Appearance of Irrationality

Someone needs to send this to Megan McArdle:

Imagine we see an enormous rise in the number of traffic accidents in a major city. Cars keep colliding at intersections as drivers all seem to make the same sorts of mistakes at once. Is the most likely explanation that drivers have irrationally stopped paying attention to the road, or would we suspect that something might be wrong with the traffic lights? Even with completely rational drivers, malfunctioning traffic signals will lead to lots of accidents and appear to be massive irrationality.

Read “The House That Uncle Sam Built” by Steven Horowitz and Peter Boettke for a good rundown of what actually caused the housing bubble.

(via austrian economists)

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