean to be rational?”

To be rational is to maximize utility.

Money, by itself, is worthless. It exists as a proxy for goods, services, experiences that individuals derive utility from. Utility is the value derived from experiences and money is typically a ticket to those experiences. The utility can be the enjoyment caused by eating a hamburger, of receiving a message, or the feeling of moral purity by conforming to one’s religious value structure.

When a firm makes what appears on the face an irrational decision. Such as to not higher a more qualified woman on account of sex, whoever makes that decision is acting to maximize their perceived utility. They make the decision that: the value of not working with women is greater than the money they would make by hiring this unfortunate hypothetical woman.

It is summed up by the equation:

Utility of Discrimination >Monetary value of Non-Discrimination  

This equation would make discriminatory actions rational.

This provides a lens from which the action of people who perform what on the face appear as irrational acts can be understood.

The bakery that refuses to bake for a gay wedding values the utility of conforming to their religious views more than that money that could be made by selling the cake.

The diner that refused to serve African-Americans, in absence of Jim Crow laws, valued whatever they perceive the utility of not serving blacks more than the money that could be made by serving them.

The small business that hires less productive family members over more productive non-family members values the utility of hiring family over the productivity (and therefore money) by hiring the more productive stranger.

The lens of perceived utility at the time of discriminatory action is not prescriptive but rather descriptive. Understanding that the motivation of discrimination is rooted in ]utility over money is the first step to combating it.

Moving forward, we can tip the scale toward favoring nondiscrimination by lowering the utility of discrimination through social, legal and monetary pressure. Stigma here is essential and social media is a tool that might of well have been tailor-made for this exact reason.

Imagine that, through a social media campaign, you learn that a local diner discriminated but through some unscrupulous legal shenanigans managed to get away with it. How would you act or rather, between the discriminatory and a non-discriminatory breakfast where would you choose to eat?

It’s obvious from here. Discrimination is gross and I, like the overwhelming majority of Americans, want to make this kind of unpleasantness as difficult and expensive as possible.

In practical terms: don’t buy racist burgers.

Raise the monetary costs of discrimination and you disincentivize decriminalization.

A diner might hold out with discriminatory practices if they only lose 10% of their potential customers but what about 50%? 80%?

This can result in one of two solutions the diner can close or they change their policies, either being preferable to continued discrimination.

This holds true, to a lesser degree, even in absence of activity from those who are not discriminated against. Discrimination is expensive and when there is an artificially small pool of customers and employees they would tend to do worse. This can and should be accelerated by people voting with their dollars to increase the costs of discrimination.

Market forces disincentivize discrimination.

However, the homo economics notion is misleading. If all actors cared about was money as a proxy for utility then they would never do any of the utility prioritizing discrimination is so apparent.

We can also lower the utility of discrimination through stigma and legal pressure both of which are currently in effect.

First, it is illegal to discriminate based on what is a protected characteristic. This criminalization affects both sides. The utility as the risks of prison and fines as well as the possible shutdown of whatever business happens to discriminate. The legal punishments also increase the monetary costs of discrimination. If you have to pay a fine for discrimination then it follows, costs more to discriminate.

Stigma, today at least, has a greater effect on the utility of discrimination equation. Actual bigots are excised from civilized society. There is a reason why racist, sexist bigot, homophobe or any other of the “host of -isms” are slurs. They are as they should be verbal bludgeons that carry the explicit message of immorality.

Everyone has that one aunt or uncle who, after a few drinks begins to say unpleasant things. Do you go out of your way to spend time with them? Do you invite them to dinner? Care what they think?

The social stigma around nasty views is even more pronounced around nasty actions. Nasty actions and views can and should be shunned.

More simply don’t invite Richard Spencer for dinner.

The general public disdain for bigotry lowers the utility of those actions.

The market innately punishes discrimination and we should as individuals create more pressure to disincentivise abhorrent actions.