Changing Assumptions

I really hope that this signals a shift in orthodox economic thinking:

Poor enough people will accept risk in the downward direction rather than smoothing consumption, so they buy lots of lottery tickets. They also commit more crime, so they can have at least some joyous times, and they take lots of "stupid" chances. Yet the poor are not irrational or necessarily dysfunctional in terms of procedural rationality, but rather they are optimizing given constraints.

It seems to me that for a long time, there's been a very mainstream assumption that poor people are just rich people without the money.

It's a stupid assumption, as the above quote makes clear. They may all be human, but the decisionmaking process is very different based on one's location in the capitalist hierarchy.

There's been a corollary assumption that people without money who do things like gamble or commit crime are behaving irrationally precisely because it's irrational for someone with lots of money to engage in those behaviors. As Cowen is arguing, it's not necessarily irrational at all.

Any good lefty could have would have told you that a long, long time ago for free. I just hope that this shift in thinking becomes more prevalent. It would help a lot.

Seriously. This is part of a big problem with economists and modern universities curriculum. The better understanding of people you have, the better these spacy economic models are going to be. Take more humanities classes, people. They do have some value.

Found via Ezra Klein.