Steve Reads

Crooked Timber today has a post today making some nice connections between international law and what “self-interest” means: a self-interested nation may, indeed, wish to give up some freedom of action. The point that Robert Frank made in Passions Within Reason is that “self-interest,” properly construed, doesn’t mean that you’ll act self-interestedly at every moment: people need to know, at times, that you’re “credibly committed” to an action that’s against your narrow self-interest. Marriage is maybe the most straightforward example: a potential spouse who knew that you acted at every moment out of vulgar self-interest would likely expect to be dumped as soon as someone better came along. Your spouse has to know that you won’t act this way, or else you won’t maximize your (broader-sense) self-interest. Hence self-interest often requires sacrificing vulgar self-interest. The extension to international law is straightforward and sensible.

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Robert Frank beat you to the story by about 19 years.

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Having finished Passions Within Reason, and having focused on the sadness of the political climate to which it’s a response, I’d like to take a moment to actually focus on its content, because a lot of it is very interesting.

The largest portion of the book is given to “commitment problems,” which are a class of problems where pure detached self-interested thinking will get you nowhere. The clearest example is marriage: yes, there’s probably (I should say “hopefully”) a good bit of self-interested thinking in your choice of a mate, but once you’ve chosen a mate, you’ve commited to stop searching for a utility-maximizing partner. That is, your marriage vows don’t say, “To love, honor, and obey until the marginal gains from switching to a new partner exceed the transition costs of divorcing my current one and switching to the new one.” There probably are those who do think this way, but you’re not going to get far modeling marriage that way. You need to move beyond self-interest and posit that there is an emotion at play that makes you do things that your rational mind would not — namely love. It’s not cutesy human-affirming stuff; it’s a realistic theory.

Another commitment problem involves revenge. Frank’s point is that if you’re known as someone who will get back at your enemies no matter the cost, you’re likely to be crossed by fewer enemies to begin with. Indeed, if your enemies know that you’re totally rational and that you’re coolly working out your game-theoretic payoff matrices before you retaliate, they will therefore know that sometimes it’s just not in your interests to shoot back, and they will therefore not hesitate to shoot you. So sometimes it’s in your self-interest to stop thinking about your immediate self-interest. Once Frank says it, it’s a perfectly obvious point. But he says it with a lot of style, plenty of real-world evidence, and good theoretical backing. (Axelrod’s experiments with the Tit-for-Tat strategy in the iterated prisoner’s dilemma make their inevitable appearance, as well they should.)

One good example of the paradox involved here comes at the end, when Frank mentions the strategy of Mutually Assured Destruction. Imagine the U.S. and the U.S.S.R. are trying to decide how to respond, should either country fire nuclear weapons at the other. Suppose Soviet missiles are already in the air, and the U.S.’s destruction is assured. What is the U.S.’s best response here? Rationally, it seems as though firing back is pointless: if we’re already going to be destroyed, what’s the sense in firing? What do we gain from that? If the Russians knew we thought this way, they should fire when ready; they get to see the end of their enemy, and they survive unscathed.

So what would make the U.S. safest here is if the Russians believed that we were, in fact, totally irrational — that we would use nuclear weapons even when it didn’t serve our self-interests to do so. By believing us totally irrational, they decide not to fire and we stay safe. Only if they believe that they will inevitably be destroyed will they decide not to shoot in the first place. Frank argues sensibly that, for many commitment problems, the only way to “credibly commit” to acting in a certain way is to be that way: the only way to credibly commit to destroying any nation that destroys you is to be a little mad; the only way to credibly commit to a lifetime of marriage is to be the sort of person who would marry for love. Frank’s argument — I don’t have time to summarize it here — is that many of the behaviors necessary to make these commitments credible cannot be faked easily.

In another category, there’s a set of behaviors relating to perceptions of fairness. The classic game-theoretic example that comes up time and again here is a little allocation game: person A and person B sit across from one another at a table, and person A has to decide how much of his money (let’s say $100, given to him by an experimenter) to give to person B. He offers person B any amount of money between $0 and $100, inclusive; if person B accepts the deal, they keep their respective amounts of money. If person B turns it down, neither party gets any money. The game theory is unequivocal: person A should offer person B the smallest amount of currency available (namely a penny), and person B should take it happily; after all, that’s a penny that he didn’t have before.

In actual experiments, people don’t behave like person A and person B. On average, person A ends up giving person B 50% of the pie, and person B rejects deals he views as unfair. People care about fairness. More to the point, those with whom they’re negotiating know that they care about fairness. No sensible negotiator would leave fairness out of his bargaining position. Yet ignoring squishy moral notions like fairness is exactly what the selfishness theorists would have us do. It’s Frank’s job to make these notions less squishy, which he does admirably.

In the real world, we see uses of fairness all the time, as Frank points out. Unions often behave contrary to their game-theoretic optima, refusing to accept contracts that get them mere scraps of a large profit pool. I don’t recall whether Frank notes a tendency for corporations to make fair offers to unions. It would make sense that they would: an intelligent bargainer will not offer his opponent an insulting package.

That’s the simple point here, which again should be obvious: any sufficiently rich theory of human behavior has to incorporate the emotions, and has to incorporate notions like fairness and love. The trick for scientists, of course, is to turn these into rigorous concepts that can actually be modeled; absent such a model, the selfishness theorists win by default.

The class of problems that Frank addresses here is by no means trivial. These are not the toy examples that people (specifically Posner) often accuse behavioral economists of using in lieu of an actual theory. They relate to the most basic interactions in civilized life (marriage, honesty, trust), and to the most complicated ones in political and industrial life (war, union bargaining). Since my readership is largely American, I feel obliged to recommend it as a tonic to the Posners of the world. But I feel sad that I’m obliged to.

There’s something sad about a lot of the behavioral-economics works, and about Frank’s work — the latter of which we might call “moral economics.” They’re all largely fighting rearguard actions. In some sense they’re fighting against the 1980’s, but in general they’re fighting against a United States which has granted monetary and now theoretical support to acting selfishly. They want to fight against this, so they want to argue that human decency is possible — that altruism, say, is possible, and that for deep psychological reasons owing to the structure of rewards and punishments, altruism and the like may actually be evolutionarily valuable traits.

In particular, Frank wants to argue that being an honest person helps you, because being truly honest in a way that is impossible to fake is hard. Hence you’re likely to be a more trustworthy business partner, so “honesty is the best policy.”

I don’t want to downplay Frank by oversimplifying him; this is a splendid book, which puts a theoretical architecture underneath a lot of commonsense moral judgments. But that’s just the point: aren’t these all supposed to be common sense? All of the conclusions in Frank’s book are things that my parents taught me: be nice to people, don’t lie, don’t steal, etc., etc. Frank wants to tell you that not only are these the right things to do, but that you have theoretical support behind you for doing it. And also that people like Richard Posner — whom Frank directly attacks — have it precisely wrong, and that their selfishness theory of humanity doesn’t even serve their own goals.

So what this book buys you is a moral justification. In that sense it’s part of an esteemed tradition, whose most recent member might be John Rawls. Rawls told us that, every time we had a decision to make about how to allocate scarce resources, we should ask ourselves, “If I were constructing a society and allocating resources without knowing what position I would take in that society — if I didn’t know whether I would be poor, or black, or crippled, or ugly — how would I choose to dispense those resources?” Rawls goes on to argue persuasively that someone in this “original position” would choose to distribute benefits so as to maximize the benefits of the least-well-off member of the society. In a word: if you might end up poor, treat the poor as well as you can. In the original position, this is the purely rational thing to do.

Again, this is really bottomlessly sad. I’m glad we have moral theories, I guess. But to me, the best sign of a society’s health are the premises it doesn’t need to debate — the things that no one really bothers to argue. (Off the top of my head, the virtue of nearly unlimited free speech is one of the U.S.’s cultural givens.) The fact that we even need to provide arguments in favor of helping the poor, or in favor of altruism, is sad. A healthy society wouldn’t even be talking about this. A healthy society doesn’t need a theory to keep it honest. (I realize this is a point worth arguing, but I’ll defer that to later.)

The side arguing selfishness has its own theory, of course, showing that not only will it produce the best society overall, and not only do people behave this way naturally, but also that it’s senseless to try to fight it. A nice, tight package of selfishness. I’m glad Frank’s there to respond to it, but it’s awful that he has to.

Incidentally, I’m getting the sense that the modern selfishness theorists have in fact inverted everything that Adam Smith and all the other great 18th-century Scots stood for. Yes, appeal to man’s self-interest in many cases, but for god’s sake assume that he has a moral sense as well. I’ve not read enough of them to argue this yet, but it seems like a decent theme to read up on. We could call it “The Betrayal of Liberalism” or somesuch, and shock all the people who buy it expecting a defense of the GOP.

I switched temporarily to reading Robert Frank’s Passions Within Reason: The Strategic Role of the Emotions, whose thesis seems to be that even if you accept the premise that all of our actions are utility maximizing, it does not follow that each individual action is selfish. That is, it might well serve your long-term interests — maximizing your lifetime utility, perhaps — to do something that harms you in the immediate future. So “narrow-sense” utility maximizing isn’t a very good strategy for selfish humans. Frank still wants to explain how real altruism — he mentions Larry Skutnik, for instance — is possible. How, as naturally-selected beings, can we do anything that might limit the greater spread of our genes? I’ve not read his answer yet. It’s a decent question. (By now I’ve read descriptions of Robert Axelrod‘s iterated-tit-for-tat experiments so many times that I’m getting mildly annoyed with them, but they always come up in these contexts.)

Many of my readings over the past several years have questioned the psychological and evolutionary plausibility of mainstream economics (is it still mainstream, I wonder?). First they question the descriptive power of economics (“this is what actual people do”). Then they question the normative power of economics (“this is what rational beings should do”). (And of course a valuable strand — covered in Gigerenzer, Todd et al.‘s Simple Heuristics That Make You Smart — is: if natural selection has finely tuned us to our environment, and we systematically don’t behave as game theory dictates we’ll behave, then isn’t that a strong hint that it’s not actually “rational” in any good sense of the word?)

Now of course that has to be tempered. We all realize that there are things we do which are in no way good for us, in the short-term or long-term sense. We start smoking cigarettes even when all the evidence suggests that it’s going to shorten our lives dramatically, cost us a great deal of money, lead us to wake up in the morning with nastiness in our chests, etc. In general, we develop habits that it would really be better for us to give up, but maybe the subjective costs of switching are higher than the subjective gains from doing so.

So then if you’re a mainstream economist, you have to posit that, for instance, we have made a rational calculation before getting addicted to cigarettes: we’ve computed the long-term costs of getting addicted, and the long-term joy we get from that hit of nicotine, and we’ve decided that the latter offsets the former. Of course this becomes radically non-falsifiable: if any bit of evidence could be cajoled into proof that we’re rational utility maximizers in everything we do, then it’s not a science.

It’s obvious to anyone with eyes that we are not entirely rational. We do things that even we know we shouldn’t do. We do things out of spite. We act stupidly, and in directly harmful ways, because of jealousy. We don’t save enough money for retirement, even when presented with abundant evidence of how long we’ll live and how much we’ll need. Etc., etc. The evidence goes on and on, and my fascination just mounts: even though we all know that the theory is very incorrect, we have to argue with it as though it made sense. It starts to feel like Republican talking points: just in order to get in the game, I have to spend time arguing that Hillary Clinton does not eat babies.

Bowles’s Microeconomics book starts to treat these emotions as valuable data on their own: he tries to model revenge (for instance, getting back at someone who slacks off at work), envy, greed and so forth, which marks the first time I’ve seen emotions rigorously treated in a work of economics. (Not that I’ve read much, granted.)

All of the above leads me to wonder: what does economics have to offer above psychology? Bowles defines one of the main purposes of economics as the construction of institutions that encourage people to behave in ways that help all the individuals within the institution. So that might be one good thread. But I’m wondering whether a lot of the ground has been yanked out from under economics if, as time goes on, it’s turning more and more into mathematical psychology.