Friday, December 24, 2010

Economics of Sociopaths

"""""Brad DeLong asserts that the microfoundations of economics point not to a Hobbesian vision of the war of all against all, but rather to Adam Smith's propensities for peaceful cooperation, especially through exchange. "The foundation of microeconomics is not the Hobbesian 'this is good for me' but rather the Smithian 'this trade is good for us,' and on the uses and abuses of markets built on top of the 'this trade is good for us' principle." Bertram objects that this isn't true, and others in DeLong's comments section further object that modern economics simply does not rest on this Smithian vision. DeLong replies: "Seems to me the normal education of an economist includes an awful lot about ultimatum games and rule of law these days..."

I have to call this one against DeLong — rather to my surprise, since I usually get more out of his writing than Bertram's. The fact is that the foundations of standard microeconomic models envisage people as hedonistic sociopaths [ETA: see below], and theorists prevent mayhem from breaking out in their models by the simple expedient of ignoring the possibility. """

""""If you open up any good book on welfare economics or general equilibrium which has appeared since Debreu's Theory of Value (or indeed before), you will see a clear specification of what the economic agents care about: this is entirely a function of their own consumption of goods and services. Does any agent in any such model care at all about what any other agent gets to consume? No; it is a matter of purest indifference to them whether their fellows experience feast or famine; even whether they live or die. If one such agent has an unsatiated demand for potato chips, and the cost of one more chip will be to devastate innumerable millions, they simply are not equipped to care. (And the principle of Pareto optimality shrugs, saying "who are we to judge?") Arrow, Debreu and co. rule out by hypothesis any interaction between agents other than impersonal market exchange, but the specification of the agents shows that they'd have no objection to pillage, or any preference for obtaining their consumption basket by peaceful truck, barter and commerce rather than fire, sword and fear. """""
Ms Shalizi should have read a bit further in her cliffsnotes to Leviathan: Hobbes claimed that citizens avoid Bellum omnium contra omnes by agreeing to "covenants" of various sorts (ie, a cooperative model), and those covenants (ie contracts) shall be in their individual best interest as well--theoretically. So Leviathan does bear affinities to Adam Smith's "propensities for peaceful cooperation," though the normative question remained (at least for those who require an argument proving contractual obligations or "ought-ness", apart from mere prudentia , which even Capn' Kidd and Keynes would probably agree to).

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