Why do seemingly “normal” or “rational” people break the law and become criminals? Is there an explanation for why people commit seemingly stupid crimes?

“An armed Omaha teen carjacker out on bond is back behind bars because he stole a woman’s car early Thursday but was stumped by the stick shift. Mganga Mganga, 17, ran up to Melissa Peters as the woman prepared to drive her 13-year-old son to school around 7 a.m.

“He didn’t say anything,” the 48-year-old mom told the Omaha World-Herald.

“‘Oh, my God, he’s got a gun!’” she blurted out as the teen jumped in her white Dodge Caliber hatchback. Mganga tried to start the car but struggled as he started the windshield wipers and flicked the lights as he tried to work the manual transmission.

Witnesses said the teen tried for about seven minutes — to no avail.”

Here’s the actual news link

Or, how about the guy who goes to Wal-Mart with a fake $1 million bill, buys a microwave and some other stuff spending around $476 and expects his change?

These people are surely, irrational, right?

If you think the benefits outweigh the costs, you’ll do the crime too. Don’t kid yourself.

The economist Gary Becker says these guys are very much rational. Just because they miscalculated how things would turn out, they were acting in a way that is rational and “utility-maximizing.” You’ve heard economists use the term before — utility maximization. It means that when making a decision, a person will act in a way that will get them the most value, well, perceived value. Obviously, people make mistakes, as per the above episode. If only that car was an automatic!

“Just because you’re dumb, doesn’t mean you’re not rational. Here’s the math.” — (not) Gary Becker, but he probably said it at one point.

Becker won the Nobel Prize in 1992 “for having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including nonmarket behavior.” As mentioned in previous posts, whenever someone finds out that I get all riled up with economics, they immediately think I’m some expert with money. Though money is an important tool in the study of economics, it isn’t what economics is about. It’s about making decisions — smart, stupid, and all the decisions between.

Being rational doesn’t mean that you are making the best decision, but that you believe you’re making the best decision, given your imperfections. For the most part, our decisions usually work out alright. I mean, I’ve broken the law. I’m sure you have at some point. C’mon, you’re telling me that you’ve never crossed the street outside of the designated crosswalks or looked around and put that pedal to the metal just to see what your car’s packing under the hood?

We do these crimes, not because we’re stupid or irrational, but because we’ve made a calculation that results in the benefits (zooming down the road) outweighing the costs (probability of getting caught and/or punished). For Becker, the idea came when he went to illegally park on the side of the road. He simply thought about the odds of getting a ticket and how much it would cost versus the benefit of saving time by parking closer to the building. From this little incident, he wrote a series of Essays in the Economics of Crime and Punishment.

Human Capital, #triggered.

He didn’t just explore the economics of crime; he dove into many areas that were extremely taboo at the time. The economics of discrimination, drugs, addiction, altruism and egoism, and human capital. Today, some of these areas are commonly viewed through the lens of economics, but only a few decades ago, this practice was against the grain.

Human capital — the intangible abilities and qualities that make people productive, like level of education, health, and virtues such as punctuality and honesty — is commonplace in conversation today. Becker had to break through a moral barrier to make this happen, though. Why are some people rich and others poor? Further, why are some countries rich and others poor? Why do people get married and subsequently become divorced? Why do rich families have less kids? We got much closer to the answer when Becker brought human capital to light. When countries invest in education, they get more productive citizens. When parents dedicate time (which is costly) to the development of their kids, their kids end up becoming more successful.

Before Becker, this area was, of course, considered, but not formally examined by including it into economic models of measuring how the world works. Despite how incredibly novel Becker’s framework of using levels of human capital to explain differences between people was, it was not regarded with the endearing perspective we have today. As recent as 2004, a panel of German linguists deemed humankapital the most offensive word of the year.

Time: the thorn in the side of economists

The general theme behind these unmentionable fields within economics is the concept of time. Yeah, Becker brought this to light as well.

One of the fundamental problems within economics, then and now, is time. Because time is costly, there is a price on time. Further, time doesn’t always cost the same. Weekend “time” is cheaper than weekday “time” because our time can be more productive during the week when most businesses are open and running. When it comes to education or investments in human capital, we often forget the importance of time and just take the price tag of our tuition as our full cost. But, really, four years of your life is an enormous expense!

Cool picture stolen from Maximizer.com

Time is the thorn in the side of any kind of prediction because is constantly screwing with our mental and physical calculations. Many of us have used this explanation — “Well, at the time, I thought it was a good idea!” — for seemingly stupid ideas.

In any case, this is what economics is all about: looking at life through the lens of economics. In fact, one of Becker’s books, a collection of essays, is titled The Economics of Life. By taking an economic approach, Becker was able to bring important insights into all aspects of life that were previously left out of the conversation. Because of Becker, our eyes have been opened to how the world works and offers some explanation to why people make certain decisions — even the dumb ones.

Oh, and for the record, Mganga Mganga’s gun was fake.

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