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The Persistence of Selfishness

by danps Sat Sep 11th, 2010 at 05:25:15 AM EST

One of the bedrock assumptions of economic theory for the last few decades has never been true.  When an error is both generally acknowledged and fervently embraced there is usually a good (and unfortunate) explanation, and this is no exception.

Cross posted from Pruning Shears.

No Associated Press content was harmed in the writing of this post

While reading ECONned by Yves Smith I was struck by the following from her coverage of neoclassical economics (p. 99):

Nobel Prize winner Amartya Sen uses an anecdote to illustrate the problem of assuming actors act solely out of self-interest:
Central to [the] problem is the assumption that when asked a question, the individual gives an answer which will maximize his personal gain. How good is this assumption? I doubt it is very good. "Where is the railway station?" he asks me. "There," I say, pointing to the post office, "and would you please post this letter for me on the way?" "Yes," he says, determined to open the envelope and check whether it contains something valuable."
Sen's story illustrates that society rests on the assumption of a basic level of cooperation and trustworthiness, since the behavior he parodies, of extreme self interest, does not jibe with what most of us experience on our day-to-day lives. But neoclassical economics offers a polar view, that people are strictly self-motivated, and then assumes a simple solution, that they will nevertheless be bound by the agreements they enter into. You can see how this breaks down: if individuals aren't restrained by morality or the need to maintain appearances, why wouldn't they cheat on their promises?
The belief that people are strictly self-motivated is an idée fixe among economists, yet it is obviously false.  Smith gives several counter-examples, such as altruism and church attendance, along with the neoclassical-confounding case of self improvement.  (Trying to quit smoking, lose weight or do any other kind of self-denial with a long term benefit is literally inexplicable in neoclassical terms of self-motivation.)  

One of the Smith's theses seems to be that over the past few decades economists aspired to "elevate" their work from the relatively unglamorous and plodding realm of engineering (number crunching) to the rarefied air of science.  They fell in love with mathematical modeling and endeavored to find an equation for everything.  Unfortunately, they appropriated scientific airs without bringing along scientific rigor.

For instance, if a theory confronts a counterexample, the theory is no longer valid and must be changed.  A properly disciplined investigation of the self-motivated hypothesis would look like this: "Proposition: People act solely out of self interest. But altruism exists and has no obvious element of self interest.  Therefore the proposition is false."

Neoclassical economists did the exact opposite; they conjured up extravagant fictions to explain why counterexamples actually fit the theory (altruism really is about self interest) or else dismissed them as noise that had no impact and could be ignored.  Yet in a proper scientific environment the response would be: back to the drawing board.

Now, even scientists have been known to fall in love with their models and theories, and to ferociously attack those who challenge them.  Even taking that into account, though, it's remarkable how widely believed the self-interest model still is.  It is so easily falsified that something else has to explain its persistence.  The something else is on Wall Street and in Washington.

From a business perspective, nothing is better than a model that basically says, every man for himself.  Everyone goes after what they want, and not only does it all work out in the end but it produces the best of all possible outcomes.  In an environment like that regulation is oppressive and government can only make things worse.  In practice it is something close to a state of nature; this is why libertarianism makes the most sense when you are healthy and well off.

The political culture has absorbed that message too, which is a great relief to conservatives.  If government can only make things worse, then the obvious response is to do nothing (which the GOP has become phenomenally skilled at).  That is tremendously appealing to much of the governing class - including many ostensibly on the left.  Doing something is hard; doing nothing is easy.  If the economic system produces the ideal result on its own then that certainly takes a lot off the federal government's plate doesn't it?  

Smith thoroughly examines the vast disservice done to us by neoclassical economists, and there is obviously no way to do justice to her whole analysis in a single blog post.  One of the themes she returns to a number of times, though, is how they celebrate selfishness (let's call it what it is already) as a virtue.  Hell, their patron saint put it just that simply.  And even though it has been overwhelmingly disproven both in theory and in practice, it remains in favor because it is terribly useful to the political and economic elite.  Which means, unfortunately, that changing that belief requires more than just demonstrating its falsehood.

by danps (dan at pruningshears (dot) us) on Sat Sep 11th, 2010 at 05:25:40 AM EST
people need a pragmatic morality, i.e. a series of empirical facts buttressing their sense of generosity-at-risk, in order for them to feel good about themselves and their relationships. if all they grow up seeing is people conning each other, or if that is the majority of their experience, then a criminal mentality will flourish in its turn.

that's why trust is hard to build and repair, and easy to break.

self-interest in moderation is healthy for the common weal, and vice-versa, some of us know it through practice, some are still buying into the myth of 'screw your fellow man before he screws you'.

if people see the nobler choice landing the chooser in a worse situation, then their instinct will be not to trust others, and withhold the energy that makes communities thrive in peace, in favour of a dog-eat-dog world.

unfortunately these poor values have become embedded in the society-at-large, so retaining values of decency and generosity can feel like swimming upstream, but goodness luckily is its own reward, though the arc of justice can be very long, and much sacrifice is involved.

people will only make that sacrifice if there is a reasonable certainty of being treated equally kindly in return.

this is the social pact and it is pretty much in tatters, another reason for the low levels of trust. it's a chicken/egg dynamic, only examples of realworld success can break the vicious cycle.

they are few and far between, but enough exist to offer hope and faith in mankind's essential goodness, which has been educated badly in error, hence the breakdown.

the internet is jammed with examples of self-serving altruism, people giving enormous amounts of time, and receiving the great gifts of others doing likewise.

i'd like to think that we can evolve an intrinsic, empirical morality that comes from the heart. just as we are not born racist, we have to be taught by example to be mean and grasping.

the results should teach us more, faster, but we are a very stubborn people, and do not appreciate short term changes, even for long term good.

it takes wisdom, more than knowledge, and right now we have so much of the latter, but have not made it very far in its distillation into the former.

this will take however long it takes, but i don't see any other way forward, so patience is extraordinarily important.

perseverance furthers... says the i ching.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat Sep 11th, 2010 at 10:51:59 AM EST
[ Parent ]
... faith in mankind's essential goodness, ...

I tend to look at it like a bell curve; probabilities on the Y axis, trait on the X. So, if the trait is selfishness, put cock-sucking bastards like Cheney/Bush/Berlu et al in the left tail, put (of course) ME and my ilk in the right tail, and in the bulge are the so-so people. They'll steal from the till if they're certain no one is looking.

"essential goodness" ... don't think so, unless you live on a different planet than I do.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sat Sep 11th, 2010 at 12:10:21 PM EST
[ Parent ]
people will only make that sacrifice if there is a reasonable certainty of being treated equally kindly in return.

This reminded me of the infamous prisoner's dilemma in game theory. Here's a quick summary:

Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated the prisoners, visit each of them to offer the same deal. If one testifies for the prosecution against the other (defects) and the other remains silent (cooperates), the defector goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?

Now in a single instance of play, or when the number of games overall are known, the prisoner's dilemma turns into a zero sum game--with always one winner and one loser (one of the prisoner's rats out the other --in his or her own 'best' interest)....but interestingly, if you run an iteration of this game ove an extended period of time AND the players don't know when the last game will be--if ever--then what evolves in a cooperative relationship .... Here's a short segment on Axelrod (from wikipedia )who did some relatively famous experiements with the Prisoner's dilemma:

Interest in the iterated prisoners dilemma (IPD) was kindled by Robert Axelrod in his book The Evolution of Cooperation (1984). In it he reports on a tournament he organized of the N step prisoner dilemma (with N fixed) in which participants have to choose their mutual strategy again and again, and have memory of their previous encounters. Axelrod invited academic colleagues all over the world to devise computer strategies to compete in an IPD tournament. The programs that were entered varied widely in algorithmic complexity, initial hostility, capacity for forgiveness, and so forth

Axelrod discovered that when these encounters were repeated over a long period of time with many players, each with different strategies, greedy strategies tended to do very poorly in the long run while more altruistic strategies did better, as judged purely by self-interest. He used this to show a possible mechanism for the evolution of altruistic behaviour from mechanisms that are initially purely selfish, by natural selection.

Curiosly, or perhaps not, the best deterministic strategy was found to be tit for tat, which Anatol Rapoport developed and entered into the tournament.

Basically,  it allowed players to treat each other as they would treat themselves...Another way of describing that of course, comes from the New Testament if I recall..."Do unto to others as you would have them do unto you."

Or...Kant's categorical imperative, etc.

by delicatemonster (delicatemons@delicatemonster.com) on Sun Sep 12th, 2010 at 10:53:55 AM EST
[ Parent ]
Tit-for-Tat (With Forgiveness) has been said to, "lose the battle, win the war" once a sufficiently large enough population of Players initiate the strategy.  

There are other requirements:

  1.  The 'win' of each round must be larger than a 'loss' or 'break-even' for each Player

  2.  The reward/loss cycles must be, roughly, equivalent so a co-operative Player isn't forced to sit-out rounds allowing a defecting Player to accumulate more points than they lose through a Defection strategy

  3.  The Rules of the Game have to be at least Neutral to the development of the strategy

among others.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Sep 12th, 2010 at 03:17:28 PM EST
[ Parent ]
I think both Freakonomics and The Spirit Level pointed out that the basic assumption that people are rational actors acting out of self interest just doesn't hold true in real life.

Hopefully this message will reach the mainstream more and encourage a rethink on current models of economics.  But how to get hardcore neoclassical economists and their elite friends in business and politics to move on from it?

by In Wales (inwales aaat eurotrib.com) on Mon Sep 13th, 2010 at 06:20:16 AM EST
[ Parent ]
But how to get hardcore neoclassical economists and their elite friends in business and politics to move on from it?

Crash the economic system hard enough to convince everybody of even minimal accessibility of mind that market fundamentalism is fundamentally broken. Then wait for everyone above the age of 35 to die off. Then you will have sensible economists dominating for 20-30 years, until everybody who lived through the previous crash in their impressionable years have died. Lather, rinse, repeat. Sprinkle with world wars and genocides to taste.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Sep 13th, 2010 at 03:17:27 PM EST
[ Parent ]
How about with something familiar.  Water.  Is it good, is it bad. Is it a "virtue", is it a "vice".  Without it you die of thirst and with too much you drown, or, look at Pakistan currently. So is selfishness a virtue or a vice? Answer: Neither.

I'll start there. More later.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sat Sep 11th, 2010 at 10:25:26 AM EST

If there was ever a diary that needed to be continually available it's this one.

The NCE obsession with "rational selfishness" is a straight forward appropriation of late 19th Century Social Darwinism; a theory that has been refuted so many times its got more holes than a loaf of French Bread.  And STILL these buffoons trot it out as a Noble & Wondrous Thing.

I could get all Complexity Theory here, throwing in the jargon: Fitness Landscapes and Self-Adapting Agents and etc.  There's no point.  It is, I think, utterly simple to grasp a group of interacting entities comprise a "Public," in some sense, and that "Public" has its own Attributes and Properties distinct from the entities from whence it sprang.

Once that has been accepted the analysis, policies, and gestalt crumbles.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Sep 12th, 2010 at 03:09:42 PM EST
hey thanks guys, for the insights about game theory, they were very apt, and validating to some core beliefs.

very cool...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Sep 14th, 2010 at 04:59:58 PM EST
[ Parent ]

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