Evolving Norms: Cognitive Perspectives in Economics PDF
Preview Evolving Norms: Cognitive Perspectives in Economics
PALGRAVE ADVANCES IN BEHAVIORAL ECONOMICS EVOLVING NORMS Cognitive Perspectives in Economics Shinji Teraji Palgrave Advances in Behavioral Economics Series Editor J ohn F. Tomer Co-Editor, Jl of Socio-Economics Manhattan College Riverdale , USA This ground breaking series is designed to make available in book form unique behavioral economic contributions. It provides a publishing oppor- tunity for behavioral economist authors who have a novel perspective and have developed a special ability to integrate economics with other disci- plines. It will allow these authors to fully develop their ideas. In general, it is not a place for narrow technical contributions. Theoretical/conceptual, empirical, and policy contributions are all welcome. More information about this series at http://www.springer.com/series/14720 Shinji T eraji Evolving Norms Cognitive Perspectives in Economics Shinji Teraji Yamaguchi University, Yamaguchi Japan Palgrave Advances in Behavioral Economics ISBN 978-1-137-50246-9 ISBN 978-1-137-50247-6 (eBook) DOI 10.1057/978-1-137-50247-6 Library of Congress Control Number: 2016942806 © The Editor(s) (if applicable) and The Author(s) 2 016 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifi cally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfi lms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specifi c statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the pub- lisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Cover illustration: © m-images / Alamy Stock Photo Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Nature America Inc. New York To the memory of my late mother P A REFACE AND CKNOWLEDGEMENTS This book is about social norms in a variety of cognitive and institutional processes. Social norms are shared guidelines to socially accepted and expected behavior. Social norms provide order to what may otherwise be seen as ambiguous, uncertain, or threatening situations. Norms may be seen as regular behavioral patterns that develop as individuals interact with one another socially. The main purpose of this book is to develop a general framework within which it is possible to analyze a relationship between the sensory order and the social order. A choice is a selection among numerous possible behavioral alternatives. A decision is a process through which this selec- tion is performed. Conventional economic models include only variables that condition ‘what an agent chooses’ and none that condition ‘how an agent chooses.’ This entails a ‘black box’ view on the individual, meaning that it does not matter analytically how that behavior is actually generated. F.A. Hayek’s theory of mind sheds light upon the process of choice. The sensory order is fundamental in the sense that the explanation of social order begins with the human mind. The central element in the cognitive process is the feedback between individual and environment. The book explains institutional evolution as an endogenous phenomenon from a cognitive viewpoint. In The Sensory Order (1952), Hayek provided a theory of the process by which the mind perceives the world around it. According to Hayek, know- ing the world is a classifi cation of sensory qualities by the mind. What we know at any moment about the external world is determined by the order of the apparatus of classifi cation which has been built up by previous vii viii PREFACE AND ACKNOWLEDGEMENTS sensory linkages. The qualitative differences in perceptions that people experience depend upon the specifi c pattern of neuron fi rings that a given stimulus produces within various neural networks. The experience of each individual will differ according to the pattern of neuron fi rings that each one develops. The subjectivity of individual knowledge fi nds its founda- tion in the construction of the mind. Through learning and updating, the sensory order evolves into a gradual approximation of the physical order. The mind operates by assembling new sensory data into associations with our accumulated inventory of knowledge. An understanding of social norms is critical to predict and explain human behavior. Hayek’s concept of perception as classifi cation has a counterpart in his concepts of rules and rule-following behavior. People follow rules of con- duct in society. These rules indicate what people should or should not do under some circumstances. Relying upon rules is a device we have learned to use because our reason is insuffi cient to master the detail of complex reality. For Hayek, rules make it possible for individuals to classify stimuli. The order of a group can be generated by the rules of conduct adhered to by its members. How the mind classifi es stimuli determines how indi- viduals act in the external world. Much of our knowledge is embedded in institutions. The mind is shaped not only by experience but also by custom. Rules of conduct are shared by individuals having a common cul- tural tradition. If people have widely divergent expectations, some of their actions will invariably fail and need to be revised. Culture limits the range of actions that people are likely to take in a particular situation, making their conduct more predictable and thereby facilitating the formation of reliable expectations. Shared mental models can give rise to behavioral regularities to the extent that they can be observed in the population. As a consequence, following rules of conduct mutually reinforce sets of expectations to maintain a degree of social order. Patterns emerge endog- enously, refl ecting a socially constructed reality. Given the human need for rules, there is a tendency to repeat those patterns as a guideline for action in future instances of similar behavior. The structure of this book follows the development of these arguments. Chapter 1 explains some fundamental concepts that are used in the book. The concepts are as follows: social norms, economic behavior, ratio- nality, cognition, institutions, path dependence, and institutional change. An understanding of social norms is critical to predict and explain human behavior. People incorporate in themselves a set of social norms from their surroundings. Norms govern behavior, and are self-sustaining in an PREFACE AND ACKNOWLEDGEMENTS ix interdependent system. Norms specify a limited range of behavior that is acceptable in a situation, and facilitate confi dence in the choice of action. Norms enable individuals to deal with the complexity and incompleteness of information, and make them stick to prescribed behavior. Norms thus describe the uniform behaviors that characterize groups. Chapter 2 presents some reasons why people comply with social norms. First, in large measure, people do what they do because they have learned from those who surround them. Society is sustained by processes favor- able to individuals endowed with an element of docility in following rules. Second, social norms can be sustained if the pecuniary advantage from breaking norms is not suffi cient to offset the forgone reputation effect. Third, people comply with norms because the threat of punishment makes being compliant within their interest. Fourth, norms are represented as Nash equilibria of games played by rational agents, and as such they are self-enforcing. Finally, correlated equilibrium allows players’ actions to be statistically dependent upon some random signals external to the model. Chapter 3 focuses on T he Sensory Order (1952). Hayek provides a theory of the process by which the mind perceives the world around it. The sensory order is a classifi cation that takes place via a network of impulse connections. The essence of Hayek’s attempt in theoretical psy- chology is to show how a structure can be formed which discriminates between different physical stimuli and generates the sensory order that we actually experience. The sensory order is an incomplete and imper- fect representation of the physical world. The subjectivity of individual knowledge fi nds its foundation in the construction of the mind. The brain is an adaptive system interacting with and adapting to its environ- ment by performing a multi-level classifi cation on the stimuli it receives from the environment. Chapter 4 deals with the social order. The dissemination of knowledge is crucial in society. People live in a world of expectations about interactions with others’ actions. It is meaningful to discuss the social order only when all agents share the same perception of existing reality which includes oth- ers’ actions. People follow rules of behavior in society. Relying on rules is a device we have learned to use because our reason is insuffi cient to master the detail of complex reality. If rules are recognized as recurrent patterns of behavior, individuals act according to rules of conduct. The diffusion of shared behavioral patterns is necessary to obtain social order. Shared rules facilitate decision-making in complex situations by limiting the range of circumstances to which individuals have to pay attention.
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