Rationality and Efficiency

Lots of people have already pointed out all the flaws in Ted Gayer’s absurd argument that it’s impossible for money-saving energy efficiency measures to exist because for them to exist would violate “the basic principles of economics.”

One thing I did want to say, though, is that I don’t like it when people who point out that the world doesn’t work this way lean too heavily on the idea that Gayer is failing to recognize that people aren’t always rational. I think the right way to make the critique is precisely that Gayer is failing to recognize that people are rational. Rational people recognize that they have limited monetary resources but also limited time. In wealthy societies such as our own, people regularly expend extra funds in order to save time. We buy, for example, washer/drier setups rather than saving money by doing the laundry by hand. The process by which a consumer costs himself money, but saves time, by failing to thoroughly research the tradeoffs involved in buying a more or less efficient washer/drier is exactly the same as the process by which a consumer costs himself money by deciding to buy the thing in the first place.

It’s true that there are certain identifiable irrationalities in human behavior. But an assumption of generally rational behavior serves us well in a lot of contexts. But that assumption needs to be applied in a consistent and comprehensive way. Time and attention constraints are very real aspects of life, and (rationally) navigating them is a big part of what rational people do. CEOs have better things to do than hassle people about insulation. Consumers would rather go see Sherlock Holmes than worry about their hot water heater. Having technical experts set standards for these things can save people time and money.