Often we have to make decisions without knowing for certain what the results will be. Deciding for whom to vote, or whom to marry or what occupation to follow are all examples. Game theory has a lot to say about that, and so does decision science. Businessmen face such decisions every day, and that is probably why we find those subjects taught in business school. But, as the examples make clear, these decisions are common in our lives, both in and out of business.
In some cases, the only rational basis for the decision is optimism because pessimism can be a self-fulfilling prophecy. This may even be a moral obligation, if we are morally obliged to avoid bad results. Marriage is a good example of this. Statistics tell us that about half of all marriages end in divorce, but if you begin a marriage thinking that there is a fifty-fifty chance of divorce, your odds are probably even worse than that. There is a healthy, if irrational, human tendency to suppose, “I am an exception — we are an exception — the averages don’t apply to us.” That cannot be true. We cannot all be better than average, except in Lake Wobegon, — but if you are too rational to believe that you are one of the exceptions, it is probably better to keep looking.
Not all decisions are like that. In choosing an occupation, as in most business decisions, “irrational exuberance” that leads us to ignore the “downside” will lead to even worse results than pessimism does. If optimism leads you to commit yourself to a career in professional basketball, it would be smart to “hedge” against the downside of that decision by majoring in accounting and getting good grades. In choosing occupations, unlike marriage, we get to list a second choice.
I think that politics is more like marriage. If you vote for a politician who believes that “government cannot solve any problems,” you know one thing about him: He will not work to get government to solve your problems. The belief that “government is not the solution — government is the problem” is a self-fulfilling prophecy, as I think our history for the last 30 years shows. An illustrative example is the deterioration of the Federal Emergency Management Agency during the years 2001-2005, which set the stage for the Hurricane Katrina disaster. Even if you believe with total conviction that “government is not the solution — government is the problem,” the smart thing to do is to vote for a politician who believes government can be the solution because he will attempt to prevent the government from creating any more problems.
If you base your vote on the assumption that “government is the problem,” then government will be a problem. If you base your vote on the assumption that “government might be the solution,” then the odds are better that government won’t be a problem. You judge: Which is smarter?
Roger McCain is a professor of economics. He can be reached at email@example.com.