By Rumplestatskin, a professional economist with a background in property development, environmental economics research and economic regulation. Cross posted from MacroBusiness
A recent blog post about ‘culture’ making a lousy explanation of social and economic phenomena sheds even more light on the bizarre culture that is economics.
The core criticism is that “since “culture” is compatible with any conceivable set of facts, it is not falsifiable.” Which is surprising for a member of the economics club that subscribes to the unfalsifiable belief that some utility function drives all human behaviour.
In a stroke of irony their argument boils down to “our culture is to not accept culture as an explanation of behaviour”.
So why am I so defensive about culture as a useful principle in economic theory?
I guess I should first offer an economic definition of culture. Culture is the total learnt cooperative behaviours of a society, which includes the way members of that society draw meaning from the behaviour of others. Society simply means the relevant group – such as country, State, club, school, workplace, or family.
To be more clear, culture is the way we understand the meaning of signals. Think how meaning attaches to secret club handshakes or greetings, or even the behaviours surrounding social activities like eating, drinking, sports events and so forth. In Australia it can be impolite to stand at the football so people behind can’t see. In England it is impolite for a true fan to sit.
Sociologists are not so limited in their thinking. They widely adopt models that allow for learnt behaviours of individuals through interaction with others. Philip Bonacich’s fantastic introductory text covers many models that offer tantalising explanations for social phenomena that arise in aggregate from the interactions of individuals – from epidemics, to racial segregation, to power in exchange networks, to evolving strategies in the prisoner’s dilemma.
Paul Ormerod, a fellow fan of Alan Kirman’s ants model, has written multiple books offering tools that rely on social interaction and learnt behaviour to explain economic phenomena. He explains how Watt’s model of cascading network failure can reveal how and why fashion fads arise, why investors tend to go with the herd, and why some industries produce superstars even though no one can objectively tell the difference in the quality of their skills. The methodological individualism so fondly embraced by the econ crowd embraces the concept of utility, but stops short of answering the far more important question – where does our utility function come from if not our environment and our interactions with others?
Diego Gambetta has extensively studies how criminals interact and coordinate. The classic problem of criminal activity is how criminals cooperate with each other when they need to simultaneously follows the rules of the criminal world, yet break the rules of the rest of the world. Under these conditions, how can one criminal possibly trust another? What sort of culture, or learnt cooperative behaviours, allow criminals to navigate this problem? Gambetta examines how the culture of the mafia has evolved to overcome such coordination problems.
In my most recent paper I argue that social networks are the key to understanding the purpose and function of political donations. In the stylised model each agent’s utility relies on interactions with others over time. The model describes the process of signalling alliances given existing social networks, and a learnt cultural interpretation of the available signals.
In fact a whole field of agent-based modelling has arisen that allows aggregation of individual choices during repeated interactions. Much of the field studies social networks and the dissemination of cultures that allow for ongoing cooperation.
Finally, most economists ignore what are known as the folk theorems of repeated games; that it is possible to sustain any cooperative outcome when a game is expected to be repeated indefinitely. So while the textbooks are filled with explanations of the Nash equilibrium of the prisoner’s dilemma being to defect, in real life where interactions with others repeat indefinitely, cooperation is easily sustained with very basic strategies.
Where there are multiple possible cooperative strategies in a game, we might call the one that the players evolve to cooperate with the ‘culture’ of the game. And what is most interesting is that if a player in one game moves to another game they must learn the culture of the new game to ensure cooperation.
Say in game 1 the culture is for all players to play strategy A. If players cooperate by choosing the same letter as other players they increase each others’ payoffs. In game 2, players are all cooperating on B. We have two cultures that overcome the coordination problem within the same game rules. In game 1, choose A. In game 2, choose B.
Now if we take a player out of game 1 and put them in game 2, they are likely to continue their strategy of choosing A. But since all other players are choosing B, they will never be able to cooperate with another player. They must adapt to the local culture and choose B if they wish to increase their payoffs, and the payoff of those with whom they interact.
It is genuinely unfortunate that to be taken seriously by the economics ‘in crowd’ you have to start with a theory that ignores time, has a unique equilibrium, and aggregates all agents into one. There are so many avenues of research being pursued at the fringe of the profession, and within other disciplines, such as sociology anthropology, and psychology, that have so much to offer in terms of explaining and predicting social and economic phenomena by happily embracing cultural explanations.
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That culture can be important in
economic transactions is here:
http://www.psmag.com/magazines/pacific-standard-cover-story/joe-henrich-weird-ultimatum-game-shaking-up-psychology-economics-53135/
Thanks for the very interesting link.
“It is genuinely unfortunate that to be taken seriously by the economics ‘in crowd’ you have to start with a theory that ignores time, has a unique equilibrium, and aggregates all agents into one.”
Guess that’s the culture of economists! As usual, economics only works if it denies reality and then denies that it denies reality. Call it the “culture of crazymaking.”
Or culture turned religion?
Maybe it’s time to stop worrying about being taken seriously by the economics “in crowd”? Look for confirmation from the cloud dieties!
bwaaaaaaaak
on to game Z!
If anybody in the economics in crowd ever took me seriously, I’d worry I was making some huge mistake.
there’s no utility function in Game Z. there’s only imgination wave functions and there’s no equilibrium, there’s only continual transition, and there’s a penalty for too many arid abstractions, usually $1.15 for the 1st offense and 10 cents per useless abstraction. Some people can owe as much as $20.
Clearly, the ‘culture of the economics in crowd’ is follow the road to promotion, fame and money. If one has to write and speak nonsense to get ahead, so what? People have been doing that in religion, law, accounting, advertising, public relations and politics as long as these fields have existed.
What’s the big deal about economics? It’s not like they’re doing brain surgery.
If only the cloud dieties paid a salary.
if Soros would give me $5 million to start the Institute for Contemporary Analysis and we’d solve all this pretty quick.
First thing would be to get a nice office, second a hot assistant (possibly a part-time prostitue), third would be to develop a plan of some sort.
The thing to realize is that money is an accelerator of individuation in a group consciousness structure. If a theory is built around that, it has legs.
This office assistant even looks like she can type!
http://media.photobucket.com/user/Justincko_bucket/media/lololol.jpg.html?filters%5Bterm%5D=prostitute&filters%5Bprimary%5D=images&sort=1&o=94
Personally, my choice for an office assistant would be Laura Calder. With all those endless hours in the office planning, you better have somebody who can cook.
A better way to define “society” and “culture” is the following.
Society is a social group’s social practices where members act in concert rather than as isolated individuals.
Culture is a society’s conceptual constructs, including beliefs, ideas, values, &c.
While you almost reach these definitions, you don’t quite get there. However, your intention is quite right. The main reason to distinguish distinctly between “society” and “culture” is that it is then clearere and easier to formulate a coherent theory about each and then linking them together, which must eventually be done.
Of course, this means that you sometimes need to use such locutions ‘socio-cultural’ when you wish to include the influence of both with respect to a social action. But that is a small price to pay for the conceptual clarity that these definitions provide.
While it has been some time since I dabbled in microeconomics, what I recall is that to optimize revenues we used a bit of Calculus. Sometimes the demand functions were tough to develop, but underlying all this math was the implicit assumption that purchasers as well as sellers were attempting to maximize their utility. My friends, if we now allow sociologist to gum up this assumption, then far more complex math would be required. I tend to assume that economists avoid the very real problem of human behavior and the difficult math of incorporating human behavior into algorithms for the simple reason that they could not conjure up the math. That is, its too hard. I understand that Steve Keen has developed such a model – which is being widely ignored.
A simple illustration of aberrant human financial decisions. I jumped out of stocks in 2006 as I was concerned that the growth of debt was going to implode the market. Smart move. However, today, with the Fed pumping 85 Billion per month into the market, the market has been rising like a rocket. Obviously, the best way to maximize my returns would be to be long the market. Yet fear keeps me glued to the sidelines. Fear trumps rationality all to hell. And besides, if I get into the market, then I reward the Fed’s and bank’s behaviors – which disgust me.
Economics, a discipline sans culture, human or otherwise. Got it
What about this phenomenon: We have an advanced culture (let’s just say) and we have a law for everything. In fact we have so many laws that they often conflict with each other. They are written to prevent harm to someone or group. But we do not enforce those laws. We make up excuses at the highest levels of our culture – our government – that to use our laws would destabilize our…culture.
I got it!
Do not forget the biology…
I think there (often) exist a significant deficit, in regard to our human nature in these discussions. Whether from lack of knowledge and expertise or based on ideological grounds, I would in all humility, urge, not to forget about the biological dimensions.
So in daring thought experiment, why not change the heading to,
“When “Human Nature” is the Best Explanation”
Yes, let’s not forget our biology. We are the result of three evolutions — genetic (the Darwin stuff), environmental (the physical earth), and cultural. But all three interact; they are not at all separate. So human nature is not fixed. It is now evolving rapidly with our culture. One big problem with classical economics is that it assumes a fixed human nature (independent of culture) determined by our biology (genes).
“We are the result of three evolutions — genetic (the Darwin stuff), environmental (the physical earth)”
I think it is very important to remember that these processes often works along very different time scales.
Evolution of a species normally takes place over periods of thousands of years, while changes and permutations in enviroment and culture can happen much much faster.
But for me the critical point is as you also point out, they interact, and that our human behaviour is a consequence of both genetic, enviromental and cultural factors.
The way a specific behaviour is “shaped” by these underlying forces, probably vary significantly. Some are in all probability almost exclusively cultural, some exclusively genetic, and others varying mixtures in between.
One of the important challanges as I see it (in regard to economics), is to better understand and identify when/where/how our underlying biological/genetic heritage will have a predominant influence on our behaviours.
Have you read Dan Ariely?
Well, I look at this very did differently. The prisoner’s dilemma is a useful game but it does not really factor in the key element of all economics. The key factor of economics is that there is no such thing as economics apart from politics. The essential part of my model/map of the current situation is that all economics is a question of power-relations (tip of the hat to Hans Morgenthau) and frankly, which groups can get their way through the application of political force. TBF banks did not get that way because they provide better services–they got that way because they gave the Feds an ultimatum because they held the gun. And they got in that position through strategic alliances based entirely on the use od force. Thus they dictate all policy now except to the extent other forces also hold weapons.
Another part of culture takes in those shared beliefs and values which used to be valid but are no longer so, or have been imposed via “storytelling” though they are neither true nor ever have been true. So, it used to be true that if you studied and worked hard and paid your debts and cared for your kin, all would go pretty well for you.
But when the debts you’re paying have been imposed or altered to make them far worse than you ever agreed to, or the world has been changed so the resources with which to be generous, honourable and prudent have been taken from you, who is served by your hard work and honour? Hint: not you.
In this dynamic, the ordinary citizen now only has two choices– to embrace the “dishonour” of reneging on his debts, or to pay them like a good little sucker. For most people, understanding the stories that press him and changing them is beyond his scope.
You mention a player from game A being moved to game B, and having to adopt the strategies of game B in order to succeed. However, he can succeed another way — by practicing his own strategies of maximization (let’s call them game G for “greed”) while professing to value and practice the strategies of the society around him. Like a cowbird, he lays his eggs in another’s nest and then shames them into doing the work of rearing them.
This damages his adopted society, and will not work indefinitely, but he doesn’t live indefinitely either. He and his cowbird kin can, with skill, keep playing game G in a game A society, only needing to keep their actions secret, or redefine them as A-appropriate actions, or moving to a new community when the old community begins to smell a rat.
I look at economics in terms of class, not culture. The content of modern economics is largely irrelevant to me because its primary purpose is not to describe economy activity but to give intellectual cover to looting.
So to be more accurate, I look at economists in terms of class. Economists belong to our elite classes, and our elites work for and serve the kleptocratic rich. What I find interesting is that dissident heterodox economists, the Jamie Galbraiths and MMTers, will criticize mainstream economists for being wrong but not for actively, even enthusiastically, abetting the kleptocratic machine. In other words, they can criticize members of their class, but in persisting in ascribing good faith even to these, they continue to legitimize the class itself.
The left/progressive side of the political spectrum in the US has never known how to deal with issues of culture, tradition or religion. Such items are generally dismissed as superstitions, irrelevant myths or things that must be immediately transcended in order to be able to construct a more progressive and rational society.
On the other hand to be radical, i.e. to go back to the roots, seems to presuppose a willingness to examine closely the role of culture, tradition and religion in our society.
In addition, if culture, traditions and religion have been eroded to such a degree that personal identity and community cohesion is collapsing then it may be warranted to consider strengthening or reconstructing particular cultures, traditions and religions in any future political program in order to head off further social disintegration and nihilism.
The point of the blog post as I saw it was more to the point that culture is not an end point in inquiry; culture should not be a black box impenetrable to analysis and not sufficient as an explanation.
anthropology has since its inception been concerned with conduct of economy though rarely explicit about the underlying assumptions that frame discussion of strange other peoples. Financial economics likely has little time for study of the Kula ring of the Trobriand Islanders, or the evolution of Inupiat social reciprocity in the face of the financialization of their economy. The relations of exchange in Henry Sharp’s ethnography of the Chipewyan, who would make great sport of playing poor for missionaries in order to get free cans of milk in order to use them as poker chips would be used as a case study by aspiring Scrooges and not as a means to understanding local means of rebalancing inequality and incorporating white strangers into the local society through asserting claims on their property.
It’s not hard to accuse economists of myopia blending into autism or monomania; but I think in this case it was a call for depth.
Pangs for Aaron Swartz! I clicked on the “ants model” link, ended up at JSTOR — where the article can be viewed for only $36.00.