Tyler: What was Gary Becker's biggest mistake?
Cass: His biggest mistake was his greatest
virtue, which was an unfailing commitment
to the rationality assumption. I love Gary
Becker as a person and as a scholar, he's
in the pantheon. But his insistence on human
rationality was both what made him as fantastic
as he was, but also led him astray.
I'll give you a term for it. It's actually
recently been invested by Matthew Rabin, a
behavioral economist. The term is explainawaytions.
The term means, suppose you have a situation
where people, let's say, value a coffee mug
that they've been given more than a coffee
mug that their neighbor has been given. That's
an anomaly, that there's an immediate increase
in value once you get the thing.
An explainawaytion might say something like,
"Well, there's transaction costs in trading,"
which is desperate. It's an explainawaytion.
It's not an explanation.
Gary Becker was both in his writing and even
more in person a master of the explainawaytion,
where he'd come up with some account which
had surface credibility, so he could say it,
but nah.
