Caplan's theory of rational irrationality explains the good performance of free economies, where decisions are taken through markets, and the bad performance of socialist and centrally planned economies, where decisions are mostly political. It explains how highly educated Germans could have become infatuated with the madness of Nazism. It explains why the results of behavioral economics are not necessarily in conflict with the results of other economics fields. And, finally, explains why the NOVA episode gives a wrong answer to the question asked in its own title: markets stimulate rational behavior even if humans sometimes act irrationally.
Wednesday, May 5, 2010
Here's my latest OrdemLivre.org article (in Portuguese) that delves deeper into the PBS NOVA blunder with the episode Mind Over Money. I translate one of the main passages below: