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August 2013 posts

Interview with John Davis

Jonathan B. Wight

The Summer Newsletter of the Association for Social Economics features a wonderful interview with John Davis. 

John B. Davis is Professor of Economics, Marquette University, and Professor of Economics, University of
John DavisAmsterdam, is author of Keynes’s Philosophical Development (Cambridge, 1994), The Theory of the Individual in Economics (Routledge, 2003), Individuals and Identity in Economics (Cambridge, 2011), and co-author with Marcel Boumans of Economic Methodology: Understanding Economics as a Science (Palgrave, 2010).

Here are some excerpts:

How did you get interested in social economics and who were your mentors?

I studied philosophy and ethics before economics, and when I turned to economics this implied to me that the economy is embedded in society rather than an autonomous realm.  So not only is society the more encompassing frame, and economic life only part of social life, but because values are pervasive in social life, it follows that values are pervasive in economic life – not just market values but ethical values and social values of many kinds.  These two principles – social embeddedness and value pervasiveness – are central to social economics, and the richness of the social economics research program is associated with the many ways they can be investigated….

….In my economics program at Michigan State University, John P. Henderson and Warren J. Samuels were my mentors.   

What obstacles did you encounter  professionally (and/or personally) in  countering the standard economic model?

The greatest single obstacle is the profession’s  blind scientific positivism and denial that values  underlie economic reasoning and operate  throughout economic life.  It’s a remarkable historical (and cultural?) conundrum that skilled,  intelligent standard economists can be so naïve  and wrong on this subject.  I have speculated  recently on why this is the case (“Economists  Odd Stand on the Positive-Normative  Distinction: A Behavioral Economics View” – on SSRN), but it may be that one has to think  more about the kind of society we live in to  really explain this.  In any case, to talk about  economics being value-laden is the fastest way  to alienate mainstream colleagues….  

What analytical work of yours has made a difference to our understanding of the world  and/or policy?

It’s my view that the central deep assumption of  standard economics is that individuals are  atomistic beings.  Standard rationality theory  presupposes this, and I don’t think one can make  effective critiques of rationality without showing  why the standard view of the individual is  wrong.  My analytical contribution on this score  has been to develop an identity approach to  evaluate any individual conception in terms of  whether it can be said to successfully refer to  individuals.  My first book on this (The Theory of the Individual in Economics) argued that the  standard neoclassical individual conception fails  to refer to individuals.  How ironic and telling about the theory that it is ultimately not really about individuals!

What advice  would you give to graduate students setting  out to study social economics?

….First, then, it seems to me that economics research ought to be more interdisciplinary, particularly in importing ideas  and concepts from other social sciences.  This often generates new insights and forces people  to rethink old explanations.  Second, it seems to me that more research might use multiple  methods of analysis to in effect triangulate upon  desired conclusions.  In this regard, case studies  and survey research strike me as especially  valuable when done well (though they are  maligned by many economists).

There’s much more to this interview.  Read the whole thing here.

Button Trivia and Social Economics

Jonathan B. Wight

Why are buttons placed on the right side of men’s shirts but on the left side of women’s shirts?

Drum roll.... It has to do with socio-economics: Buttons were expensive back in the 17th century when they first appeared, and only rich people could afford them.


Men dressed themselves, and it is easier for the most right-handed persons to grasp the button with the right index finger and thumb and guide the button through the hole opened with the left fingers.

Rich women were dressed by their maids, and so buttons were placed on the opposite side to make it more efficient for servants. 

As Adam Smith noted, ghost institutions (rules and norms) linger, long after their alleged usefulness disappears. In teaching your students, remind them that supply and demand are useful fictions: but you can never travel along the same supply curve twice.  Path dependency is at work, in buttons and many other things. 

[Thanks to Bill Beville for passing along this anonymous button trivia, whose veracity has not been independently verified!]

A Rabid Christianity?

Jonathan B. Wight

When I was younger I loved to read books about the rise and fall of civilizations.  Arnold Toynbee was one of my favorites.  Moral decay is one of the obvious suspects in the downfall of earlier civilizations; wealth brings about the corruption of the work ethic and the spirit of sacrifice necessary for advancing group interests.

In Christian Nation: A Novel, Frederic Rush presents us with an interesting paradox: what if, in trying to repair moral decay, religious zealots bring about an even greater destruction?

The plot line is not too far-fetched. It begins with John McCain winning the 2008 presidential race by a few percentage points. A few months after his inauguration he dies from a stroke, leading to the ascension to the presidency of Sarah Palin.

Evangelical Christians have been plotting for this day for decades. While this book is fictional, the author brings in actual quotes of fundamentalist leaders to demonstrate that the creation of a Christian Nation is in the forefront of the hearts and minds of many current religious zealots.

What follows is the slow but steady decay of national institutions for the separation of church and state.  The Supreme Court and the Congress get packed with supporters.  A theocracy evolves after a civil war.  The evangelicals are bent upon destroying evil, very loosely defined. The justification for this is found in both the New and the Old Testaments:

“Jesus said, ‘I came to bring fire to the earth, and how I wish it were already kindled! …. Do you that I have Luke come to bring peace to the earth? No, I tell you, but rather division! From now on five in one household will be divided, three against two and two against three; they will be divided: father against son and son against father, mother against daughter and daughter against mother….’”  (Luke 12:49)

The brutality of religious fanaticism knows few bounds. World history is replete with examples of one group of people slaughtering another in the name of a greater divine glory.

My colleague Mark White rightfully worries about the nudging paternalism of a nanny state.  This is nothing compared to the vicious paternalism of a theocracy which claims to know God's will. Imagine an American version of Iran, and it is pretty scary.  Adam Smith was greatly worried by the mob hysteria produced by religious fervor, and it was one of the reasons he so thoroughly endorsed religious freedom and competition.

For those of us who are Christian but do not buy into literalist views, the battles to be fought here on earth relate mainly to the ideas and instincts that separate humans from one another – injustice, racism, sexism, homophobia, and so on.  Uniting people and focusing on agape love—rather than the hatred and fear of division—is to me a more compelling religious mandate.

Rush’s account of a very different Christian Nation is deeply disturbing but well worth the read. 

[Thanks to Bacon's Rebellion for introducing me to this book.]

Blind Spots and Ideologies

Jonathan B. Wight

A scientist must try to understand his or her own limited perspective and be open correcting for blind spots.  The job of a politician is to see what they want to see, and rarely admit anything different. 

Krugman has a funny blog on this, using the example of inflation.  Some conservatives bash the Fed’s quantitative easing, claiming that inflation is being hidden under the rug—the CPI understates inflation.  (Let’s ignore the fact that the Fed does not calculate the CPI, the Labor Department does; so there must be a grand conspiracy of career economists with a leftist bias.)

On the other hand some conservatives want to lower future Social Security benefits, on the claim that….the CPI overstates inflation. 

Cognitive dissonance is when we hold two contradictory ideas in our minds at the same time.  For politicians there is no dissonance because they choose to ignore any potential contradiction: their blind spots almost always conform to their ideologies and interests.   Blushing

Can politicians ever blush?  If not, that is sad, because it means we have selected away from a trait so useful for discerning honesty.

"The Paranoid Style in Economics"

Jonathan B. Wight

Raghuram Rajan looks back at the exchange between Paul Krugman and Carmen Reinhart and Kenneth Rogoff.  He wonders:

"Why do high-profile economic tussles turn so quickly to ad hominem attacks?"

Part of the answer is in the unsatisfactory results from empirical work, especially in macroeconomics. It is hard to say much with certainty.

Pundits won’t get many readers with wishy-washy conclusions, so the natural tendency is to fudge—by professing more certainty than the data would warrant.

Another aspect has to do with the verbal attacks (and physical threats) on Krugman, which have made him more than a little defensive. The old joke goes, “Just because you’re paranoid, doesn’t mean they’re not out to get you….”

We all say things in the heat of the moment that best not have been said.  Hard to remember, but virtue ethics asks us to be humble, to be temperate, and to forgive.  Where are these attributes in the economics research manual? 

The Death of Current Religion

Jonathan B. Wight

John Shelby Spong has a useful explanation for why theology always fails, yet human spirituality remains a powerful force, even after Darwin, Freud, and Einstein:

Religion has adopted theological formulas based on two things: First, there is an experience of God, which people come to believe is both real and authentic, which makes them aware of transcendence. This experience is life changing, seemingly unrepeatable and certainly stretching to those having the experience. It leads to new dimensions of life and to new understandings. All religion, along with all theology, is born in such a primary experience.

The second thing involved in religion and theology is, however, the compelling need to explain that experience to another. That is the moment when the experience is inevitably put into human words. The experience and the wordy explanation are never the same. If the experience is true, it is timeless, external and transformative! The explanation, however, is always time bound, time warped and finite. Every explanation freezes the experience in the vocabulary of the explainer. The explanation reflects the world view of the explainer, the explainer’s level of knowledge and the explainer’s time in history. There is no such thing as an eternal explanation….

Truth is thus never served by static religious or theological explanations…..So religion as we now know and practice it is doomed.

This is probably overstated, but the general point seems valid.  Experience is the foundation for theory, but theory only dimly captures the experience.  

Adam Smith's moral imagination is similarly grounded in experience, and allows for evolution and change, not rigid ethical orthodoxy for all time.

What Spong does not address is why—if the literal view is so unsatisfactory—are evangelical churches on the rise? 

[To read the rest of Spong's essay, click here.]

Another day, another article defending nudge (but missing the point)

Mark D. White

Recently it was David Brooks, today it's Peter Reiner writing at Slate, reporting that people are less opposed to nudges the more they align with their interests, and interpreting this as weakening the case for autonomy.

Using the crowdsourcing website Mechanical Turk, we polled 2,775 people, asking them to what degree they were willing to trade autonomy for better outcomes when presented with nudges that helped with everything from healthier food choices to spending money more wisely. The short answer is just what one might expect: Sometimes they liked the nudges and other times they didn’t. When we presented people with nudges that clearly allowed them to deliberate on the issue—to fully authenticate the decision—participants in our surveys were more receptive than when the nudges appeared to manipulate them by tapping into subconscious thinking. But overall people were not terribly averse to being gently pushed in the “right” direction. Apparently, autonomy is not quite as exalted a value as libertarians might believe.

In fact, this reinforces the value of autonomy, which is more about having a measure of control over how one's life is conducted rather than simply making individual choices freely, and easily encompasses self-constraint if freely chosen. The people above preferred nudges that were consistent with autonomy, those that "clearly allowed them to deliberate on the issue" and "fully authenticate the decision." These are not, however, your ordinary nudges, which subvert the rational decision-making process, relying on cognitive biases and heuristics to generate their intended effect.

Also, like Brooks, Reiner does not seem to appreciate that the interests promoted by nudges are not people's own interests, but rather policymakers' idea of those interests (as I explain in The Manipulation of Choice). Again, Reiner states that "when people recognized that their objectives in life aligned with the nudge and knew that they were struggling with achieving that objective, they generally endorsed the nudge" (emphasis in original). Of course they did, again consistent with autonomy and choice. If Mary is trying to lose weight, she may very well appreciate a nudge that promises to help her eat less and exercise more. Her approval of this is akin to joining Weight Watchers: a deliberate action to constrain her own choices, which is a reflection of her autonomy as well as a recognition of her own lack of self-control. This doesn't imply, however, that she'd welcome the nudge being forced on her; even if the nudge is truly in her interests, she may still value the option of approving the nudge herself.

Reiner ends with:

In a world awash with temptation, a mark of wisdom might be taking a hard look at ourselves and understanding the reality of our natural strengths and weaknesses. Were we to do so, we would likely welcome a helpful nudge now and then.

"Now and then," yes, but we rarely have the choice. In cases such as Mary's, we often  recognize our own strengths and weakness and many of us welcome some help, whether in the form of nudges or not. The problem with most nudges, such as the paradigm cases in Thaler and Sunstein's book, is that they are not voluntarily chosen nor are they made apparent to the decision-maker. They are "helpful" only in the sense that someone else thinks we need help, because we are not making the choices they would have us make—in their idea of our interests.

Mary might approve of a weight-loss nudge, but her friend Martha may not, feeling that it does not align with her interests. She prefers to exercise her autonomy by making her own choices free of paternalistic manipulation. Does she need "help"? Does she have a choice?

Prescription For Healthy Living

Jonathan B. Wight

This post is for those of us who need to be reminded to bring balance into our lives.  (Yes, this concern does sound like virtue ethics.)

Dr. Randy Linde (an endocrinologist) helped save my life when I was in my 20s.  He has been an inspiration since then.  What are the key lessons on life balance he’s learned after a career of patient care?  A prescription (Rx) is simply a recipe; in virtue ethics terms it is a habit.  Randy offers these prescriptions, “all tried and true”:

1.  Treasure your best friend.

2.  Find something to make you smile each day.

3.  Get plenty of sleep.

4.  Mainly eat organic vegetables.

5.  Get some exercise each day.

6.  Don't take yourself too seriously.

And I would add:

7.  Maintain a vibrant capacity for wonder.

8.  Delight in daily meditations.

Readers: what would you add or subtract?

David Brooks on libertarian paternalism and "nudge"

Mark D. White

In today's New York Times, David Brooks comments on libertarian paternalism in "The Nudge Debate." There is not a lot in his article that is surprising or unreasonable, but it does suffer from some vagueness and misunderstandings. For instance, Mr. Brooks conflates interventions of a paternalistic nature (such as nudging people into retirement plans) and those of a nonpaternalistic nature (such as nudging people into registering for organ donation). While the mechanisms in both cases are similar—and raise the same issues of unconscious manipulation and subversion of rational decision-making processes—the purposes and motivations are very different, with only the former involving the policymakers substituting their interests for those of the decision-makers themselves.

Of more concern is Mr. Brooks' contention that libertarian paternalism does not involve value substitution. He writes,

Do we want government stepping in to protect us from our own mistakes? Many people argue no. This kind of soft paternalism will inevitably slide into a hard paternalism, with government elites manipulating us into doing the sorts of things they want us to do.

As I explain in The Manipulation of Choice, there is no way for the government to know what we value well enough to help us make decisions in our own interests. Because they lack this information, policymakers necessarily impose their idea of people's interests on them when they design nudges. Policymakers think that it's in our interests to save more; policymakers think that it's in our interests to drink less soda. These are not unreasonable assumptions, of course, but they are assumptions nonetheless, and it is pure hubris on the part of policymakers to presume that they bear any necessary relationship to people's actual interests.

Because Mr. Brooks apparently doesn't recognize this, he concedes the "theoretical" point but dismisses any real-world concerns:

I’d say the anti-paternalists win the debate in theory but the libertarian paternalists win it empirically. In theory, it is possible that gentle nudges will turn into intrusive diktats and the nanny state will drain individual responsibility.

But, in practice, it is hard to feel that my decision-making powers have been weakened because when I got my driver’s license enrolling in organ donation was the default option. It’s hard to feel that a cafeteria is insulting my liberty if it puts the healthy fruit in a prominent place and the unhealthy junk food in some faraway corner. It’s hard to feel manipulated if I sign up for a program in which I can make commitments today that automatically increase my charitable giving next year. 

This last paragraph is illuminating, because it conflates three different types of nudges. The first, organ donation, is a social issue; such a nudge is not paternalistic and therefore does not raise any issues of value substitution (though, as I said above, the mechanism still subverts rational processes). The third, self-commitment, is vague; there is nothing manipulative in the concept of commitment, but if such commitment is elicited using a nudge that bypasses a person's rational decision-making faculties, then it's a problem. Only the cafeteria example is by definition a paternalistic intervention; Mr. Brooks may not be insulted by the management of the cafeteria putting their idea of his interests above his own and manipulating his actions in those imposed interests, but that does not justify an action which would insult many others.

Finally, I do not see the issue of libertarian paternalism as one of theory versus empirics—in the case of paternalistic interventions, the theory iself discounts any attempts to measure its success. Mr. Brooks finishes the paragraph above with this sentence: "The concrete benefits of these programs, which are empirically verifiable, should trump abstract theoretical objections." In the case of paternalistic interventions, the "theoretical objections" render any "concrete benefits" questionable and inherently unverifiable. How do you measure the "concrete benefits" of an action meant to improve people's choices according to their own interests if you have no way to ascertain those interests? Such knowledge is necessary in order to "verify" any benefits from such a program. With socially-motivated nudges, like automatic enrollment in organ donation programs, this makes some sense, but with measures explicitly intended to "help" people better make decisions in their own interests, the idea of verifying "concrete benefits" makes no sense whatsoever, given the inherent subjectivity of those interests.

Rather than an issue of theory versus evidence, the nudge debate is a matter of autonomy. Each person's right to further his or her own interests, in a way consistent with all others doing the same, is violated by policymakers who impose their own conception of people's interests on them and then design policy tools that subvert people's rational decision-making processes to steer them towards those imposed interests. Given Mr. Brooks' antipathy towards individualism, I am not surprised that he disregards concerns about autonomy as an "abstract theoretical objection." To some, however, the right to pursue their own interests without the government questioning them is a very "concrete benefit" to living in a free society.

Then again, if policymakers really knew our true interests, they'd know that already, wouldn't they?

Confusing Consumers is an Art

Jonathan B. Wight

Using behavioral economics, Allstate Insurance can tailor a message to confuse consumers in a way that consumers want to be fooled.

Step 1:  Promise consumers something they really want. 

ALLSTATE:  “With accident forgiveness, your insurance rates won’t rise after an accident.”

CONSUMER:  “Oh goody!  I know I’m a bad driver and now I’ll really act crazy and tell all my bozo friends to join this insane company.  Parents with teenage drivers—let’s all pile on.” 

Step 2:  Tell consumes they can have this feature at no charge!

Of course it’s “free” if you forget that this policy costs more than other policies without accident forgiveness AND if you ignore that accident-free drivers will receive a rebate check every six months.

People will believe what they want to believe.

But how stupid are we? Apparently, quite, since Allstate continues to blanket the country with these alluring ads.