Tuesday, July 15, 2008

Two Heuristics to Live By When You Don't Know What You're Doing

From EconLog:

When we see people making bad decisions - whether as consumers or voters - we often blame the "complexity" of the issues they face. If Ph.D. economists can't figure out the best mortgage to use, how can we expect the average borrower to do so? If health policy experts can't agree on how to fix the U.S. medical system, what is the typical voter to think?

But if complexity is your only demon, I've got two simple rules of thumb to exorcise him. Here goes:

1. If you don't have clear and convincing evidence that doing something is better than doing nothing, do nothing.

2. If you know that doing nothing is bad, but don't have clear and convincing evidence that one action is better than another, do the simplest, standard thing....MORE