Saturday, 2 February 2013

Freedomain Radio and Confirmation Bias: A recent ban and thread deletion

My friend Anna was banned from the Freedomain Radio forum yesterday, at the same time as the last thread she had posted on was tacitly deleted. I write about this here for the benefit of the FDR-curious or FDR-conflicted people who still occasionally make their way to my blog, which has never been very lively since its early days when I mainly wrote about my disagreements with Stefan Molyneux.

The deleted thread is/was called Why do so many libertarians/anarcho-capitalists/voluntaryists hate Stef/FDR?, and its full text can be retrieved here.
Forum member MarisaO then opened a new thread in which she politely asked why it had been deleted, stating that she "would love to know what is and isn't allowed to mention on this site", and this thread was immediately deleted in turn (for what it's worth it can now be retrieved here). Anna tells me that Stefan Molyneux was the only moderator who was logged on at that time and must therefore have been the one to delete Marisa's thread, but we do not have any lasting evidence of this. At any rate, Stefan must be well aware of the many deletions and occasional alterations of other people's posts that happen on his forum, and in some cases (like this one), I find it hard to imagine exactly how he might justify these deletions to himself.

I think the people who expressed criticisms of Freedomain Radio on that thread were remarkably polite and charitable, but many of Stef's followers will certainly disagree with me on this, so if you're interested you can see for yourself in the full text linked to above. Here are some highlights:

If you'd like to learn more about where some of the bitterness comes from, I would suggest reading some ex-members' stories about their negative experiences at FDR. (...) I have the impression that only the positive stories see the light of day around here. Not so long ago a thread about more negative experiences was deleted. To be honest, I expect this thread might be deleted as well. 
... I wish I could just post the links here, but I don't know if I would be reprimanded for that. ...
(Note that people were banned for linking to my blog, and the links were tacitly deleted from their posts. The bans were subsequently lifted, but the alteration of their posts was never undone or acknowledged despite insistent questioning by other forum members. My friend Ondrej was later permanently banned for linking to from his profile page. When the forum at was still active, Stefan's policy used to be that anyone who had posted there would automatically be banned from the Freedomain Radio forum. Anna was not being overly dramatic here.)

Heiko Cochius:
I have been thinking about my ambivalence towards FDR for a long time. Three years ago I wrote about my personal Stef cult (...)
Three years later I am still transferring - like Stef suggested correctly - the idealization from him to reason and evidence.
I have had a - what I call - fanatic phase with people. I did not want to meet with colleagues, I cut contact with my father, I really tested my friendships, my marriage, my FDR acquaintaces. (...)
Over time, I changed my attitude, I relaxed the strictness of my borders, went on a field day with the office staff, met with my father again, socialized some more with Statists etc. I need less purity. But I am much more aware of the dangers of letting confused people be important in my life. I try to find a balance (...) Of course, relying too much on one source can be dangerous and cult-like, and FDR lends itself to that somewhat. Stef is very confident in himself, and that is one cue that might attract one to lean on him for orientation. It was for me. 
I find it troubling that so many people posting here read nearly all critics as "haters". You accuse the critics of blindly dismissing Stef, but it seems to me most of the people on this thread are very quick to dismiss his critics. (...)  
I'm also very troubled by people here saying that disgruntled FDR members somehow wanted to be in a cult. I'm frankly shocked to find this sort of victim blaming within the FDR community. Of course, everyone who joins any cult holds some responsiblity for their choices, but there must be some responsiblity put on the cult community and leader. I'm not trying to argue whether or not FDR is a cult, because it's a terribly inflammatory topic, but I think it's really unfair that people here are so quick to assume those that claim they had a cult-like experience here are just wrong, stupid, or crazy. Here at FDR, we see cults all around us in churches, families and many other institutions. However, I never see this kind of exclusive victim blaming and excusing the leader or community in those cases. I would expect more curiosity, but I understand that it's your own group that's being called a cult and that's very uncomfortable.
(...) I actually had to seriously debate whether or not to post this opinion for fear of being banned or causing the whole thread to be deleted. I really hope that's not the case and a discussion can come from this so that we can better understand each other.
One thing that is clear (or at least with what I've observed so far) is that the positive reports get quite some attention here, as when Stef publishes or reads outloud mails of thanks, praise and positive experiences as result of FDR. Those topics also don't get deleted, and rather get enthousiastic, affirming reactions. But I don't see mails of negative experiences being read, and topics talking of negative experiences have been deleted. Also I don't recall any of the people who testified of their bad experiences, to have received curiosity and concern from Stef or the community, in order to figure out what went wrong and to see if anything can be improved at FDR. (correct and refer me if I'm wrong)

Stef talks about surveying customers of your business, and likewise checking in your relationship whether your friend/partner is still happy. A criticism against Ron Paul was also that he didn't track outcomes, set a goal, so that his campaigns can be measured against that goal and seen as a success or failure. 
But I don't see this kind of measuring of customer satisfaction or results against a predefined goal here either. It's against empiricism to pay attention to and see as valid positive outcomes, and to ignore, deny or dismiss negative ones. Just imagine if scientists did that with their research! (which they sometimes do, and that's obviously fraudulent) One step would be to take stock of the whole range of outcomes, preferably with something more systematical than just waiting for self-reports to pop up on the internet. The second would be to research what leads to good and bad outcomes, so that improvements can be made.
There have been several threads where I've been arguing that people on this site seem biased toward the nurture argument on the causes of violence and aggression as opposed to the nature side of the argument. Even though no credible experts that I know of claim that we have this anywhere close to solved, it seems like many treat it as a foregone conclusion that nurture, rather than nature, is the cause and most of FDR's philosophy is based on this assumption. 
In response to my pointing this out, people repeatedly throw at me studies showing support for the nurture side. I repeatedly respond that I'm not claiming there aren't studies supporting that side. My complaint is that those studies are shared here selectively, while those focused on the nature side of things are ignored. I've even suggested a book and an author that might be interviewed for more information on that side of things, but few really seem to take an interest. 
That bias in selectivity - eagerly promoting data supporting the desired viewpoint while mostly ignoring data from other perspectives - is what is coming up in your response too. 
Nathan T. Freeman:
Of course there is highlighting of positive feedback. FDR is donation-based; highlighting success stories is fiscal good sense. (...) expecting someone to advertise their mistakes is demanding that they self-attack.
A recent deleted thread was 'I noticed I was a lot happier...' (try googling it) of a woman that told about her feeling worse after involvement in FDR. I'm glad that the thread wasn't deleted at the time (some years ago), but recently it was revived. As far as I know it was civil, and consisted among others of Maja R. asking Stef how much responsibility he felt for negative FDR outcomes. He never replied to that question. Another user, Parker85 shared his thoughts about what might make FDR look cultish, and also mentioned the suicide, explicitly stating that he wasn't saying that FDR is responsible for it. Both were banned. I've got the recent part of the thread saved. If anyone wants to see it, mail me. 
I must say I'm positively surprised that this thread is still alive and that me and perhaps others aren't banned yet. Hope we can keep it that way.
The way Stef uses language can induce fear as well, I think. Talk about your soul dying or losing the chance to be a virtuous person and to be happy, if you stay around the wrong people for example. I've also felt alarmed about the state and economy, though that's something that more libertarian authors warn about. Thinking of yourself as a slave and continually under threat of violence, even though in a sense that's true, can in my experience really fire up your fight and flight reaction. Makes it easier to see statists as a horrible enemy and people who're really dangerous to you. Even if you're talking to someone meek and not even really interested in politics (at least, that's how I used to look at pretty much all non-anarchists).

Monday, 12 November 2012

Against Democracy: My quick intro to rational ignorance and rational irrationality

A few days ago I wrote up a quick intro to two important ideas from public choice theory for the benefit of a group of Facebook friends involved in such projects as and Public choice theory is relevant to such projects insofar as they are intended to eventually affect public policy, or to provide effective methods of rational truth-finding and decision-making.

I repost that same text here, sans some of the major typos:


1. This stuff pertains to public choice theory, which is defined by Wikipedia as: "the use of modern economic tools to study problems that traditionally are in the province of political science. From the perspective of political science, it is the subset of positive political theory that models voters, politicians, and bureaucrats as mainly self-interested."

2. An important point for much of the theory of public choice in democracies is the fact that the probability that any individual's vote will affect the outcome of the election is generally negligible. For example, in U.S. presidential elections, the probability that your vote will affect the election's outcome is comparable to that of winning the lottery seventy seven times in a row. This is because your vote only makes a difference if all the other votes happen to be exactly tied, so that your vote turns out to be the deciding vote - or perhaps if your vote happens to be the one leading to an exact tie!

3. RATIONAL IGNORANCE: According to Wikipedia, "The term was coined by Anthony Downs, An Economic Theory of Democracy". Wiki sez: "Rational ignorance occurs when the cost of educating oneself on an issue exceeds the potential benefit that the knowledge would provide." Applied to democracy, voters are to be expected to be rationally ignorant about the issues they vote on. This is because, since their vote almost certainly won't change policy, they have nothing to gain from making an informed vote rather than an uninformed one. On the other hand, the cost of informing themselves is considerable. Some people enjoy informing themselves about such issues, but they are a small minority.

4. Empirically, voters really are very ignorant about politics and economics. They are least ignorant about the aspects of politics that are the most entertaining.

5. Donald Wittman, in The Myth of Democratic Failure, has defended democracy against many of the usual criticisms from public choice theorists. One argument he makes in the book is that, because of the miracle of aggregation, rational ignorance is not actually a problem: provided that people are merely ignorant and not systematically biased, their mistakes should cancel out. Also, if you assume that 5% of the electorate is well-informed on the relevant issues, you could argue that those 5% effectively decide the outcome of the election, whereas the votes of the other 95%, which are randomly distributed, cancel each other out.

6. Bryan Caplan, who credits Donald Wittman with "waking [him] from [his] dogmatic slumbers in political economy" (echoing Kant re: Hume), has compiled empirical evidence that voters are, in fact, systematically biased, thus concluding that Wittman's argument is valid but not sound. In his book The Myth of the Rational Voter, Caplan identifies four main widespread biases about economics: "Make-work bias", "Anti-foreign bias", "Pessimistic bias", "Anti-market bias".

7. The term RATIONAL IRRATIONALITY, coined by Bryan Caplan, sounds all kinds of oxymoronic, but the two occurrences of "rational" in the phrase refer to two different kinds of rationality:

a. Epistemic rationality: "forming beliefs in truth-conducive ways"

b. Instrumental rationality: "choosing effective means to attain one's goals, given one's beliefs"

8. So while the idea of rational ignorance is that it is *instrumentally* rational to be ignorant, the idea of rational irrationality is that it is *instrumentally* rational to be *epistemically* irrational.

9. The costs of overcoming ignorance are generally high because studying the relevant issues takes time and effort. The costs of overcoming epistemic irrationality are generally high whenever people simply *enjoy* being epistemically irrational. Bryan Caplan argues that people have "preferences over beliefs": there are beliefs that people just like to hold whether they are true or not, and giving them up would be emotionally costly to them - often extremely costly. So if the expected rewards from giving them up aren't high enough, they won't.

Saturday, 3 November 2012

Freedomain Radio in the news again: Molyneux's wife reprimanded by the College of Psychologists of Ontario

This blog still regularly gets visits from people who have questions about Freedomain Radio, so I'm going to "cover" the news about the College of Psychologists of Ontario's reprimanding Stefan Molyneux's wife, Christina, a practicing psychotherapist, for publicly giving the same kind of self-help advice that Stef gives on his podcast. You will not hear about this on the premises of Freedomain Radio, at least not on any of the forums and podcasts that are available to non-donators, as forum posts that make any mention of this are immediately deleted (more on this later).
On the face of it, this piece of news sheds a bad light on Freedomain Radio, but whether unfavourable conclusions about Stef's output should really be drawn from it is actually debatable, and I do not want to just use this as a weapon to discredit FDR as much as possible. I'm writing about this because I hope it will be useful to some people in assessing Stefan's legitimate authority on questions of how the human mind works (with all their practical implications).

The news:

Stef's wife, Christina, is a psychotherapist. That profession is subject to licensing in Canada, and thus Christina is a member of the College of Psychologists of Ontario (CPO) and needs to comply with their rules in order to be allowed to work as a therapist. Four days ago, she has pleaded guilty to charges of professional misconduct, and the CPO have now imposed some sanctions upon her, including a six month suspension of her license and the requirement that she undergo additional mentoring and training for the period of one year, at her expense.

Christina used to actively participate in Stef's Freedomain Radio podcast. She admitted to being somewhat uncomfortable with this kind of public exposure, but her participation was actively solicited by listeners who were interested in getting advice from a psychotherapist, especially one whose world view was in line with Stef's. Thus Christina was featured, most prominently, in a series of podcasts called "Ask a Therapist", in which Stef and Christina read emails from listeners and gave their opinions and advice.

In 2009, a complaint against Christina was filed with the CPO. Presumably, the complaint was that Christina had encouraged specific listeners of the podcast to cut ties with their families (to "deFOO", in FDR lingo, where FOO stands for family of origin) while relying on her status as a licensed therapist - or at least that was part of the complaint. A similar complaint was filed in 2011. And the hearing finally took place on 30 October 2012, from what I gather.

Ever since the first complaint was filed, all the podcasts in which Christina had participated have been pulled from the website, and any mention of their disappearance on the FDR forum has been suppressed (i.e. the posts were quickly deleted). Among the podcasts that were pulled was one - the most recent one, I imagine - in which the couple talked about Christina's concerns that she would face repercussions from the CPO for the advice she had given on the podcast and, more generally, for the role she had played in shaping some of Stef's core positions, such as the idea that the reason why most people are not anarcho-capitalists is because they were abused by their parents. No explanation has since been provided to listeners who wanted to know why that material was no longer available.

A succinct, matter of fact article about this has been published in The Globe and Mail. The CPO's website provides further details about the case and about the CPO's reasons for the penalty, and states that "The panel's written reasons are pending".

The CPO's statement on the Public Register makes it clear that the allegations against Christina are not limited to her encouraging listeners to deFOO:
The Member made general statements and provided advice, both in general terms and directed towards particular individuals, that are not supported by current professional literature or consistent with the Standards. One example is the following statement, made in the context of answering a question regarding whether some people are better off single than coupled. The Member replied: (...)
"Given how dysfunctional many people are in today’s society, I’d say that it is better for them to be single. In fact I do counsel a lot of my clients not to date while they're going through the process of therapy, because it is far too difficult to manage a relationship while you're trying to figure yourself out, and often times those relationships will end up failing.”
Another example is the following statement, made in response to a question about why someone was attracted to women who were not interested in a romantic relationship: 
“I would say that it’s because he questions himself that he ends up choosing women who are not interested in him, or – not necessarily interested in him, who are not emotionally available or whom move him directly into a guy friend status. There’s part of you, my dear friend, that doesn't think you are worthy of having that level of intimacy, or that level of connectedness with someone. There’s a part of you, I think, that’s also quite afraid of it so you’re drawn to people who aren't going to be able to give it to you.” 
It also makes it clear that the CPO does not categorically oppose therapists' recommending to people that they deFOO:
While it may be appropriate to recommend family separation in cases of abuse, the Member did not obtain a sufficient history to ascertain whether the advice was warranted in the circumstances discussed in the podcasts. Although the Member advised that listeners seek professional help in their home communities on a number of occasions, she acknowledges that this advice was given in the absence of any meeting or proper assessment, and there was significant risk of misunderstanding by members of the public and the individuals to whom the Member directed advice and comments and such misunderstandings posed a risk of harm.
 A friend of mine has posted a link to this CPO webpage on the FDR forum, and the post was promptly deleted. I imagine they must have been deleting quite a few such posts since this news came out. As I have already mentioned, though, this systematic deleting of any statement or question that would bring up the formal complaints against Christina has been going on for years, so this is not a new thing.

So much for the mere facts of the matter. I will give some of my thoughts in the next blog post, as this one's getting quite long. Feel free to contact me :)


Monday, 15 October 2012

Are you smarter than politics?

Here's a quick economic quiz composed of items that economist Daniel B. Klein and psychologist Željka Buturović have used in studies published in 2010 and 2011, respectively (of which more later). I'd like you to write down for each of the following economic statements whether you think it is true or false, or whether you don't know (as in "1. T, 2 F, 3. F, 4. DK... or something like that).
  1. Third World workers working for American companies overseas are being exploited.
  2. When two people complete a voluntary transaction, they both necessarily come away better off.
  3. Making abortion illegal would increase the number of black-market abortions.
  4. Restrictions on housing development make housing less affordable.
  5. Gun-control laws fail to reduce people’s access to guns.
  6. Mandatory licensing of professional services increases the prices of those services.
  7. By participating in the marketplace in the United States, immigrants reduce the economic well-being of American citizens.
  8. Minimum-wage laws raise unemployment.
  9. When two people complete a voluntary transaction, it is necessarily the case that everyone else is unaffected by their transaction.
  10. Drug prohibition fails to reduce people’s access to drugs.
  11. Legalizing drugs would give more wealth and power to street gangs and organized crime.
  12. Free trade leads to unemployment.
  13. A company with the largest market share is a monopoly.
  14. When a country goes to war, its citizens experience an improvement in economic well-being.
  15. Rent control leads to housing shortages.
  16. Overall, the standard of living is higher today than it was 30 years ago.
  17. A dollar means more to a poor person than it does to a rich person.
Now, while you are free to find this as outrageous as you will, Klein and Buturović claim to know the correct answers to these questions, and they may well differ from yours. Indeed, contra the cliché that no two economists ever agree on anything, I believe there are a great many questions on which economists overwhelmingly agree among each other while also disagreeing on them with most non-economists (defending this point could be the matter of another blog post); furthermore, I believe that all the above statements are pretty uncontroversial among economists.
But regardless of what's true about the extent to which economists agree on these questions, and regardless of which of the above statements really are true or false, let me now reveal to you which of the above statements Klein and Buturović think are true or false. My task for you is to take note (in writing) of which items, according to the study authors, you got wrong (ignoring the items you answered with "don't know").
The statements which the authors deem true are: 3, 4, 6, 8, 15, 16, 17. All the other statements are deemed wrong.

Now let's consider three sets of items you may have gotten wrong (according to K&B).
Maybe the items you got wrong happen to be 1, 4, 6, 8, 12, 13, 15, 16
or maybe 2, 3, 5, 7, 9, 11, 12, 14, 17
or perhaps 2, 5, 9, 10, 17.

Does one of those three sets of items stand out as the most similar to the set of items you got wrong? Do let me know in the comments!
We could even make a magazine-style personality test out of this: Identify the one of the three above sets of items that  is most similar to the set of items you got wrong (for example, taking each of the three sets in turn, you could count +1 for all items in the set that you also got wrong and -1 for all items in the set that you didn't get wrong, and then see for which set you obtain the highest count); then calculate your score based on the proportion of items in that set which you also got wrong. Well, before some magazine buys this epic idea, I will concede that it could use some tweaking :P

But anyway, as you may already have gathered, here is what I would surmise your answers predict about you:
  • If your set of wrong answers is most similar to the first of the three sets above, chances are you are a liberal.
  • If it's most similar to the second set, you are likely a conservative.
  • If it's most similar to the third set, then I predict that you're a libertarian.
Neat! So your political ideology predicts ways in which you are factually wrong. (At least K&B's data and economic judgement would suggest this). Another researcher who has more on how moral ideology appears to determine descriptive beliefs (more strongly than evidence and rational arguments in most cases) is Peter Ditto. (He recently did an interview on Point of Inquiry, available here). As for Daniel Klein and Željka Buturović's studies, you may now finally read the whole story behind them here. Class dismissed. ^_^

Friday, 14 September 2012

Tax education

Wednesday's post was an introduction to the idea of signalling, especially "costly signalling". Here comes an application. The following draws on an idea put forward by economist Michael Spence, which is also the stuff of Bryan Caplan's upcoming book The Case Against Education.

Consider two possible ways in which university education may benefit those who get it:
  • Human capital: University education confers marketable skills to students, which they can then use to achieve higher income.
  • Signalling: By completing university education, you signal to potential employers that you have certain desirable qualities.
The distinction might not be entirely clear at first, but as we unpack this a bit we will see that those two accounts of why people get university education have some very different implications.
Obviously, your university diploma may signal to employers that you have the desirable quality of having acquired marketable skills through education, but that's not what is meant by the signalling account. Rather, the idea is that going through the whole process of university education is a way of signalling qualities to others that you had all along.

Intelligence is probably the most obvious one. The fact that you've completed a course proves that you were smart enough to do so. Consider, however, that there are much cheaper and quicker (and actually more reliable) ways of assessing a person's intelligence. Then again, prevailing moral sentiments around intelligence testing have lead to legal restrictions on its use by employers.

Conscientiousness is a clearer case. Pen and paper intelligence tests for recruitment purposes make sense because it is impossible to fake a great score, however it is extremely easy to lie on a personality test. On the other hand, the less conscientious you are, the more costly it is for you to make it through a university course (all else being equal). The cost here is in terms of effort and perseverance. Thus people with a university degree are likely to be more conscientious than people without one.

A third quality that Bryan Caplan argues education serves to signal is conformism. Is that a quality you want? Well, I think you can easily see why it would be desirable to most employers. Employees should be able to get along with others and play by the rules without questioning them all the time. So, for signalling purposes, the fact that university education tends to be highly ritualised and ridiculously inefficient in its imparting of knowledge and skills might actually serve a function, namely that of filtering out those too unwilling to put up with it.

An essential point here is that, in order for education to serve its signalling function, it doesn't need to have any intrinsic value. An employer might hire a highly educated person not because he values their education, but because of their qualities that their education indicates they had all along.

The different implications of the two accounts can be expressed in terms of externalities: If the function of education is mainly to build human capital, then it can be argued (not that I would) that education has positive externalities, i.e. benefits incurred by people other than those who pay for it. To the extent that its function is for people to engage in competitive costly signaling, however, education actually has negative externalities, i.e. costs incurred by people other than those buying the education. As people acquire more and more education to signal to employers that they're better than the competition, more and more education becomes necessary to confer the same signal. And if education is wasteful, this translates to more and more waste.

Externalities lead to market inefficiencies. In the case of a positive externality, the fact that you can benefit from something without being the one to pay for it disincentivises people from paying as much for it as they would if the benefits were exclusive to the buyer; hence less of it is bought; hence less of it is supplied. Conversely, the quantity of goods and services with negative externalities that is bought will tend to be higher than would be efficient.

So then the government steps in... The standard answer to externalities problems in Western mixed economies is for the government to subsidise positive externalities and to tax negative externalities. Since people collectively buy less of a positive externality than they collectively want, the government can threaten violence against people to force them to buy more of it; and since people buy too much of a negative externality, the government can increase its price from the consumers' perspective by forcing them to fork over that extra amount.

There's bound to be problems with this approach. One problem is that the government doesn't have any good way of determining what quantity of a good with externalities it would be efficient to aim for, in other words what the size of the subsidies or taxes should be.

Education may well be an extreme example of this, where government's level of adjustment is not merely off, but headed in entirely the wrong direction. If education is mainly about costly signalling, then we already have a runaway process of increasing wastefulness on hand, and governments' subsidies serve only to exacerbate it. While subsidies for education make economic sense if education's externalities are positive (and I don't think this would even follow if the human capital account was really all there is to it), if education is mainly about costly signalling, then it would make a lot more sense for government to tax it.

Wednesday, 12 September 2012

An intro to signalling

(Consciousness shall wait. I will be shuffling topics and kinds of posts around for a while and we shall see what sticks. Also, I've promised Joss a post on the idea of signalling earlier today :) )

Suppose these 3 assumptions hold true:
  • People vary in the extent to which they possess some desirable quality (intelligence, wealth, perseverance...).
  • It is difficult to directly observe to what extent people have said quality.
  • The extent to which you have said quality strongly affects how much it costs you to engage in some observable activity - the more of that quality you have, the less the activity costs you. (Not necessarily in monetary terms).
Example: Wealth. Suppose you are very wealthy, and it benefits you if other people know this about you (you may assume all the stereotypes about how women dig rich men, for example). You could tell people how rich you are, but how do they know you're not lying? If wealth is a desirable quality, then people have an incentive to overstate their wealth.
However, one thing that less wealthy people can't easily fake is how much they can afford to spend - especially on patently useless stuff. So you can wear expensive suits, sport expensive watches, buy people expensive drinks, collect expensive art... While everybody has an incentive to "signal" to others that they're wealthy in any available way, the less wealthy you really are, the more disincentive you have to publicly burn through a lot of your own money - which is precisely what makes this such a credible way of signalling how wealthy you are.

The practice of spending money on useless stuff (aka luxury goods) to display economic power is called conspicuous consumption.

Signalling is a very useful concept to be familiar with, as it can be used to explain many puzzling behaviours. Do people get tattoos simply because they think they look good? Other kinds of body art have the advantage of being reversible and of not being so painful to acquire, but maybe the irreversibility and the pain are part of the point!

Evolutionary biology and economics cross-polinate a great deal (Charles Darwin was very explicit about the role that Adam Smith's work had played in his developing the theory of evolution), and a line of theoretical investigation in evolutionary biology that emerged in the 70ies is now known as signalling theory.
The prototypical example of signalling is the peacock's tail. The size and extravagance of male peacocks' tails is puzzling, as it doesn't serve any apparent function - in fact, their tails make them more vulnerable to predators and are therefore a handicap! But biologist Amotz Zahavi proposed that such handicaps could work just like conspicuous consumption (another good phrase to remember: the handicap principle). The signal conveyed by such a handicapping trait would then be "I'm tough enough to survive in spite of this".
Such handicapping traits could then become more prevalent and more extreme over the generations through the mecanism of sexual selection: some portion of females desire that trait, which makes having the trait advantageous for males - which makes it advantageous for females to prefer that trait! (Their baby boys will likely share it...) As the trait becomes more prevalent among males, the competition gets fiercer, and the males that pass on their genes will tend to be those who are highest on that trait. This kind of runaway process through which non-adaptive traits become more prevalent is called a Fisherian runaway.

It's easy to go overboard with this and start overconfidently diagnosing all sorts of phenomena as instances of costly signalling. Whether the above explanation for the peacock's tail is correct is not at all clear. Another domain of costly behaviour for which signalling accounts are being controversially discussed is religion. Likewise, signalling is believed by many to play an important role in art, another classic example of an evolutionarily puzzling human phenomenon.

Evidently, what stands out about signalling is how frickin wasteful it is. Scenarios in which competition leads to ever costlier signalling are, indeed, examples of market failure - cases in which the self interested actions of individuals lead to an inefficient allocation of resources, in the absence of any coercion.
More precisely, one individual's costly signalling, while advantageous to that individual, has a negative externality, i.e. a cost that is incurred by people other than the individual engaging in and benefitting from it. Why is that? Well, by engaging in this costly signalling, he has made the competition tougher for others, meaning that they will now have to engage in even costlier signalling in order to get the same benefits.* So while everybody individually benefits from their own signalling, everybody is worse off than if nobody had engaged in it at all.

More on this last point shall soon follow.

* Note that a crucial point here is that the signalling behaviour is wasteful, and thus the competition between signallers engenders more and more waste. Somebody who accepts to work for a low wage also makes the job market a bit tougher for other job-seekers, however since no resources are wasted, this is not a case of market failure.
Economics is hard :)