Fairness and self-interest: An assessment

This paper provides an assessment of some fairness notions that are particularly relevant to economics of the marketplace. Motivations of fairness are also discussed. In this vein, three sources of fairness are outlined: moral precepts, stable convention, and reciprocity. Some suitable theoretical and empirical evidence are presented in support of these views. Economic models based on the view that man is purely selfish have performed poorly in some areas, particularly game theory and voluntary contributions to public goods. In other social sciences, notably in psychology, political science, and sociobiology researchers have also encountered systematic deviations from purely selfish behavior. There is ample evidence that both fairness and self-interest matter. It is hoped that this paper will provide a better comprehension of the tensions and complementarities between fairness and self-interest and improve our understanding of human behavior.     

Moderation, contentment, work, and alms—A Buddhist household theory

The paper deals with household theory from the angle of Buddhist thought. We build on the Buddhist terms of tanha versus chanda to express Buddhist preferences and Buddhist household theory in terms of textbook microeconomic terms. We find that preferences of Buddhist (enlightened) people may differ from those of non-Buddhist people in a systematic manner. Among other hypotheses, we deduce that Buddhists work harder than non-Buddhists if we control for meditation time. We argue that any full-grown Buddhist economics (if it is to exist) needs to build on Buddhist preference and household theory, either as presented here or in a different form.     

The evolution of altruistic preferences: mothers versus fathers

What can evolutionary biology tell us about male-female differences in preferences concerning family matters? Might mothers be more solicitous toward offspring than fathers, for example? The economics literature has documented gender differences—children benefit more from money put in the hands of mothers rather than fathers, for example—and these differences are thought to be partly due to preferences. Yet for good reason family economics is mostly concerned with how prices and incomes affect behavior against a backdrop of exogenous preferences. Evolutionary biology complements this approach by treating preferences as the outcome of natural selection. We mine the well-developed biological literature to make a prima facie case for evolutionary roots of parental preferences. We consider the most rudimentary of traits—sex differences in gamete size and internal fertilization—and explain how they have been thought to generate male-female differences in altruism toward children and other preferences related to family behavior. The evolutionary approach to the family illuminates connections between issues typically thought distinct in family economics, such as parental care and marriage markets.     

MAXIMIZING AND BIOLOGY

Metaphors of maximization are used repeatedly in biological discussions of evolution. To test whether the usefulness of a maximizing formulation, such as has been developed in economics and physics, is really borne out of sociobiology, some concrete demographic models have been taken from standard Lotka theory. They have been combined with scarcity of resources and the law of diminishing returns. It then turns out that the resulting coupled non-linear system of difference equations can only sometimes be given a maximizing interpretation. When this can be done, it is shown that no knowledge on the part of the participants or the observers of any preexisting problem to be solved is required. But, even when a maximizing interpretation is possible, it is shown that teleological concepts such as "egotism,""reciprocal altruism,""adaptation," or "fitness" are redundant ways of describing the positivistic fact that Nature's cookie sometimes crumbles in such a way as to make certain patterns recurrent and viable, while certain other patterns are only transiently persistent. Most important of all, for almost every choice of the parameters of a model no maximand can be found to be definable and whose solution constitutes the observable and testable behavior equations. Not only are the imperialist-economists pretensions debunked by this audit, but in addition various of the concepts of biologists such as R. A. Fisher are seen to be severely limited in scope and application.     

DIRECT TESTS OF INDIVIDUAL PREFERENCES FOR EFFICIENCY AND EQUITY

Departures from “economic man” behavior in many games in which fairness is a salient characteristic are now well documented in the experimental economics literature. These data have inspired the development of models of social preferences that assume agents have preferences for equity and efficiency as well as their own material payoffs. Empirical failure of the economic man model comes from experiments that provide direct tests of its distinguishing characteristic: indifference to the payoffs of others. This paper reports an experiment that subjects popular social preferences models to the same type of empirical challenge. We report direct tests of the distinguishing characteristics of these models: preference for allocations that have higher efficiency and greater equity. (JEL A12, A13, B49, C70, C91, D63)     

What is the Main Significance of Economic for Sociological Theory?

This paper reconsiders classical and neoclassical economics’ significance for or affinity and convergence with sociological theory. The paper identifies certain types or elements of classical and neoclassical economics that are potentially significant or convergent with sociological theory: pure market economics, the economics of society cum the “rational choice model”, and social or sociological economics. First, it argues that as pure economics economic theory’s significance for or affinity and convergence with sociological theory is low because the first is inconsistent with or divergent from the latter, notably theoretical economic sociology. Second, the paper suggests that as the economics of society economic theory’s significance for or affinity and convergence with sociological theory is non-existent or minimal, because the “rational choice model” is missing or an exception within conventional economics. Third, the paper proposes and demonstrates that classical and neoclassical economics’ main significance for or affinity and convergence with sociological theory lies in social economics as its second ingredient, alongside market economics. The paper aims to contribute to a better understanding of the relationship between economic and sociological theory and economics and sociology overall.     

Axiomatic foundations for fairness-motivated preferences

Much work in social choice theory takes individual preferences as uninvestigated inputs into aggregation functions designed to reflect considerations of fairness. Advances in experimental and behavioural economics show that fairness can also be an important motivation in the preferences of individuals themselves. A proper characterisation of how fairness concerns enter such preferences can enrich the informational basis of many social choice exercises. This paper proposes axiomatic foundations for individual fairness-motivated preferences that cover most of the models developed to rationalise observed behaviour in experiments. These models fall into two classes: Outcome-based models, which see preferences as defined only over distributive outcomes, and context-dependent models, which allow rankings over distributive outcomes to change systematically with non-outcome factors. I accommodate outcome-based and context-sensitive fairness concerns by modelling fairness-motivated preferences as a reference-dependent preference structure. I first present a set of axioms and two theorems that generate commonly used outcome-based models as special cases. I then generalise the axiomatic basis to allow for reference-dependence, and derive a simple functional form in which the weight on each person’s payoff depends on a reference vector of how much each person deserves.     

A behavioral model of labor supply: casting some light into the black box of income-leisure choice

The economics of labor supply, a basic building block of economic theory, cannot provide any substantive analytical predictions on the course of labor supply by an individual or a group. This is largely due to the absence, in the theory of income-leisure choice, of any consequential behavioral content which speaks to existing and changing preferences of individuals and to the differences in preferences across individuals. Introducing a discussion of preferences into the argument, in particular target real income and target nonmarket time, provides for a richer model of labor supply and for a more precise set analytical predictions with important public policy implications.     

A cause of preference is not an object of preference

Welfare economists sometimes treat a cause of preference as an object of preference. This paper explains that this is an error. It examines two examples where the error has occurred. One is from the theory of endogenous preferences. The other is from the theory of extended preferences. People have erroneously been led to believe that everyone must have the same extended preferences, and this has led them to think that extended preferences can be the basis of interpersonal comparisons of wellbeing. But actually the basis of interpersonal comparisons must come from elsewhere. Note. Presented at the conference on Social Choice and Welfare, Caen, June 1992. I have greatly benefited from correspondence and discussions on the subject of this paper, at the conference and elsewhere, with Kenneth Arrow, John Harsanyi, Susan Hurley, Serge-Christophe Kolm, John Roemer, T.M. Scanlon, Brian Skyrms, Hans-Peter Weikard, Menahem Yaari and an anonymous referee. The research for this paper was funded by the Economic and Social Research Council under grant R000 23 3334.     

The question of mathematical social theory revisited: Some methodological considerations

Methodologically, the most advanced social science discipline is considered economics, especially its neoclassical version. A number of practitioners in the other social sciences, especially sociology and political science, perceive economics as a scientific exemplar in methodological (and theoretical) terms. This methodological exemplar has been, particularly in the last decades, attempted to emulate by some of these social scientists. The outcome of this emulation, by adopting and extending its methods, of neoclassical economics in parts (but not all) of sociology, political science, and elsewhere has been rational choice theory as a general social paradigm. This paper tries to show that many misapplications of the methodology of neoclassical economics in rational choice theory have ensued from such methodological emulation. That neoclassical economics does not necessarily contain or lead to a mathematical rational choice model is the core argument of this paper. The paper fills in a gap created by the current literature’s focus on the methodological bases of mathematical rational choice theory in neoclassical economics.     

CYBERNETICS AND MACROECONOMICS

A full estimate of the effects of cybernetics and control systems engineering on economics would be premature if not impossible at this time. The relevant literature is at most twenty-five years old and its ultimate impact remains uncertain; thus conclusions are at best tentative. However, one can identify sources of inspiration and main participants as well as apparent trends. Axel Leijonhufvud has referred to the introduction of control engineering into aggregate analysis by Tustin, Phillips, and others in the 1950s as “the Keynesian Revolution which did not come off.” One purpose of this paper is to explore Leijonhufvud's observation. What stopped monetary and macroeconomic theorists from picking up the Tustin-Phillips lead and making the control-theoretic approach an integral part of economic analysis? Historians of economics writing a few decades from now may be able to provide a proper answer. But a few speculations can be offered now.     

The common will

This paper discusses the formation of a common will among a group of people from two separate points of view: that of social choice theory and that of discourse ethics. The paper evaluates the formation of a common will by “silent” mechanisms for aggregating individual wishes and preferences, traditionally the domain of social choice theory, from a procedural perspective. I will consider—and answer in the negative—the question of whether or not there exists a mechanism for aggregating individual preferences that is perfectly reflective—in the sense that it can be applied recursively in order to justify or legitimate its own application. I will then consider discourse ethics from a consequentialist standpoint—rather than the traditional, process-oriented perspective from which it usually advanced and defended—and show that its insistence on dialogue as a means for the formation of a common will is based on underlying assumptions about the nature of preferences—such as the discussability of tastes and the malleability of time scales—which run counter to the view of preferences normally associated with standard economic theory. I conclude that, although neither approach to the formation of a common will fares well by the standards normally used to justify the other, proponents of either approach have much to learn from a dialogue with proponents of the other.     

Reconciling normative and behavioural economics: the problems to be solved

We review the problem of reconciling normative and behavioural economics. In conventional welfare economics, individuals’ preferences are assumed to be coherent, and the satisfaction of those preferences is the normative criterion; but this approach breaks down if preferences are incoherent. Traditionally, the preference-satisfaction criterion has been interpreted in three conceptually different ways, emphasising respectively the normative value of happiness, self-assessed well-being, and freedom. If individuals’ preferences are incoherent, these interpretations diverge, leading to fundamentally different strategies for dealing with the reconciliation problem, and new questions are raised about whether normative economics should be addressed to governments or individuals.     

The socioculturalist agenda in economics: Critical remarks of Thorstein Veblen's legacy

The article identifies a cluster of heterodox economists, especially followers of Thorstein Veblen, who are critical of the neoclassical axiom of well-defined preferences. They generally have a problem with the reductionist reasoning that preferences of agents are constituted prior to social interaction. Some of them are proposing somewhat well-defined preferences deduced instead from the tastes of the reference groups with whom the agent identifies. The article does not question the relevance, with respect to economics, of the preferences of groups. Rather, it challenges a muscular view of such preferences which is being uncritically borrowed, inter alia, from functionalist sociology and substantivist economic anthropology. Sociologists and anthropologists in general have recently become, from diverse perspectives, critical of the conception of sociocultural tastes as hegemonic. The basic thrust of the article is that the socioculturalist agenda broadly subscribes to a biological/social dichotomy which neglects that tastes also arise from psychobiological developmental processes.     

BELIEVING IN ECONOMIC THEORIES: SEX, LIES, EVIDENCE, TRUST, AND IDEOLOGY

Political economics views heterogeneity of political preferences largely as a reflection of heterogeneity in valuations of known policy outcomes. Voters, however, may be uncertain about policy outcomes, in part, because of uncertainty about how the economic world actually works. Heterogeneity of people's beliefs about how well economic theories predict outcomes could then affect policy through democratic institutions. Using a combination of experimental and survey techniques drawn from economics and social and political psychology, we examine several potential sources of heterogeneity in beliefs about the predictive content of supply and demand theory, with a particular focus on the role of ideology. ( JEL A110, A130, C420, C900)     

Gary Becker's Contributions to Family and Household Economics

Gary Becker's influence on the economics of the family has been pervasive. His ideas have dominated research in the economics of the family, shaping the tools we use, the questions we ask, and the answers we give. The foundational assumptions of Becker's economic approach to the family–maximizing behavior and equilibrium–as well as such primary auxiliary assumptions as household production and interdependent preferences, are now widely accepted not only by economists but also by family sociologists, demographers, and others who study the family. Yet the interesting and provocative implications of Becker's economic approach to the family do not follow from the foundational assumptions or from the primary auxiliary assumptions. Instead they depend on contested auxiliary assumptions to which neoclassical economics has no commitment and which lack empirical support. This paper discusses the crucial role of auxiliary assumptions in Becker's analysis of the family, first in the context of preferences, then in the context of household production, and finally in the context of family or household collective choice.     

Good habits and bad habits: A new age socio-economic model of preference formation

In contrast to neoclassical economics which generally takes consumer preferences as given, the model developed here explains how a person's preferences for consumer goods change over time and may change for the better or worse. This is a four self model. The four selves correspond to four types of preferences: actual preferences, metapreferences, true preferences, and unrestrained preferences. An individual's initial actual preferences reflecting one's investment in consumption capital are likely to change to the extent that they differ either from ones metapreferences or one's unrestrained preferences. Temptations from the latter could lead to a deterioration of actual preferences. Or the intrapsychic stress that occurs when metapreferences are significantly out of synch with actual preferences could lead to improved actual preferences. A person's actual preferences improve when they change toward true preferences, the unique set of preferences that represent what is really and truly the best for that person.     

Homo neurooeconomicus

Some years ago researchers in economics have started to adopt neurological techniques like functional magnetic resonance imaging (fMRI) especially in game theoretic research-settings founded on mainstream rational choice theory. They aim to pinpoint neural activities in human brains while exposing individuals to certain stimuli (social dilemma games, choices of brands or impact of commercials). To their surprise researchers find parts of human brains involved in the observed decision making processes that normally generate emotions or are designed to store culturally acquired social preferences. In other words: neoclassical rational choice theory is discovering emotions, neural correlates of cultural predispositions and other non rational strategies of decision making processes in human brains. These findings that are acclaimed as a paradigmatic revolution and nonetheless interpreted as a confirmation of the leading rank of economics in social sciences are increasingly fascinating representatives of management and marketing. The pragmatic illusion of shortcuts into consumer brains has led to the inauguration of a specious variation of neuroeconomics named ?neuro-marketing”. Neither the admonition of leading neuroscientists and neuroeconomists nor the apparent triviality of most of the results are accounted for. Beyond this neoclassical rational choice theorist ignore the underlying scientific as well as pragmatic messages of these observations: the fact that sociology, economics, psychology and neuroeconomics tend to mutually validate their respective findings as social correlates of brain-activities and vice versa.     

Sociobiology misses the mark: An essay on why biology but not sociobiology is very relevant to sociology

This essay takes the position that sociologists need to pay more attention to biology, but that the biological perspective provided by sociobiology is not the perspective that is the most relevant. The reductionist nature of sociobiology is noted and the treatment by sociobiology of altruism, religion, homosexuality, the maximization of inclusive fitness, group versus individual inheritance, and the genetic inheritance process itself is critiqued. Sociobiology’s strong emphasis on ultimate causation and the denigration of proximate causation is treated as particularly problematic. The paper ends with a plea that sociologists pay more attention to the research that shows the interactional effects of biological, psychological and social processes. Best known for his work on mental illness and on gender and marital roles, he also has published extensively in the area of family, crime, and aging. While an undergraduate student in the 1950s, he was trained in biology and has had a strong interest in biological issues since that time.