If you’re currently parenting a 5-year old or remember what that was like, you can skip over the next few paragraphs. You’ve lived this story before. For the rest of you, here’s the scene.

It’s 6:30 on a school night. Daniela has finished her dinner. (And, no, the names have not been changed to protect the innocent. There’s nothing innocent about a 5-year old before bedtime.) The next hour and a half is critical. She needs a bath, book, and all the other items on the pre-bed checklist. School starts tomorrow morning at 8:30. If Dani is not in bed by 8 pm, tomorrow morning will be a desperate struggle with a tired cranky kid, likely ending in a late arrival and the dreaded Walk of Shame past the office of the Head of School.

The next few minutes play out in an entirely predictable way. Dani bounces down from her chair, announces she’s ready to play and vanishes into the family room. If she’s strategic, she’ll seize on some diversion—spilled milk, misbehaving cats, something like that—to make her escape before we can get her heading for a bath. I mention the strategic behavior not as some whimsical observation on family life. This is solid evidence that our 5-year old can connect current events, and future events. She’s beginning to reason temporally.

When I finally catch up to her, she will be fully engaged with one of the many toys scattered about the family room. I will tell her it’s time for her bath. She will resist. I will insist.

What happens next depends. Parenting is exhausting. Sometimes I’m too tired to behave like an economist and will just demand compliance. That seldom ends well.

Sometimes, though, I’ll try to pull some tools out of my Econ 101 tool bag. That seldom ends well either, but it gives me a chance to think about what parenting can teach me about economics.

When I’m in economist mode, I will ask her to make a choice involving intertemporal substitution. I’ll say something like “Ok, you can play in here for another 10 minutes but that means less time playing in the tub. Do you want me to set my timer?”

She will always take the deal.

And she will always renege.

When the timer goes off, she’ll beg for another 5 minutes. If I’m still in the mode of an optimistic economist hopeful for a Pareto optimal solution, I’ll agree. But I’ll carefully explain that extra time playing with her magnetic blocks now means less time playing with her bath sharks later. I’m indifferent to that tradeoff. I only want her decontaminated and in bed by 8 pm.

And so it goes. When it’s time to get out of the tub she’ll beg for a few more minutes. I will say no. She will complain. Whining will happen. Tears may be shed.

Later, I’ll wonder why I bothered to give her choices.

Contracts, Choice and Imagination

The answer, of course, is that learning to make choices, especially choices involving intertemporal substitution, is one of the most important skills a kid needs to master. I give her choices because she needs the practice.

“The kind of mutual good will that permitted you and your partner to capture the gains from specialization and enjoy sharing the crossword over Sunday brunch will not work with kids.”

All families began as socialist institutions, but once kids arrive, the happiest families become rigid communist states. The kind of mutual good will that permitted you and your partner to capture the gains from specialization and enjoy sharing the crossword over Sunday brunch will not work with kids. Your kids will love you, but they will not cooperate with you. You will need to create a centralized, command-and-control hierarchy. A benevolent hierarchy, of course, but one in which the grown-ups are clearly at the top. That last bit is important.

But even good communists rely on markets. They negotiate, offer tradeoffs, and come to terms. The contracts formed in a collectivist enterprise may not look like the explicit contracts that develop in a market economy, but they do the same things.

And so one question for an economist to ponder is: Why is it so difficult to form efficient contracts with your kids?

It’s a real puzzler. You and your kid know each other better than any commercial counterparties can know each other. No need to waste time haggling over terms that don’t matter to either of you. (In econ-speak, you both know the core of the bargaining set.) What’s more, you’re plugged into the biggest repeated game ever. This should work to minimize opportunistic behavior. Yet, it is still very hard.

The reasons for this are something I might ponder in some other essay. But I actually think the bedtime dilemma helps us think about an even more interesting economic problem. It also suggests ways I might become a better teacher and, more importantly, help me understand how to better help Dani grow up into a flourishing adult.

Parents worry a lot about certain developmental milestones—when did the baby first smile, when did she speak her first word, when did she begin reading to herself, and so forth. But we largely ignore another important class of milestones: the development of preferences. It’s an easy thing to miss since it happens so naturally. Around two months of age many babies show a preference for their mother. Not long after that kids typically develop a deep affection for one or two toys, usually a stuffed animal or lovey. Once they start eating solid foods, they will have favorites.

Our 5-year-old is the very model of a rational consumer. I mean that literally; she is the rational consumer of our models. If you confront her with bundles of goods that are well understood (no ignorance or uncertainty) and immediately in front of her (no time lag as to when they will be consumed), she can provide a ranking. What’s more, those rankings will be consistent with the axioms you see described in all the best textbooks: the choices are transitive, consistent with non-satiation and so forth. I’m not going to claim that I can write down her utility function, but I could easily determine her marginal rates of substitution.

And that’s a good thing. Despite her complete indifference to calculus, Daniela has mastered constrained optimization. If we take time to learn her preferences—if, figuratively at least, we map out her indifference curves over these sorts of goods—we can predict some of her choices. Even better, we can begin to nudge her into all sorts of behaviors we think appropriate. She’s 5. We control the budget constraint.

But parenting is about more than incentives and constraints. And economics should be too.

Both parents and economists need to understand that all choices require an exercise in imagination. When Daniela chooses to dress Barbie in pink rather than purple, she’s imagining which outfit will be more appropriate for the gala to follow. When you choose to snack on a Snickers instead of a Milky Way, you’re imagining the taste of each treat.

The thing is, though, some choices require more imagination than others. Economists should pay more attention to those differences.

I know in one sense microeconomics does this already by distinguishing different kinds of decision-making environments (certain v. uncertain, static v. dynamic and so forth). But we mostly use the same framework—constrained optimization—to analyze choice. We focus on the optimization process, usually making some not particularly helpful suggestions about how the problem can be modeled and solved. But we mostly ignore the cognitive demands that choices place on the decision maker’s imagination.

I’m still working all this out in my own imagination, but I wonder if paying more attention to the way we imagine things can help economists better understand the kinds of choices people make. I wonder if doing so might help us better support our kids, and perhaps even help us make better choices for ourselves.

Towards a Hierarchy of Choice

And so at the risk of stating what may be obvious to any decent psychologist, let me suggest some categories of decisions that are distinguished by the kinds of imagination required of the decision maker. This may be more a multi-dimensional continuum than a set of discrete buckets, but I think it’s a good way to frame our understanding.

At the most basic level we have the pink gown/purple gown and Snickers/Milky Way kinds of choices. These decisions don’t require much imagination. The goods are ordinary, well understood kinds of things—little girls know the difference between pink and purple. And, since the goods will be consumed very soon after making the choice, it’s easy to imagine the consequences of the decision. These are the hypotheticals we present to undergraduates taking intermediate microeconomics. We stick with the simplest kinds of choices because we don’t care all that much about whether economics majors understand decision making, we want them to understand constrained optimization. Shame on us.

A second tier of choices demands a significantly higher level of imagination. These are the ones where we know our preferences but we have to imagine some important aspects of the experience on offer. Think, for example, about what goes through your mind when you’re dining in an unfamiliar restaurant and the server asks whether you’d like the soup or the salad. You know how to rank certain types of soup and certain types of salad—you can easily imagine your preferences—but you also have to imagine the quality of soup that will be served.

I suspect that many economists who’ve managed to read this far are thinking: All he’s talking about here is decision making under uncertainty. This is part of a huge literature stretching back to the Bernoulli boys in the 17th Century. This talk about ‘imagination’ and 5-year olds is just a distraction.

I hope not. I teach a class called “Decision Making Under Uncertainty” and I worry about whether I’m leaving my students with the idea that the key to making better decisions is getting more information to help you come up with a better stochastic representation of outcomes. If it’s a cold winter’s day and you don’t want lukewarm soup, does better information about the distribution of serving temperatures lead to a better decision? Sure. But that obsession with a better stochastic representation misses what matters more: your imagination of outcomes.

I’m not saying we should ignore the stochastic element of decision making—it’s helpful to be able to calculate the moments of the Bernoulli distribution. I’m just saying we can’t pretend that once we’ve got that we’re all good to go. Decisions over murky outcomes aren’t just an exercise in statistics, they’re an exercise in imagination.

Now once again, I can hear the voices of all those grumpy decision theorists muttering in the background about how this is not at all an original concern. Decision theory, they will assert, isn’t just applied statistics. Good economists don’t just work lottery-like problems with cleverly measured probability distributions spread over known domains. They’ll talk about known unknowns and unknown unknowns. They’ll affectionately cite Frank Knight’s famous distinction between risk and uncertainty. A few of the braver ones may even grudgingly acknowledge Nassim Talib and his aviary of black swans.

Is all this literature just a fancy way of telling people to use their imaginations? I hope so. But I’d like to see some evidence that it’s working. The way the Masters of the Universe in finance evaluated risk during the financial crises should be an embarrassment to every right-thinking business school professor. That wasn’t a failure to properly calculate “value at risk” or some similarly silly thing. That was a failure of imagination.

The third tier of decision problems is, in some sense, a mirror image of the second. Here, the choices are well understood and easy to imagine. The challenge is imagining how you will feel about those outcomes when they occur. I put this on a higher tier of decision making because I think the cognitive demands are much higher.

And I think it explains why it’s hard to get your kid to bed on time. Remember, the deal I offered Daniela involved intertemporal substitution: more time in the family room for less time in the bath. You and I make tradeoffs like that every day. And most of these seem like straight-forward choices. That’s because we can imagine the preferences of our future selves. I know that if I eat pizza for lunch, I won’t want pizza for dinner.

I don’t know much about the cognitive ability of other animals, but I wouldn’t be surprised to learn that this is something only humans can do well. I do know we’re not born with that ability. I know that because I know that my perfectly normal, imaginative 5-year old can’t imagine how she will feel about things in the future. She can imagine the future—remember, I said earlier she can think strategically—but she doesn’t yet seem very good at imagining her future preferences. She knows that dinner will follow lunch, but she doesn’t know that pizza at lunch will make pizza night less satisfying.

There is a fourth tier of the imagination, one that I’m almost reluctant to bring up since I’m not even sure this one belongs as part of a discussion on decision making and preferences. But it’s really interesting and important. So here goes.

Some people believe that we have the capacity not just to imagine what our future preferences will be, but to imagine what our future preferences should be.

The philosopher Agnes Callard uses the word “Aspiration”—she actually wrote a book with that title—to mean “the rational process of values acquisition.” Professor Callard thinks that we’re capable of aspiration. Others disagree.

But what matters is that I want Professor Callard to be correct. I want my daughter to be able to imagine different versions of herself. I want her to imagine how different kinds of values can give her life different kinds of meaning. I want her to want to be kind and generous, not because people tend to be nice to nice people, but because kind and generous people flourish in ways that selfish people don’t—even selfish people who make lots of money by convincing people that they’re nice. I want her to want to value transcendent things—art, music, nature—that she’ll pick.

So What?

I titled this essay “Parenting Tips.” I’m not going to pretend to be an economist version of Dr. Spock, PhD, bringing wisdom from the Kingdom of Experts. I’m not even going to pretend to be an ersatz Emily Oster, bringing hard data to help you figure all this out. I’m just going to end by telling you how thinking about all of this may change the way I do things.

I’ll get to the parenting in a moment, but let’s start first with teaching.

Is it helpful to tell our students that choice is an exercise in imagination? Does it help to encourage them to think about the kinds of imagination demanded by certain sorts of choices? If we can’t find data on imagination, should economists think about it at all?

Is imagination such an elusive concept—something so difficult to measure and quantify—as to make it impossible to study, or should we encourage them to expand their imaginations?

I think we should, and I’ll be looking for ways to do just that. For example, if I’m brave enough, maybe I’ll give the MBA students taking my class in risk and uncertainty a bit less expected utility theory and a bit more fiction. It’s been years since I’ve read Joseph Conrad’s short novel, Typhoon, but maybe that’s a good way to think about risk management. When I was a kid I thought I loved Jack London’s The Sea Wolf because I loved adventure stories. But maybe I loved it because the aggressive Wolf Larsen forced the bookish Humphrey van Weyden to imagine himself as a different sort of person. That could be a good lesson for business students who imagine themselves as leaders.

Now for the parenting tip: Pay more attention to two very important tigers, Daniel and Hobbes.

Daniel Tiger is the character imagined by the late Fred Rogers for his path-breaking show, Mr. Rogers’ Neighborhood. Hobbes is the tiger imagined by Calvin, a 6-year boy imagined by Bill Watterson as the star of his comic strip, Calvin and Hobbes. If you were a fan of the comic strip, you probably remember it as being reliably funny, sophisticated, smart, and thought-provoking, a comic about kids, not for kids. If you remember Mr. Rogers’ Neighborhood, you probably remember it as a sweet—maybe treacly—show for preschoolers; a show that delivered useful lessons in a package far less dreadful than the typical kid’s show.

I’m not sure that Calvin and Daniel could have become best friends (although it’s fun to imagine that playdate), but I’m quite certain that Fred Rogers and Bill Watterson could have found lots to talk about. That’s because they both understood that imagination is central to our humanity. The most important moments in Calvin and Hobbes happen when the grownups disappear, allowing Calvin’s imagination to transform a stuffed toy into an endlessly fascinating (and funny!) creature. The most important moments in a 4-year old’s time spent watching Mr. Rogers’ Neighborhood happen when the trolley goes to the Neighborhood of Make-Believe, validating the child’s own imagination.

For more on these topics, see the Library of Economics and Liberty articles “How Should Econ 101 Be Taught?”, by Donald J. Boudreaux, Jan. 6, 2020; and “Adam Smith, Ayn Rand, and the Power of Stories” by Caroline Breashears, Mar. 2, 2020. See also the EconTalk podcast episode Emily Oster on Cribsheet.

Imagination is not just another perk that comes from being human, some cognitive appendix that helps a few special people compose glorious operas and others write bawdy limericks. Imagination is the essential element in decision making. Without imagination rationality has no meaning. Without imagination we can’t choose the sorts of creatures we aspire to become.

So to finish, let me just repeat. It’s important that economics students work through challenging analytical puzzles and do complex statistical analysis. But as teachers and parents we need to imagine how their lives might become, and we need to cultivate their imaginations. That’s not only important, that’s one of the greatest joys we can experience.

* Michael L. Davis is a senior lecturer in business economics at the O’Neil Center for Global Markets and Freedom at Southern Methodist University’s Cox School of Business, and the Bridwell Institute for Economic Freedom at Southern Methodist University.

For more articles by Michael L. Davis, see the Archive.