Transcript 20061912217198

Veblenian Themes in Institutional Economics
Geoff Hodgson
1. Thorstein Veblen and Institutional Economics
2. The Individual in a Social and Biological Context
3. Institutions and Habits
4. Reconstitutive Downward Causation
5. The Return of Habit
6. Conclusion
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1. Thorstein Veblen and Institutional Economics
Veblenian Themes in
Institutional Economics
Thorstein Veblen, 1857-1929
Asked “Why is economics not an
evolutionary science?” (1898)
Called for a “post-Darwinian
economics”
Wrote of “the natural selection of
institutions”
Wrote on institutions and their
psychological underpinnings
Inspired American institutional
economics …
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2. The Individual in a Social and Biological Context
Veblenian Themes in
Institutional Economics
Modern evolutionary psychologists - Leda Cosmides,
John Tooby, Howard Margolis and Henry Plotkin reject the widespread assumption that rational behaviour
is the state of nature.
They criticise the Standard Social Science Model, with
‘context-independent’ cognitive processes in the mind.
Cosmides, Leda and Tooby, John (1994) ‘Better than
Rational: Evolutionary Psychology and the Invisible
Hand’, American Economic Review (Papers and
Proceedings), 84(2), May, pp. 327-32.
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2. The Individual in a Social and Biological Context
Veblenian Themes in
Institutional Economics
vo
Experimental evidence suggests that humans are not very good at
abstract, logical puzzles.
Wason tests
 If a card has a vowel (A, E, I, O, U) on one side
 then it has an even number on the other
At the minimum, which cards have to be turned over to check if
this is in fact true?
A G 2 5
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2. The Individual in a Social and Biological Context
Veblenian Themes in
Institutional Economics
Wason tests:
 If you are under 18 years old
 then you may not drink alcohol in a public bar
Who or what has to be checked to see if the law is being followed?
Person
drinking
beer -
Person
drinking
coke -
Person
over 18
Person
under 18
–
–
What
age?
What
age?
Drinking
what?
Drinking
what?
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2. The Individual in a Social and Biological Context
Veblenian Themes in
Institutional Economics
The two problems have a logically identical structure.
These have to be checked to see if the rule is being followed:
A
G
2
5
Person
drinking
beer -
Person
drinking
coke -
Person
over 21 –
Person
under 21 –
What age?
What age?
Drinking
what?
Drinking
what?
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2. The Individual in a Social and Biological Context
Veblenian Themes in
Institutional Economics
Our capacity to reason logically
improves greatly when the logical
problem is situated in a social context,
particularly concerning the adherence to
social rules.
A challenge to the idea of contextindependent rationality.
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2. The Individual in a Social and Biological Context
Veblenian Themes in
Institutional Economics
The Principle of Evolutionary Explanation means
that any behavioural assumption in the social sciences
must itself be capable of explanation along evolutionary
lines.
Social science is not reducible to biology. But
propositions in the social sciences must be consistent
with those in biology.
Global, all-purpose, context-independent, deliberative
rationality is very unlikely to emerge through evolution.
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2. The Individual in a Social and Biological Context
Veblenian Themes in
Institutional Economics
Individuals as Endogenous.
Socio-economic systems do not simply create new
products and perceptions. They also create and re-create
individuals.
Learning is more than the discovery or reception of
information. Learning reconstitutes the individual.
Douglas Vickers (1995) sees this as a “difficulty that
economic analysis has been reluctant to confront”. With
changing knowledge and learning “the individual is
himself, economically as well as epistemologically, a
different individual”.
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3. Institutions and Habits
Veblenian Themes in
Institutional Economics
What are institutions?
Institutions are systems of established and
prevalent social rules that structure social
interactions.
The term ‘rule’ is an injunction or disposition,
that in circumstances X do Y.
Language, law, money, table manners, firms (and
other organisations) are all institutions.
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3. Institutions and Habits
Veblenian Themes in
Institutional Economics
Rules ‘work’ because they are embedded in shared
habits of thought and behaviour.
A habit is defined as “a more or less self-actuating
disposition or tendency to engage in a previously
adopted or acquired form of action” (Camic, 1986).
Habits are formed through repetition of action or
thought. They are influenced by prior activity and
have durable, self-sustaining qualities.
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3. Institutions and Habits
Veblenian Themes in
Institutional Economics
Institutions both constrain and enable behaviour.
Constraints can open up possibilities.
Institutions make up the stuff of social life.
Institutions have the capacity to mould and
change individual dispositions and aspirations.
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4. Reconstitutive Downward Causation
Veblenian Themes in
Institutional Economics
INSTITUTIONS
IND IVIDUALS
A strong process of ‘downward causation’ is
associated with institutions in all human societies.
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4. Reconstitutive Downward Causation
Veblenian Themes in
Institutional Economics
INSTITUTIONS
But what kind
of forces are
involved here?
IND IVIDUALS
But we must avoid the mistakes of ‘holism’
or methodological collectivism.
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4. Reconstitutive Downward Causation
Veblenian Themes in
Institutional Economics
INSTITUTIONS
IND IVIDUALS
The opposite idea of ‘upward causation’ is widely accepted.
Elements at a lower ontological level affect those at a higher one.
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4. Reconstitutive Downward Causation
Veblenian Themes in
Institutional Economics
The term ‘downward causation’ originates in
psychology in the work of Nobel Laureate
Roger Sperry (1964, 1969, 1991).
With ‘reconstitutive downward causation’ individuals and populations are not only
restrained but also changed, as a result of
causal powers associated with higher levels.
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4. Reconstitutive Downward Causation
Veblenian Themes in
Institutional Economics
There are no magical ‘cultural’ or ‘social’ forces
controlling individuals, other than those affecting
the dispositions, thoughts and actions of human
actors.
The framing, shifting and constraining capacities of
social institutions give rise to new perceptions and
dispositions within individuals.
Upon new habits of thought and behaviour, new
preferences and intentions emerge.
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4. Reconstitutive Downward Causation
Veblenian Themes in
Institutional Economics
Veblen (1899): “The situation of today
shapes the institutions of tomorrow
through a selective, coercive process,
by acting upon men’s habitual view of
things.”
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4. Reconstitutive Downward Causation
Veblenian Themes in
Institutional Economics
INSTITUTIONS
B E L I E F S
H A B I T S
INDIVIDUALS
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5. The Return of Habit
Veblenian Themes in
Institutional Economics
Habits as foundational:
Dewey (1922) “ The formation of ideas as well as their
execution depends upon habit. … Ideas, thoughts of
ends, are not spontaneously generated. There is no
immaculate conception of meaning or purposes. Reason
pure of all influence from prior habits is a fiction.”
Optimisation itself relies on habits and rules.
Rationality always depends on prior habits or rules as
props.
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Veblenian Themes in
Institutional Economics
5. The Return of Habit
The Deliberative Conception of Action
Experience
Beliefs
Deliberation
Action
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Veblenian Themes in
Institutional Economics
5. The Return of Habit
Veblenian Cultural Evolution
Cultural Selection
Instincts
Habits
Beliefs
Deliberation
Imitation of
others
Action
Natural Selection
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References
Veblenian Themes in
Institutional Economics
Hodgson, Geoffrey M. (2003) ‘The Hidden
Persuaders: Institutions and Individuals in Economic
Theory’, Cambridge Journal of Economics, 27(2),
March, pp. 159-75.
Hodgson, Geoffrey M. and Knudsen, Thorbjørn
(2004) ‘The Complex Evolution of a Simple Traffic
Convention: The Functions and Implications of
Habit’, Journal of Economic Behavior and
Organization, 54(1), pp. 19-47.
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5. The Return of Habit
Veblenian Themes in
Institutional Economics
Results from joint work with Thorbjørn Knudsen, JEBO 2004
The evolution of
a simple traffic
convention
The track on each side of
the road is divided into
100 zones
Cars cruise round the
track - 20 in each
direction
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5. The Return of Habit
Veblenian Themes in
Institutional Economics
The movement of each car depends upon:
• Sensitivity to pattern of traffic, 10 zones ahead - 2
fixed coefficients
• Avoidance propensity from close traffic 1 zone ahead
- 1 fixed coefficient
• Habit gene - the tendency to take account of
acquired habituation - 1 fixed coefficient
• Habit, based on cumulative past experience
If cars collide, new cars replace them.
Instincts
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5. The Return of Habit
Veblenian Themes in
Institutional Economics
The emergence of a convention
wHabit = 0.2, ε = 0.01
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Veblenian Themes in
Institutional Economics
5. The Return of Habit
5000 sample runs
1.00
0.95
0.90
0.85
0.80
Convergence
0.75
0.70
0.65
2
0.60
1.5
0.55
1
0.50
0.5
0.020
0.015
The convergence value is the Error
integral under each curve plot,
averaged for 200 runs
Habit
0
0.010
0.005
0.000
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Veblenian Themes in
Institutional Economics
5. The Return of Habit
5000 sample runs
Habit increases
convergence:
1.00
0.95
0.90
0.85
0.80
Convergence
0.75
0.70
0.65
2
0.60
1.5
0.55
1
0.50
0.5
0.020
0.015
0
0.010
Error
Habit
0.005
0.000
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5. The Return of Habit
Veblenian Themes in
Institutional Economics
Generally, strength of habit can
greatly increase the systemic
rate of convergence towards
equilibrium.
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6. Conclusion
Veblenian Themes in
Institutional Economics
• The individual is not a free-standing
entity.
• Individual reason and action are partly
a product of the biological legacy and
the institutional context.
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