Monday, August 25, 2008

The economics of religious decision

Here is my first attempt to develop an economic model for religion and religious decision. Still far from finished, I only tried to construct the foundations.

This is the background. Several times I was asked these questions: "Do you believe in God?" or "Why do you perform rituals? Doesn't it contradict the rationality arguments?"

My typical answer to the first one is, "I believe for a certain probability that God (and afterlife) exists." For the second one, I usually replied, "In case God does exist, I need to hedge my risk by allocating some time for performing rituals."

A follow-up questions will, usually be, "There are different choices of religion. Will all or some of them provide you a good hedging mechanism (or return on investment), or only one of them will? If more than one do, then why don't you shop around different religions? If there is only one 'correct' religion, then how do you know that your choice is the correct one?"

Well, for sure, I never believe in any monopoly, including monopoly of truth. Hence, I believe that there are many pathways for salvation. However, switching cost is high that it will not be optimal for me to switch to, or shop around, different options.

The bottom line is, yes, religious decision is a rational one.


  1. indeed, a very interesting post. I'm not an economist but this definitely piqued my interest.

    Correct me if i'm wrong, but since believing in God is a faith based absolute (eg. either you do or you don't since you can't prove God even exist/not), then wouldn't a partial hedging be pointless? (partially believing God is not the same as really believin' God?)

    I get the part where it's rational to choose to believe or not, but isn't it beside the point to believe in something you can't prove and whose existence relies entirely on you believing it in the first place?

    (not sure if that makes sense at all, hope you get the point).

  2. two questions:

    1. does your final conclusion imply that the absence of belief in god is irrational?

    2. what does it take for belief in god to be irrational?

  3. I think rational human will believe in at least one religion...

    because if they dont believe on religion.. they will lose opportunity to get heaven...

    visit my blog url...
    I have made an article also about that...


  4. @Treespoter:
    The model is not about whether God does exist. It's about whether the individual belief that it exists (q=1), or it doesn't (q=0), and how the behavior adjusts to that.

    A non-binary q allows us to: 1) have a parameter on the individual's willingness to devote some time for religious duties, 2) allow for any doubts that may arise.

    1. No. I only argued that belief in God is not irrational. But you may be rational and not believing in God (means you set q=0).

    2. Actually, I haven't really thought of that.

    3. Tirta, you're my inspiration, ha ha... (if you remember our conversation).

    I won't ex-ante conclude that heaven and hell really exist. At the end, the model is not about that, it's about subjective belief. See my reply to Treespotter.

  5. My point is... the human know the probability... and rational...

    There are probability the religion to be true... (there is heaven and hell, God and etc)
    And there are probability the religion to false

    a rational human have to decide to believe on one religion, to keep the probability to get gain from probability that the heaven exist...

    If the heaven, hell, god, etc is do not exist, the human will not anything, except their opportunity..

    The opportunity value (i think) is smaller than the value of religion reward and punishment (heaven and hell)...

    believing in one religion just a reducing risk strategy in human life..

    ^_^ nice topic...

  6. I get the model - I'm having problems forming my thoughts here, so bear with me. Not exactly very smart these days (or before, for that matter).

    Perhaps the question is really: how is believing something you can't prove a rational decision?

    I mean, if you sub God for Santa (or the toothfairy, or Roro Kidul), for example, how's that a rational decision?

  7. okay... let me add a little. I try again reading your post and the smart formula that you had there (one that i fail to comprehend in full).

    Proposition 1. Individual assigns a subjective probability (q) that God and afterlife exists, 0 < q < 1. I’d argue that putting the individual’s belief in God in a spectrum of probability is more flexible than assigning a discrete choice (either s/he believes or doesn’t).

    One would argue that 'believing in God' requires a binary condition: either you do or you don't, since not believing it would render the whole thing moot. (unless i read your formulas wrong, again, I am not that smart).

    I guess, my problem there is with accepting the assumption that you could believe in God in a degree of probability, since His Existence is provable only if you believe in it. I understand that this is not your main theme, but isn't it a fundamental part of the theory?

  8. Pe,
    It's interesting topic. But i'm concerned with your model-sorry of being so technical and please correct me if I’m wrong.
    Technical questions

    1. Suppose an individual assigns probability q-and I think q, then, is not a variable- how could dt/dq<0? (it should be infinite, since q is a constant). But let suppose that q is a variable, then how can we solve a constrained equation where there are two choice variables in the objective function and three variables in the constraint, (w,r,q)?

    2. Making a bit complicated. Proposition 4 and 7 imply that substitution between religions is possible but why this is not incorporated in the model on proposition 3. Further, proposition 5 seems to imply “corner solution” but, once again, how would this work with proposition 4 and 7?

    3. Then, you may argue that R and r in proposition 4 might change over period. Adding proposition 7, we may argue that switching is very possible (it must be because of the change in r or other factors (social and etc)), but once again how can the subjective expected return (r) change given other factors constant? It seems you are confusing r as a shadow-price (you may say the opportunity cost) which looks exogenous and individual subjective perception (endogenous). Making it clear, at least would help.

    4. Proposition 4, 7 and 8 imply additional choice variables (switching cost, etc), which may (not necessarily) add constraints. You don’t put these on the model yet, but then these become the major propositions contenting your conclusion.

    5. Last, if diminishing marginal utility of consuming earth-related activities will take place, will it in the case of religious activities?


    a. Picking a religion and responding to high switching cost may look rational decision, but can we say that perceiving that the switching cost and the return of the chosen one, which are subjective, would be high (or non zero) is rational as well?

  9. @Fakhrul:
    Ah, yes, I got your point now (was reading your comment too fast). I think you're right, for a standard risk-averse human with a convex indifference curve, s/he would set q>0 so T-t* > 0 (unless s/he expects a zero return on religion, w).

    I think what I tried to argue was that there are different t* because people has different q. Then I realized, I still need some work (or find a condition) for cases where q=0 is optimal.

    Yes, I got it now. There are two points.

    First, how can believing in something we can't prove is rational. An analogy is the so-called 'expected inflation' (or depreciation). For some reasons, I believe that inflation or depreciation would be at a certain rate next year. Based on my belief (or expectation), I adjust my behavior. At time zero, I can't prove that my belief is correct or not -- but I will behave based on that. Same thing here with the 'expected afterlife reward.'

    Second, what the hell is 'partial belief'? Well, in practice, we find people who are more devoted than others. Some people do feel that fate controls almost everything, some people thinks that the natural law dictates almost every incidents. This is what I tried to capture. But thanks for your comments, that made me think and rethink.

  10. first off, AP, thanks a bunch for keeping up with my slow responding brain. I guess i probably read you wrong the first time since you are talking about 'religious decisions' probably more things ppl do based on his religious believe - as opposed to his decisions to hold on to religions. I believe the distinction is critical there?

    the thing is, speculating on the expectations of inflation is okay since there's a degree of certainty that inflation WILL happen. The thing about believing religions or not, is that if you don't believe it, then the whole thing is arguably irrational in the first place? (like the Fairy tale point from my prev comment)

    Once the decision to believe in God is established, of course, the rest is an economical decision like any other ones (except we're working with divine blessings, rather than a nominal currency).

    One wonders why anyone would want to do anything at all for something he fails to prove - and thus relying solely on faith - like believe in Gods, Santa, ghosts, ninjas and other traditions.

    Let me think this thru again, but yes, thank you for bringing this up, and do keep it coming. You guys are fun.

  11. my muse, (who insisted that Economics is a pseudo science and regretted the lack of nobel for psychology) and me just discussed this quickly. I'm assuming you familiar with Pascal's wager (it's argument and counter arguments)?

    Both Dawkins (from one side) as well as most religions of the books, for example, have different rules about believing gods, or indeed, believing the wrong ones. In which case, the whole thing fell apart since believing the wrong one could potentially cost you more than believing the right one less than necessary.

    I don't like Dawkins so I won't use his.

    i'm questioning the assumptions that:

    - it is sufficient to believe in the probability of God exist - where as the act of believing in God most often requires an absolute degree of faith.

    - that if the act of believing god is not necessarily a rational one, how is any further decisions be considered rational?

  12. sorry, for keep coming back here on this again, but yes, like in Pascal's argument - the biggest flaw is in his assumption that it took only account of one religion (Catholicism in his case), where the case for a rational decision is obviously not (you could theoritically choose from a number of different religions)

    ok, i'll shut up now.

  13. good God! never thought before that a religion is a choice... a choice coming up from our spirit? our mind? or, body for some cases ;-)? he he...

  14. @Yudo:

    Many thanks for spotting this! Yes, it doesn't work that way. I attempted to combine intertemporal consumption and labor-leisure, but somehow it didn't work. I will rework the model, but I guess, when the complicated way doesn't work, let's try the simple way.

    You're right, q is not supposed to be in the constraint. I'll put it in the utility function, so it serves as the Cobb-Douglas elasticity parameter: U = (1-q) ln C + q ln R.

    Here, we can have a modification of a standard labor-leisure choice. The solution would still be t, the optimal allocation of time for religious duties, which I'd argue that any t* within [0, 1] is rational.

    The problem is now we can't consider q as the subjective probability for God's existence. Rather, q is more as a parameter for the 'elasticity of subsitution between religious duties and earthly activities.' Will think of another way in incorporating the probability; perhaps in an alternative version based on the intertemporal choice model.

    (2) (3) (4)
    The second part, as I mentioned, is still less elaborated. That's why it hasn't been integrated to the first part. Same thing for the works involving dynamic or sequential choice (e.g. the choice for R in period 1, 2, ...).

    The point for the second part is: becoming a pluralist or religious inclusive person doesn't mean that you'll be switching or blending religions.

    What do you think? I think it's safe to assume so, right? After all, you'd get tired (and less focused) if you have prayed for hours, no? Unless, of course, if you are a person with non-standard preference :-)

    (Non-technical, a)
    That's the same thing as calling 'tastes and preferences are given', right?

  15. @Tirta:
    "what does it take for belief in god to be irrational?"
    First of all, I believe in God but what I can't believe that triggers me to think is why atheist still live and sometimes are very witty people..

    If God does exist and He knows that there are some people don't have trust in Him why He doesn't abolish them from earth..I know it's been said that He's the almighty that deignes to forgive anything, but there is hell, isn't it??

    Can i say that argument as irrationality of believing in God?? Actually, I don't know for sure, not very likely...

  16. Ah Ape,

    Anda harus segera S-3 di Economics MIT, Harvard, or Princeton. Dengan model ini, saya yakin anda kan menjadi peraih Nobel Ekonomi pertama dari Indonesia. Bank Dunia akan berada di bawah genggaman anda untuk terus mengibarkan panji-panji neoliberal Oyee...Ape for the next Nobel Laureate in Economics and posibbly, the next and next President of Indonesia. We must choose economist as the president not pseudo political scientist working for TV presenter and political consultant.


    Atjo Patturusi

  17. @Treespotter:
    Sure, God tells us to believe in him 100%. And if you do, it means you are required to reflect it in your behavior and time allocation. But how much do you 'comply' with that requirement? This is what I am trying to capture.

  18. mandcrut: i would rather think of your position not as irrationally believing in god, but as believing in an irrational god (who lets the atheists get away with their worldly wit, while later damning them to fire in hell).

    i guess my problem with ape's conclusion is this: if there is no way for something to be irrational, then saying that it is rational is anything but meaningful.

    of course, what ape is trying to do here is to sketch the 'hows' of the rationality of belief, which is another story. but i think my objection to his final conclusion needs to be addressed.

  19. Tirta, the irrational God bit got me choking on my breakfast.

    You should come up with that theory. If He is rational, he probably make you make sense.