“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Friday, January 07, 2011

Perspectivism, rational choice theory, and Blake


Lately, LI has been thinking about how to put together two theses in the Homo Economicus book. One thesis is that there is a multiplicity of matrixes of exchange even within modernity – and that the seeming hegemony of the money matrix, to the extent that it even defines the economic as opposed to the non-economic, is a phenomena that has certainly penetrated other matrixes – such as the complex gift and barter relationships of family, friendship and alliance – without fundamentally ‘commoditizing’ them. In one sense, my whole thesis is that there is a dialectic structure that governs the degree to which the hegemony of money, as reflected in the character of homo economicus, can actually dispense with other matrixes, since its survival is threatened by its monopoly of all spaces of exchange.

The other thesis is that rationality, as the economists define it, is linked to a realism that denies perspectives as anything other than representatives of ‘parts of reality’. Myself, I am a perspectivist of the ‘hard; variety – that is, I see no reason to put up with the idea that the parts of reality make up one reality. Reality, here, becomes a substitute for the God’s eye perspective – that point at which we can see the whole universe. Perspectivism denies that perspective can be constructed. It does not deny, it should be said, that certain processes might be shared among perspectives – say, a process for correlating statement and fact. Or even a process for ordering preferences. It simply denies that this formal characteristic has any substance. In other words, rationality within a perspective refers to the norms of the perspective, not to processes that transcend perspectives. Hard perspectivism contends that there is information in a given perspective – something that can be defined by simple axioms – that does not exist in other perspectives. In the clash of perspectives – which is the dynamic by which perspectives are made – this information can be completely lost – the way a passenger pigeon saw an oak tree no longer exists, for instance. I would not go so far as to say that different matrixes of exchange form completely different perspectives, but something similar might well hold – that is, that there is information in a barter exchange that can’t be transformed or translated into the money exchange. Etc.

In other words, I want to build a theory about economics based on this phrase of Blake’s:
How do you know but ev'ry Bird that cuts the airy way,
Is an immense world of delight, clos'd by your senses five?


Now, onto some reading notes.

“A body of data and theory has been developing within psychology which should be of
interest to economists. Taken at face value the data are simply inconsistent with preference
theory and have broad implications about research priorities within economics. The
inconsistency is deeper than the mere lack of transitivity or even stochastic transitivity. It
suggests that no optimization principles of any sort lie behind even the simplest of human
choices and that the uniformities in human choice behavior which lie behind market
behavior may result from principles which are of a completely different sort from those
generally accepted. This paper reports the results of a series of experiments designed to
discredit the psychologists' works as applied to economics.” – Grether, Plott

So begins a rather puzzling paper on the phenomenon of ‘preference reversal’, “Economic Theory of Choice and the Preference Reversal Phenomenon” (1979). It is puzzling because, as has been pointed out by Daniel Hausman, the two economists who introduce, in sweeping terms, an examination of a series of experiments that seemingly contradict the central tenant of the neo-classical theory of choice end the paper by retreating almost totally from their introduction:

“The fact that preference theory and related theories of optimization are subject to exception
does not mean that they should be discarded. No alternative theory currently available appears to be capable of covering the same extremely broad range of phenomena. In a sense the exception is an important discovery, as it stands as an answer to those who would charge that preference theory is
circular and/or without empirical content. It also stands as a challenge to theorists who
may attempt to modify the theory to account for this exception without simultaneously
making the theory vacuous.”

As Hausman puts it, “It is almost as if they conclude, “Since these awful data cannot be discredited, economists should ignore them, although not without first congratulating themselves for possessing such a splendidly non-vacuous theory.” (207)

Plott and Grether’s paper concerns an experiment in betting.

“Individuals under suitable laboratory conditions are asked if they prefer lottery A to lottery B as shown in Figure 1. In lottery A a random dart is thrown
to the interior of the circle. If it hits the line, the subject is paid $0 and if it hits anywhere
else, the subject is paid $4. Notice that there is a very high probability of winning so this
lottery is called the P bet, standing for probability bet. If lottery B is chosen, a random
dart is thrown to the interior of the circle and the subject receives either $16 or $0 depending upon where the dart hits. Lottery B is called the $ bet since there is a very high maximum reward. After indicating a preference between the two lotteries, subjects are asked to place a monetary value on each of the lotteries.”

Now, according to standard theory, if Lottery A is preferred to Lottery B, then Lottery A should receive a higher monetary value than Lottery B. That is, revealed preference should be coordinate with true preference.

What happened was quite different. The majority of respondents preferred the lottery with the lower risk and lower payoff, but put a higher price on the lottery with the higher risk and the higher payoff.

Lott and Grether’s paper builds on an early paper by two psychologists, Lichtenstein and Slovic (1971), who have continued to work on the psychology of preference to build, with Tversky and Kahnmann, prospect theory. Lott and Grether varied elements from the earlier experiment – for instance, the set of subjects was selected from the economics rather than the psychology department – but the results were consistent with the kind of preference ‘reversal’ revealed by the psychologists.

“Needless to say the results we obtained were not those expected when we initiated this
study. Our design controlled for all the economic-theoretic explanations of the phenomenon
which we could find. The preference reversal phenomenon which is inconsistent with the traditional statement of preference theory remains. It is rather curious that this inconsistency between the theory and certain human choices should be discovered at a time when the theory is being successfully extended to explain choices of nonhumans.”

Since these papers were published, a lot of experimental work has been done on the way people form preferences, and most of it is incongruous with the way that economists say that people form preferences. It is found that people’s preferences can vary widely over time; that the independence condition – seemingly irrelevant circumstances that are added to binary choices – can change the choices; that the order of preferences can be intransitive, so that we can’t even predict, from a choice, what the optimal preference is – and so on.

The decline of confidence in the foundational axioms of rational choice theory and its descendents has led to the current interest in behavioral economics and prospect theory. I’d like to put this work in relation to a fascinating paper by Avrin Offer on the survival of the Gift Economy in modernity: “Between the Gift and the Market: The Economy of Regard”.

TBC

4 comments:

Sarah said...

If I'm understanding what you're saying about perspectives, you view a perspective as being something like a language: the fact that they may all share certain characteristics in no way makes them either all the same or all part of greater 'whole' language. And each has unique properties that can never be fully captured in another language. Translations are never real reflections of the original but must always be more or less rough approximations and once a language disappears something irreplaceable has been lost.

And, I suppose that also like languages, the more experience a person has in trying to 'see' other perspectives the more likely they are to appreciate this- just as only a person who speaks other languages can appreciate just how untranslatable they can be, while someone who speaks only their native tongue can easily maintain the illusion that a translation is really an exact expression of the original.

This is a very interesting thought- one that has never occurred to me but is intuitively appealing - as someone who has learned - or tried to learn- both other languages and the very different perspectives of other cultures and times.

roger said...

Sarah, the language comparison is good, but it is important to remember that languages are always in flux, fissured with private languages, family vocabularies, professional idiolects, and always changes on its edges - for instance, American english is changing with Spanglish - and in aggressive competition one with the other - part of the evolution of the nation state, as Benedict Anderson notes. So translation is always a heraclitean business, translating from one flux of change into another. The good thing about the language metaphor is that one doesn't pretend that all languages are pieces of some grander Ur-language - which is the trouble with the perspective metaphor. It is as if all perspectives were perspectives on some underlying reality - the reality that plays the role of the God perspective. This idea is in fact part of liberal relativism - everybody has his or her opinion, but they are like slices taken out of one big pie, which is the real, or the social, or whatever encompassing term one wants to use. Within the liberal culture, I'd simply disagree that everybody has his or her opinion, or that the pie exists.

Sarah said...

Do you believe perspectives are fixed, then? I suppose you could say that there is an overall human perspective, based on the senses we have, or an overall mammalian perspective. But certainly there is enormous variation within these categories. And they can be modified, if not changed, by using different filters. I'd argue that language is such a filter, for everyone capable of speech, anyway. And we seem to be able to learn to substitute one sense for another when we have to- with the part of the brain normally used for sight actually taken over by the expansive use of hearing and touch by blind people. I imagine the blind boy who learned to navigate by clicking and whistling like a dolphin must have had a very perspective than most of us. And we can gain new perspectives to a certain extent by mechanical means- infrared goggles, pictures of earth from space, biofeedback devices.

I suppose I agree that there is no pie and I have no way of knowing whether my attempts at seeing things from other perspectives are succeeding. That doesn't stop me from trying, however.

roger said...

Sarah, no, I don't think perspectives are fixed! I must have been really unclear, there - the drizzle of yesterday's afternoon must have come creeping into my prose and left it damp and a little musty. Perhaps some are perspectives, in some respects, are fixed - the perspective of the passenger pigeon for instance seems absent today, although who knows if we all don't live in the last dream of the last passenger pigeon as the bullet approaches that will fragment pigeon, bullet, shooter and dream in one mass explosion - but I think perspectives have a dynamic aspect - they change - although the rate of that change is not pre-determined.