Public Policy

Lecture 6

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Rationalism in Public Policy

Public Policy analysis - objective or subjective?

The purpose of policy analysis is to show the rationality and objective need for new changes, i.e. to prove that chosen option IS RATIONALLY THE BEST one

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At the same time

Policy analysis is a subjective process – the techniques and results depend on type of social and political models accepted by policymaker

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The model casual relationships or model of reasoning is a rational part of the new policy.

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"Rational" in this context means "objective", based on reason and logic.

What does it mean to be rational for a person?

What means be objective or rational

• Objectivity is a philosophical concept of being true independently from individual subjectivity caused by perception, emotions, or imagination
• Rational person - is someone who made decision based on reason and logic , i.e. intelligent thinking rather than on emotions.

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Why we discuss it here:

Reason 1. Rational approach is dictated by model of society

Reason 2. Rational approach is recognized as objective for transferring

the information from one person to another

Rationalism in the models of society

In developed countries the model of society is usually seen as a market model:

• Society is viewed as a collection of autonomous, rational decision makers who have no community life (no common interests, only personal and private)
• The government is just very large decision maker (individual with own goals)
• The goal is individual well-being = rational approach.

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In developing countries the model of society is determined by local culture:

• Very often, the goal of a society is the general, common and universal welfare (well-being) with acceptance of the sacrifice of some individuals for the benefit of the society as a whole.
• The government is the decision maker that consolidates and represents the interests of society.
• This approach is considered irrational for developed countries

Classical Rational Problem-Solving Model

However, the preference for a rational approach does not mean at all that it dominates policymaking in developed countries.

Limitations on using the Classical Rational Problem-Solving Model

Policy making in developed countries also has to use unstructured approaches that differ from the classical rational approach.

Practical Approach to Rational Problem Solving

Practical Approach to Rational Problem Solving

traces of a rational approach

guide to action

It is traditionally believed that a rational decision is the only the right one

Rationalism requires a reason, the rest is emotions – unreasonable feelings

Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formal modeling social and economic behavior.

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Rational = formal ?

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Why are emotions bad? What to expect?

What to do?

Whom do we consider a rational person?

Blondie

Artistic guy

Serious

Choose a new TV

• Participants (decision makers) have full (complete) information – all information is available (easy to get)
• The result depends only on their preferences: vision of the problem, a set of alternatives and criteria.

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This is a classic case of multi-criterion analysis with complete information - the simplest form of decision making

Decision-making process

Problem (description)

Situation analysis (obtaining information)

Possible alternatives

Decision making (choosing optimal alternative)

Problem solving

Multi-criteria choice: model

Preference

system

Multi-criteria choice: model

Preference

system

Irrational impulsive buyer

Using a creative non-standard approach

an example of an artistic impulse of inspiration

Experienced decision-maker

Social labels, prejudice

manipulation of someone's concept

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“Professional”

“Flighty girl”

“Experienced”

To understand someone we make up the missing information

Same explanation - different perception

The formal solution

Multi-criteria choice: model 2

Different preferences

system

What to do with an "irrational" idea?

Make it rational!

Say it with numbers = Rational approach is related only to form of presentation, not meaning

• If data is not available, use data from the past with extrapolation, forecasting, estimates, etc., use data from similar cases, countries, regions, etc.
• If numerical methods are not available for your case, use the analogy with a known “rational” example.
• Always use the approach - the more the better. It gives the reader a sense of confidence
• For things that are not rational in nature (such as love, compassion, sympathy, etc.), use the "rational form" to describe and explain (ratings, points, rankings)

Make it rational!

Give analisis, not decisions = By rationally explaining the course of our thoughts, we can achieve an objective, rational perception of our main idea.

• In many cases, our intuition tells us the right decision. Such a decision, although irrational, can be justified with the help of formal tools.
• The reader (participant) have to be able decide himself what plan or option is better, so help him with this conclusion: use the "reverse" solution:
• The best tactic for creating a "definitely rational" list of alternatives is to "reverse" the decision: you know that option #5, for example, should be chosen as the best one. Then you only list options that are not good enough compared to "Best Option #5".

How to deal with social labels, bias and prejudice

Understand the importance of information.

Professionalism is not knowledge, it is the result of learning, training and practicing certain skills.

• being able to recognize the importance of information is a key professional skill

Experience is not knowledge either, it works for repeatable cases only with comparable conditions.

• Any new case requires new information, and previous experience does not necessarily help to recognize and select key information.
• According to information theory, the maximum benefit and the only solution is possible only with complete useful information.

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Transformation of raw data into useful information. �The three phases of filtering shown in the diagram may lead to losses of vital information: if a particular piece of information is not recognized as relevant and significant, it can be treated as noise and erroneously rejected (Uritskaya, 1999)

Troubles with certainty and full information

• You must have a source of information. Hiding information is a very powerful weapon: the maximum benefit is possible only with full useful information.
• Information may be delayed in time. If the problem does not allow you to delay the solution, use limited information
• There may be too much information - only the “useful” is needed. Does this mean that you should know what you should know at advance?
• Some very important information is available in a form that you are unable to understand (moss on a tree, foreign language…)
• The opposite problem is pseudo-scientific research (ex: water regulations)
• Sometimes we think that the current information is not relevant, and evaluate it properly only after making a decision.

Important conclusions, set #1

• Even detailed describing the problem does not guaranteed the “right” and rational decision, which, in fact, depend on goals of Decision Maker
• The system of alternative is never complete because of endless amount of criteria. Decision Maker have to create the system of preferences to select the most important criteria for task.
• If most desirable alternative is not in the final list of preferences – it just means that the model is wrong. Optimal decision is appealing!
• If this desirable alternative is obtained by irrational guess, it is necessary to make it rational: use ranks, categories, points… Everything has to look measurable, i.e. hold rational feature, ‘tag’, so you can proof your opinion (about your choice) to others

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Thinking rational = means to keep the real goals in mind

The Monty Hall problem

The Monty Hall problem is a brain teaser, in the form of a probability puzzle, loosely based on the American television game show Let's Make a Deal and named after its original host, Monty Hall.

The problem was originally posed (and solved) in a letter by Steve Selvin to the American Statistician in 1990.

Suppose you're on a game show, and you're given the choice of three doors: Behind one door is a car; behind the others, goats. You pick a door, say No. 1, and the host, who knows what's behind the doors, opens another door, say No. 3, which has a goat. He then says to you, "Do you want to pick door No. 2?" Is it to your advantage to switch your choice?

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In search of a new car, the player picks a door, say 1. The game host then opens one of the other doors, say 3, to reveal a goat and offers to let the player switch from door 1 to door 2.

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Learn to deal with uncertainty

To cope with uncertainty, probability is used.

Important conclusions, set #2

• We can trust our intuition with the right decision. Such decision, despite the fact that it is irrational, may be proved as reasonable with help of formal tools
• There is nothing wrong or unusual about reverse solution, if it reaches the goal: info can be selected and evaluated for the fact
• The choice of optimal alternative never will be the best if information is limited (the list of alternatives is incomplete)
• Some choices are false: in order to push you towards a certain alternative, the rest are replaced with empty, useless options, so the model becomes just the appearance of a choice.
• You should not regret about your decision in the past – you made the best choice with available and evaluated information at the time
• Formal mathematical methods are not intended to create new information, but to organize existing one, determine relationships and prove assumptions (hypotheses)

Antagonists of the rational approach

Fulse Trust.

Both positive and negative emotions can reduce or increase the degree of rationality at the time of making a decision. So, the confidence caused by a number of successes can inspire confidence that this trend will continue in the future, despite the clear evidence of the opposite.

Justice issues.

Equity is important, even if it contradicts the interests of the individual. Thus, it can interfere with rational behavior.

Corruption.

It should be kept in mind that power and money influence people's behavior, causing deviations from rational behavior.

Money illusion.

The tendency of people not to take into account inflation in their financial statements leads to wrong decisions.

Storytelling.

Interesting stories are remembered better than figures and facts.

What to do if different interests interfere in a problem?

Game theory is a branch of mathematical economics that studies optimal strategies of participants with conflict interests and goals.

• Game theory is a theory of conflict resolution.
• It models the situations and problems with limited or asymmetric information, risks and allows reveal the optimal solutions and indicate the strategically rational behavior of participants, along with the conditions of efficient cooperation between party of the conflict.
• The methods of game theory are widely used in international relations, business and economics, as well as in other social sciences - sociology, psychology, political science, philosophy, jurisprudence and biology.
• Game theory is a theoretical framework for conceiving social situations among competing players.
• In some respects, game theory is the science of strategy

Some useful features of game theory models

• People may not realize that they have competitor in the model and continue treat it as a direct choice model. But since the opponent may be active, the expectations of results must be lowered, because success depends on the current conditions controlled by the opponent.

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• If people have different, but not conflicting goals in a problem, they are able to come to an agreement and maximize their benefits, results, gains.
• If the conflicting parties cannot agree to choose one specific strategy (alternative), the problem is solved in mixed strategies: the solution is a mixture of different options in a certain proportion, depending on their "weight". Thus, a mutually beneficial compromise can be reached.

Nash equilibrium - mixed strategies

John Forbes Nash Jr.

(1928 – 2015)

Nobel Memorial Prize

in Economic Sciences

1994

2001

Nash proved mathematically that negotiation is both necessary and always possible.

Final Conclusions

The most important parts of the Policy analysis is

• the determination of the true goals and
• building the correct model of the problem.

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Being open minded is critically important for recognizing

the new information.

• The more relevant information is obtained, the bigger the result.�

It always pays off to negotiate with the opponent. It grants us not only moral satisfaction but also higher benefits.

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