The Streetlight Fallacy

The Streetlight Fallacy is a kind of informal fallacy in which people over-emphasize readily-available information even though it is clearly wrong instead of looking for the right information.  It is a version of the availability heuristic, except that in the streetlight fallacy, one realizes that the available information is wrong and simply gives up on looking for the correct information.  The name of the fallacy comes from a joke that is often told by economists.  Here is a version from David H. Freedman.

Late at night, a police officer finds a drunk man crawling around on his hands and knees under a streetlight. The drunk man tells the officer he’s looking for his wallet. When the officer asks if he’s sure this is where he dropped the wallet, the man replies that he thinks he more likely dropped it across the street. Then why are you looking over here? the befuddled officer asks. Because the light’s better here, explains the drunk man.

One of the places that economics falls into the streetlight fallacy is in welfare economics.  Economists going all the way back to Adam Smith have often promoted maximizing the production of goods and services, as measured in money, as being efficient.  Luke Froeb says that efficiency is “the Holy Grail of economics.”  But this is just the cult of GDP and I call it mmutilitarianism: money-metric utilitarianism.  Instead of maximizing the sum of utility, it is simply maximizing the sum of money-measure production.  As I mentioned in an earlier post, the efficient way to run Social Security is to exterminate people when they get too old to work and eat them.  That would be more efficient than having a bunch of old people around who are planning to never produce any marketable goods and services.  And if slavery induced people to work harder and produce more than paying them wages, as Robert Fogel famously argued, then slavery is more efficient than markets!  (I don’t believe slavery really is efficient, but I could be wrong.)

Of course, any ethical system that could recommend slavery and cannibalizing our elders is a bad ethical system.  So why has mmutilitarianism captured the economics discipline?

Mmutilitarianism is partly a product of the lamppost fallacy.  Utilitarianism was probably the most common ethical system in economics until the ordinal revolution of 1934-1960.  Then the “new welfare economics” tried to base economics on Pareto efficiency, but that was such a vacuous standard that in practice, economists have gone back to a form of utilitarianism which measures utility in money at market valuations.  And we know it is a bad ethical system if we just think about it for a second, but economists use it anyway because it is easy to measure the accumulation of goods and services and it is harder to measure other things that we care about like justice or freedom or utility (happiness).

Medianism is a small improvement over mmutilitarianism.  It is still just another streetlight that illuminates easy-to-measure information, but at least the streetlight is a little closer to the neighborhood where we really want to look for our ethical ideal.