Making Good Choices in Situations of Radical Uncertainty

Mark D. White

Barry Schwartz (author of The Paradox of Choice: Why More Is Less), Yakov Ben-Haim, and Cliff Dasco have a paper in the latest issue of Journal for the Theory of Social Behaviour (41/2, June 2011) titled "What Makes a Good Decision? Robust Satisficing as a Normative Standard of Rational Decision Making," in which they recommend robust satisficing as a normative standard for decision-making when facing radical uncertainty (in the sense in which Frank Knight used the term):

In all the research on how heuristics and biases can lead people into bad decisions, the normative standard for comparison has rarely been called into question. However, in this paper, we will argue that many decisions we face cannot be handled by the formal systems that are taken for granted as normatively appropriate. Specifically, the world is a radically uncertain place. This uncertainty makes calculations of expected utility virtually meaningless, even for people who know how to do the calculations. We will illustrate some of the limitations of formal systems designed to maximize utility, and suggest an approach to decision making that handles radical uncertainty—information gaps—more adequately. The arguments below will be normative in intent. They will suggest that “robust satisficing,” not utility maximizing, is often the best decision strategy, not because of the psychological, information processing limitations of human beings (see Simon, 1955, 1956, 1957), but because of the epistemic, information limitations offered by the world in which decisions must be made. (p. 210)

What is robust satisficing?

There is a quite reasonable alternative to utility maximization. It is maximizing the robustness to uncertainty of a satisfactory outcome, or robust satisficing. Robust satisficing is particularly apt when probabilities are not known, or are known imprecisely. The maximizer of utility seeks the answer to a single question: which option provides the highest subjective expected utility. The robust satisficer answers two questions: first, what will be a “good enough” or satisfactory outcome; and second, of the options that will produce a good enough outcome, which one will do so under the widest range of possible future states of the world.

Interview with Daniel Hausman (and more) in Erasmus Journal for Philosophy and Economics

Mark D. White

In the latest issue of Erasmus Journal for Philosophy and Economics (4/1, Spring 2011), there is an interview with Daniel Hausman, in which he discusses his views on methodology (with a particular focus on Mill) and his upcoming book on preferences (of which his recent paper "Mistakes about Preferences in the Social Sciences" is apparently a preview). He also describes the path he took to studying the philosophy of economics and his early background--very interesting. (I also strongly recommend another recent paper of Dan's, "Hedonism and Welfare Economics," in which he critiques the use happiness as a measure of well-being.)

Also in the journal you'll find an exchange on critical realism between Simon Deichsel, Uskali Mäki, and Tony Lawson; Irene van Staveren's review of Economic Pluralism, edited by Robert Garnett (a contributor to Accepting the Invisible Hand), Erik Olsen, and (guest blogger) Martha Starr; and a review of Debra Satz’s Why Some Things Should Not Be for Sale: The Moral Limits of Markets by Joseph Heath (a contributor to The Thief of Time).

Consequences of Economic Downturn -- Part IV: Borrowing & personal responsibility

Martha A. Starr

Conseq Today’s topic is one on which Mark has much to say: personal responsibility. Looking back at the years before the financial crisis, a big question is why households were increasingly borrowing via ‘exotic’ mortgages and other high-cost methods, even though such borrowing was pushing their debt burdens towards all-time highs. Accumulating evidence from behavioral economics suggests they may not have understood what they were doing: because people’s financial choices seem to be very sensitive to how options are presented, perhaps lenders were tilting them into products that maximized their profits, but saddled consumers with exorbitant debt costs.

Homer Enter U. Chicago scholars Cass Sunstein and Richard Thaler, who argue that a good way around this problem is to “nudge” consumers towards good decisions -- by making “good” choices the default option and “bad” choices available by special order only. Some view this idea as nicely balancing consumer protection and personal freedom. But if this idea of “libertarian paternalism” rubs you the wrong way, you’ll love Mark’s chapter in Consequences of Economic Downturn, which eloquently slams it on several accounts. For one, “nudging” assumes the government can effectively identify what’s best for consumers, despite  great variations in their circumstances and the fact that government’s expectations for the future have no special claim to accuracy over those of consumers. For another, it ignores realities of government policy-making, whereby powerful institutions lobby Congress in favor of rules and regulations that best protect their interests. Finally, by taking responsibility for decision-making away from people, nudging actually cements any tendencies towards “cognitive flaws” they may have, and disregards fundamental concerns about building social environments that promote people’s agency, dignity and autonomy. {What do you say, Mark: Should Mr. Burns take the donuts out of the break room at the nuclear power plant?}

Deb Figart’s chapter takes a swing at a different proposed solution for curbing ‘imprudent’ borrowing: “financial literacy” programs, which have been rolled out by all sorts of government agencies, financial institutions, and nonprofits since the crisis. Most claim to aim to help consumers understand how to scrutinize financial products, identify those with low costs and risks that best meet their needs, and structure their spending, saving and borrowing patterns to minimize chances of financial distress. Yet as Deb points out, many do not actually focus on helping people become fully participating agents in control of their own economic and financial lives. Rather many aim to make them into orderly consumers, still taking for granted that the dominant work-and-spend lifestyle is the proper one and that ‘responsible’ use of borrowing products is fine. As with Mark’s view of ‘nudging’, Deb is skeptical as to whether these kinds of financial literacy programs actually respect people’s agency and enhance their capabilities. But whereas Mark thinks more can and should be expected of the individual, Deb objects to the assumption behind financial literacy programs that it’s up to the individual to make good financial decisions, avoid unscrupulous actors, attain financial security, etc., assuming that government and financial institutions do not also share responsibility for maintaining an orderly financial system that enables people to conduct their financial affairs without needing to constantly be on guard against risks of financial ruin. Thoughts, Mark?

Individual versus Group Incentives

Jonathan B. Wight

Via David Brooks comes this interesting report on incentive pay and motivation:

If you want a person to work harder, you should offer to pay on the basis of individual performance, right? Not usually. A large body of research suggests it’s best to motivate groups, not individuals. Organize your people into a group; reward everybody when the group achieves its goals. Susan Helper, Morris Kleiner and Yingchun Wang confirm this insight in a working paper for the National Bureau of Economic Research. They compared compensation schemes in different manufacturing settings and found that group incentive pay and hourly pay motivate workers more effectively than individual incentive pay.

One simple explanation for this comes from Adam Smith, who noticed that people have passionate feelings about justice and injustice.  Smith also also noted that people are behaviorally irrational in terms of generally over-estimating their own contributions (self aggrandizement).  Put these two together and you have rampant resentment against others who get higher individual rewards for group activities.

David Brooks on individuality and sociality: A Kantian perspective

Mark D. White

David Brooks has a fascinating article on new research on human nature in today's New York Times (a condensation, of sorts, of his wonderfully written piece in The New Yorker in January--and, apparently, his new book, The Social Animal: The Hidden Sources of Love, Character, and Achievement, which was reviewed recently in The Wall Street Journal). He shares the opinion of many of us here at this blog that most conceptions of human nature and choice in the social sciences are misguided, which inevitably leads to policy failures when people do not act like the policymakers expected them to act. As Brooks writes in the Times piece, "Many of our public policies are proposed by experts who are comfortable only with correlations that can be measured, appropriated and quantified, and ignore everything else." Exactly.

His preferred remedies for this shortcoming, however, I find more questionable. He goes on to say:

Yet while we are trapped within this amputated view of human nature, a richer and deeper view is coming back into view. It is being brought to us by researchers across an array of diverse fields: neuroscience, psychology, sociology, behavioral economics and so on.

This growing, dispersed body of research reminds us of a few key insights. First, the unconscious parts of the mind are most of the mind, where many of the most impressive feats of thinking take place. Second, emotion is not opposed to reason; our emotions assign value to things and are the basis of reason. Finally, we are not individuals who form relationships. We are social animals, deeply interpenetrated with one another, who emerge out of relationships.

The first insight, the power of the unconscious mind, I believe is unquestionable. The second insight I agree with in spirit, though I would quibble over the precise relationship of emotion and reason (as Jonathan and I have done on this blog in terms of Adam Smith--whom Brooks alludes to, and Jonathan discusses here--and Immanuel Kant). But the third insight I very much disgree with, as I discuss in chapter 3 of my book, Kantian Ethics and Economics: Autonomy, Dignity, and Character, published next month by Stanford University Press (a summary of which I presented at the recent Eastern Economic Association meetings in New York).

In that chapter, I make the case that a person is best regarded as individual in essence, social in orientation. As Christine Korsgaard writes in the first line of her book Self-Constitution: Agency, Identity, and Integrity, "Human beings are condemned to choice and action." Since each person's faculty of choice--however you choose to model or represent it--is her own, she is essentially individual. This does not mean, as most mainstream economists implicitly assume and most heterodox economists fear, that a person does not, or can not, take external influences and concerns into account. A person's thought processes, by necessity, are atomistic--they happen inside her head, after all, and no one else's--but the substance of those thoughts are not. And Kantian autonomy implies both: the capacity for independent thought and the responsibility to be social, that is, to take other people's needs and wants into account.

So contrary to Mr. Brooks' argument, we do not emerge out of our relationships, nor are we not defined by them. Instead we choose or endorse them in the process of what Korsgaard calls self-constitution, creating the persons we want to be, based on what I call character, compromised of judgment and will. Although we have little control over our social world when we are young, upon reaching maturity we are responsible to choose, manage, and reject our social networks, by reflecting on what they imply about who we are and who we want to be.

As I write in my book (pp. 101-102), with respect to a person's social network:

To be sure, social roles, links, and responsibilities also enter into this deliberative self-constituting process, and as with other experiences and choices, the agent is not a passive subject of her social identities. As Korsgaard writes,

you are a human being, a woman or a man, an adherent of a certain religion, a member of an ethnic group, a member of a certain profession, someone’s lover or friend, and so on. And all of these identities give rise to reasons and obligations. Your reasons express your identity, your nature; your obligations spring from what that identity forbids. (Korsgaard, The Sources of Normativity, p. 101)

But before these identities can become a part of an agent’s practical identity, her sense of self (or character) from which she acts, she must take an active role in endorsing these roles by choosing what groups to join, what people to associate with, and what social responsibilities to assume. Even the aspects of your social identity you are born into—being a child of your parents, a member of your community, a citizen of your nation—must be endorsed by you before they become part of you and reasons on which you can act autonomously. However the social identities come about, they “remain contingent in this sense: whether you treat them as a source of reasons and obligations is up to you. If you continue to endorse the reasons the identity presents to you, and observe the obligations it imposes on you, then it’s you” (Korsgaard, Self-Constitution, p. 23). So like preferences, social identities, along with their constituent roles and responsibilities, are subject to the endorsement of an agent’s judgment based on the moral law; as important as those features are to the agent’s life, they are nonetheless secondary to her character.

So I believe Brooks sets up a false dichotomy: the choice is not between being an isolated individual and a social animal. We are essentially individuals but we necessarily operate in a social world, which in turns affects and influences us, but only to extent to which we allow it to.

Arthur Penn: Innovation and Collaboration

Jonathan B. Wight

Nat Segaloff is the author of the sparkling new biography, Arthur Penn: American Director (University of Kentucky Press, 2011).  Penn (1922-2010) revolutionized Hollywood in classic movies such as The Miracle Worker, Bonnie and Clyde, Alice’s Restaurant, and Little Big Man as well as a score of Broadway hits. 


More than the subject matter of these movies is timely and provocative.  Penn’s directorial approach was innovative, using intuition to bring out hidden meaning from the scripts and nuance from the actors.  To generate creativity, Penn knew that things could not be overly scripted.  If things could not be overly scripted they could not be overly controlled.  If they could not be overly controlled they could not be managed in a hierarchical fashion.  But none of that was deduced, it was discovered through trial and error and happy accident. 

While he wasn’t aware of it, Penn’s managerial style fits the mold of modern stakeholder theory: giving investors a high return, Penn was a generous colleague to actors and made choices for the sake of producing exquisite art.  In many cases Penn took a cut in salary to do a piece his way. 

Most economists—and President Obama—believe that “innovation” is the key to future economic success.  But how many economists understand that innovation is fueled by something other than rational mind?  And that personal sacrifice is often a necessary ingredient?  Creativity can flourish in teams bound by emotional trust.  As on business teams, the emotional connection of actors and director cannot be scripted because it is not mechanical—it is organic.  The economics of innovation is rooted in voluntary cooperation and an ethics of the quest. 

Segaloff developed a close relationship to Penn and his family during the writing of the book.  Consequently, the book provides rich details unavailable from other sources.  The writing is clean and unsentimental, and treats the major experiences of Penn’s life in fascinating essays.

If there is guilt by association, Penn’s career is clouded in some minds by his friendship with Alger Hiss.  But Penn’s life, viewed as a whole, exemplifies that of virtue ethics in the way he treats other people.  Arthur Penn: American Director has rich lessons for the economy of innovation in the 21st century. 

"Free to Choose" symposium on behavioral law and economics

Mark D. White

As I noted earlier, on December 6 and 7 the blog Truth on the Market hosted "Free to Choose?", an online symposium on behavioral law and economics, the contents of which appear below the fold, followed by an excerpt from Josh Wright's introductory comment.

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Timothy Pychyl on "Resisting Procrastination" at Psychology Today

Mark D. White

Timothy Pychyl, one of the most prominent researchers, writers, and educators on procrastination, features my chapter from The Thief of Time, "Resisting Procrastination: Kantian Autonomy and the Role of the Will," in his latest post on his Don't Delay blog at Psychology Today:

If I lock the refrigerator to block my late-night snacking, I might have made a useful predecision to protect myself against my seemingly uncontrollable urges, but there's another route. I could try harder and exert my will. The "will" is an old notion, often forgotten and even denied, but it has resurfaced in an important way in recent writing about how we can resist procrastination.

Fellow blogger, Mark White, is also the co-editor of one of my favorite books about procrastination, The thief of time: Philosophical essays on procrastination (2010, Oxford University Press). Mark's own contribution to this collection of essays is, I think, the most important in the volume. Why? Because he provides an articulate and balanced critique of the behavioral-economic model of procrastination.

He also highlighted my co-editor Chrisoula Andreou's Thief of Time chapter, "Coping with Procrastination," in his last previous post, and decicated podcast to her chapter and mine this past summer. Thanks, Tim!

(And make sure to check out Tim's new book, The Procrastinator's Digest!)

2011 ASSA Meetings: Rationality, preferences, self-control, and choice

Mark D. White

Continuing through the preliminary program for the upcoming Allied Social Science Association meetings in Denver in early January, I present below the fold several sessions that touch on rationality, preferences, self-control, and choice (as before, I've omitted the names of chairs and discussants, which can found on the program):

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Kantian Ethics and Economics: Autonomy, Dignity, and Character

Mark D. White

KEE I am happy to announce that my forthcoming book from Stanford University Press, Kantian Ethics and Economics: Autonomy, Dignity, and Character, is now available for pre-order.

I plan to blog a lot more about this book as the May 2011 publication date approaches, but for now I'll just offer the summary and the very humbling endorsements:

This book introduces the moral philosophy of Immanuel Kant—in particular, the concepts of autonomy, dignity, and character—to economic theory, explaining the importance of integrating these two streams of intellectual thought. Mainstream economics is rooted in classical utilitarianism, recommending that decision makers choose the options that are expected to generate the largest net benefits. For individuals, the standard economic model fails to incorporate the role of principles in decision-making, and also denies the possibility of true choice, which can be independent of preferences and principles altogether. For policymakers, standard decision-making frameworks recommend tradeoffs that are beneficial in terms of material goods or wealth, but may be morally questionable from a more person-centered perspective.

Integrating Kantian ethics affects economics in three important ways. This integration allows for a more complete understanding of human choice, incorporating not just preferences and constraints, but also principles and strength of will or character. It demonstrates the broader impact of welfare economics, which generates policies that affect not only persons' well-being, but also their dignity and autonomy. Finally, it reconciles the traditional, individualist stance in economic models of choice with the social responsibility emphasized by many systems of philosophical ethics and heterodox schools of economics.

"This book makes an original and valuable contribution by introducing the philosophy of Kant and the concepts of autonomy, dignity, and character into economics. Mark White is to be complemented for raising fundamentally important questions about economics' theory of choice. The book will be a landmark in social economics."—John B. Davis, University of Amsterdam and Marquette University

"Relentlessly utilitarian and procedurally-detached, economic man takes no account of the duty to treat morally equivalent persons impartially. In contrast, the decision environment contemplated by Professor White's Kantian agent is congenial to the cultivation of respect for the moral law. The implications for social interaction and for public policy are profound. A must read!"—Timothy Roth, Department of Economics & Finance, The University of Texas at El Paso

"For too long it was almost universally thought that utility theory, and so economics, was intrinsically and solely about means/end rationality and achieving the best consequences. Principled action, it was agreed, could not be integrated into formal decision theory and economics. Mark White's wonderful and important book shows this to be a fundamental error. White's Kantian ethics opens a much richer, and far more adequate, normative analysis to economics, freeing economics from an impoverished view of humans and ethics. White holds out to us the promise of an economics as a science of human dignity and autonomy."—Gerald Gaus, James E. Rogers Professor of Philosophy and Director of the Program in Philosophy, Politics, Economics & Law, University of Arizona