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The huge ongoing interest in behavioral economics manifests dissatisfaction with the rational choice paradigm. At the same time, behavioral economics does not as yet constitute a new paradigm in itself. Social psychology and cognitive psychology have documented to date hundreds of biases and dispositions, some of which behavioral economics pursued. There haven’t yet emerged any clear “rules of the game” for behavioral economics that bound the framework (the analogue of “an individual is defined by her immutable preferences [over possibly very complex and stochastic objects], which she maximizes under the prevailing constraints” in rational choice), as well as the legitimate questions to ask within the framework and the ways to tackle them (the analogue of “what behavior and comparative statics/dynamics are ruled out under non-perverse preferences and a solution concept compatible with some version of common belief in rationality” in rational choice).
It is therefore interesting to compare the current state of affairs with a possibly similar episode in the history of science, namely Eighteenth-Century Chemistry. Chemists were envious with the immense success of Newtonian mechanics and optics, and were seeking to do away with alchemy, whose language tangled predictions about the world with allegorical and mystical prescriptions. Most chemists did believe in atoms, but they were reluctant to phrase any theories about them which would be no less hypothetical than alchemy itself. Textbooks of the period were still paying lip service to the four Aristotelian elements of Earth, Water, Air and Fire, but it was obvious these were not helpful for predicting the behavior of e.g. acids and bases.
So chemists began to construct Affinity Tables, which sorted known substances into categories, and specified which of these categories “attract” one another and to what extent. Soon enough they realized that these tables grow exponentially in size. The conceptual breakthrough came with Lavoisier, who suggested that one should first and foremost study the relation between elements, i.e. substances which cannot be decomposed into simpler substances.
Lavoisier’s list of elements contained, of course, the Oxygen which he discovered, and it dispensed with Phlogiston. However, it contained also Caloric which was dispensed with not-too-long afterwards, as well as other items such as Light, which we do not count today as chemical elements. Still, the concept of an element became the bedrock of chemistry, and as such enabled Mendeleev’s further breakthrough and, in the sequel, the modern atomic model. At the same time, Lavoisier himself acknowledged that his advances were made against – and in contrast with – the background of the systematic classification efforts of all those chemists who constructed and refined the affinity tables.
Are there any “elementary” motives of human behavior? Whatever the answer, it could be useful to keep the perspective that today’s behavioral economics, with its incremental efforts to classify dispositions and their implications, may eventually serve as a jump-board for a future conceptual breakthrough and a better paradigm; but that the language, approach and concepts of such a new paradigm may very well turn to be decisively different than those employed by behavioral economics today.
Inspired by Daron Acemoglu’s Schwartz lecture last month, I buckled down to reading Acemoglu and Robinson. Their goal is to understand why democracy (broadly defined) emerges and why it persists. Here is a rough rendition of their arguments.
In the beginning a small elite controls the allocation and consumption of resources. Eventually, the masses solve a collective action problem and agitate for what they have been denied; bread, cloth, shelter and control rights. Why don’t the elite buy the masses off with a promise of bread, cloth, shelter and the occasional roman circus but not control rights? It because, as Hume says, the bonds of words are to weak. The masses get bread and etc. today but what about tomorrow? The promises of the elite are not credible. Organizing to agitate again is costly, so to guarantee bread and etc. for the future the masses need an institution that will credibly deliver on the promises extracted from the elite. That institution is democracy.
A crucial piece of the argument is that the collective action problem the masses must solve to agitate for their needs, is costly. It requires that like minded individuals must coordinate (I will turn out to protest only if I know enough others will do so as well) and that risk to life and limb is reduced (by spreading it over a large enough number of individuals). Social networks, supposedly reduce these costs. Marry this with Acemoglu and Robinson, and it suggests that democracy is less likely to emerge! If the cost of agitation drops, then it becomes easier to enforce the promises of the elites by threat of agitation. This diminishes the incentives to push for a change in political institutions.