What is the nirvana fallacy? What the nirvana fallacy has to do with economics? Is “better” an enemy of the “good”?

β–ͺ Introduction – what is the nirvana fallacy?

How often do we compare the current state of affairs to our vision of an ideal world? What do we do when we only have non-ideal solutions on the table that can solve some problems but do not solve everything? Are the critics of these solutions rightly not satisfied with half-measures, demanding absolutely perfect solutions, or do they commit the so-called nirvana fallacy?

First, let’s discuss what the nirvana fallacy is.

The creation of this concept is most often attributed to the economist Harold Demsetz, who in the introduction to his 1969 article entitled “Information and Efficiency: Another Viewpoint” stated that

“The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing β€œimperfect” institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements. In practice, those who adopt the nirvana viewpoint seek to discover discrepancies between the ideal and the real and if discrepancies are found, they deduce that the real is inefficient”.1

The nirvana fallacy is sometimes referred to as the perfect solution fallacy. It is a mistake of rejecting an imperfect solution precisely because of its imperfection. Every step of the way we run into problems in life, because almost nothing is perfect. Moreover, almost every aspect of reality has many flaws, not just one. It would be best to fix all the problems at once. However, the available solutions do not solve all problems. The nirvana error means that we reject possible solutions because they do not solve all the problems we see. The proposals are compared to the theoretical ideal and, since they are not as attractive as the theoretical ideal, are rejected.

Does this mean that we should completely reject ideals and ideal solutions because they are unattainable? Of course not, but they should be given an appropriate role in our reasoning and solution choice. We should not take ideals as viable options, but only as a benchmark that will allow us to choose the best solution from the set of available ones.

The theoretical ideal shows us what the situation would be if we could meet all the requirements that are needed to achieve the ideal state. But please note that most of these requirements are not met and we are unable to meet them. The only thing we can do is at least partially implement the ideal, striving to meet certain requirements. However, we must consider what is possible to achieve, which conditions for the emergence of the ideal we can meet and compare which implementation is the best.

β–ͺ Nirvana fallacy and economy

The nirvana fallacy is often made by market critics who blame capitalism for all the problems – whether it’s housing rental prices, emissions, or store prices.
We can say that wherever we look, we can see serious problems. Following the examples given – many people may be forced to rent small apartments, heating an apartment produces pollution, and food prices force some to give up small pleasures. Nobody is happy about this situation and we should do everything we can to change the situation. However, we must do it wisely.

It can be argued that in an ideal world everyone should have a large apartment, food should be cheap and heating should be emission-free, so we should decree it. However, such wishful thinking does not help us in any way, and an attempt to ensure the appropriate size of the apartment per head, clean air and low prices by means of decrees will fail. Why?

Since we are actually suffering from scarcity, it takes time to produce more or better quality goods. Historically, rental price controls have resulted in the deterioration of buildings as caring for these buildings has become unprofitable for the owners. Trying to provide everyone with the right size of the apartment will make the current space insufficient for everyone. Price control will lead to a shortage of goods in stores. On the other hand, bans on the use of certain types of heating systems will mean that some residents will not be able to afford heating – this situation is sometimes referred to as energy poverty.

Only the increase in the availability of building materials, workers, the improvement of food production and the development of technology will solve these problems. However, this takes time and investment. We cannot jump over certain physical boundaries. We can only decide which problem we want to solve faster and which solution is less urgent. For example, we can tackle pollution faster than we currently do by redeploying more resources and the capacity to deal with it. However, then we will solve other problems, such as the availability of food or housing, more slowly.

Meanwhile, people try to meet their needs and solve their own and other people’s problems through the market. When struggling with these problems, they use available solutions, i.e. imperfect ones, and do not solve all problems at once, but gradually solve new problems that arise. With the progress that has been made over the years, apparently the market is doing quite well.

The nirvana fallacy is that when we want to achieve the ideal state, we reject a mechanism that we know does not fulfill its role perfectly, but quite well. Meanwhile, trying to implement the ideal as soon as possible, we use solutions that have failed and will certainly fail.

Did you know the term \"nirvana fallacy\" before watching the movie?

β–ͺ Treatment or prevention? Hans Rosling and the nirvana fallacy in Mozambique

In his hit book Factfulness, Hans Rosling also drew attention to the fact that an attempt to implement an ideal may stand in the way of introducing the solutions that will be the best at a given moment. More specifically, he talked about what to direct medical resources to in the poorest countries first in order to achieve the best result. In the chapter on the instinct to exaggerate, Rosling described a conversation he had with a friend when he was working as a doctor in Mozambique. The mother came to the hospital where Rosling was working with a child dehydrated from diarrhea. Rosling put the baby food tube on and told him to give the baby fluids through it. Rosling’s friend was furious with him for not giving the baby an IV drip. According to Rosling’s friend, this is exactly what Rosling should do, because they, as doctors, have a duty to do whatever it takes to help the patients in the hospital. And what did the author of the book answer?

He replied that they didn’t have to do everything for the hospital patients at all. It takes more time to put the drip in, and the nurses might not make sure the procedure goes as it should afterwards. The time he would spent putting on and keeping an eye on the drip, would be better used outside the hospital. Rosling felt it was better to allocate more resources to prevention. Thanks to that, he was able to save more children.

The resources available at that time were very limited and it was necessary to decide on a specific way of using them. Ideally, everyone could get the treatment they need. But the ideal was unattainable, and a choice had to be made. Therefore, it was decided to devote more resources to prevention rather than use in hospitals.

Unfortunately, the chosen solution was related to the fact that now fewer resources could be devoted to serious hospital cases, so some of them ended in death. Although it seems inhuman – and perhaps in a way it is – many more children in Mozambique have been rescued by opting for it.

Rosling’s situation can be summed up by the words of a nun working as a nurse in Congo and Tanzania, Ingegerd Rooth, cited by the author of Factfulness, who said that: β€œIn the deepest poverty you should never do anything perfectly. If you do you are stealing resources from where they can be better used.”2 These words, as well as Rosling’s case, clearly show what the nirvana fallacy is – there are no perfect solutions, and each of them has some undesirable consequences.