While the fundamental 'laws' of economics (supply and demand, etc) were all
discovered by the turn of the 20th century, the status of economics as a
science has since been vitiated by two powerful developments. One is the
considerable enlargement of the powers of nation-state governments well
beyond the waging of war (their traditional function) and their intrusion
into economic decision-making by means of vastly increased taxation and
statutory regulation. The other important change is the greatly increased
financial power of the broad mass of the population -- as taxpayer on the
one hand and consumer on the other.
As regards the role of governments in economics, the apparently
all-encompassing orthodoxies of Keynes and Samuelson in the middle of the
last century have been strongly challenged by successive schools of
economists such as Monetarists, Public Choicists, Rational Expectationists,
and no doubt there'll be several more 'ists' to come.
The role of individual decision-making in the scheme of things is even more
problematical because, quite often, people take unusual, even apparently
irrational, decisions, particularly when under pressure. However, the more
that conditions are specified, the more rational they turn out to be. These
conditions are being increasingly investigated by Game Theorists.
The important feature of games theory is that experimental games
investigate the payoffs (or punishments) that accrue from individual
decisions in strictly controlled, repeatable situations. And, very often,
such games are tested across different cultures in order to get at the
basic decision-making strategies of human beings.
The first major games theorist was von Neumann, the brilliant polymath who
wrote, "The Theory of Games and Economic Behaviour", closely followed by
John Forbes Nash (the subject of the recent film, "A Beautiful Mind) whose
"Nash Equilibrium" brought him a Nobel prize in economics 40 years later in
1993.
Another notable games theorist is Robert Axelrod whose researches into the
Prisoner's Dilemma and Tit-for-Tat strategies are summarised in his book:
"The Evolution of Co-operation". This book was first published in 1984 and,
since then, the subject has blossomed enormously with researchers from a
variety of disciplines (economics, psychology, political science, maths,
etc) investigating different games.
I described the Public Goods Game recently (FW, "The Science of Fairness",1
February), taken from an article by Sigmund, Fehr and Novak in January's
issue of Scientific American. Because this is of direct relevance to
welfare benefits, I think this particular game will be of great
significance in influencing government policy in future years.
One economist I have a great deal of time for, Andrew Oswald, together with
Daniel Zizzo have been investigating a game summarised in this week's
Economist which might interest some FWers. It doesn't seem to have a name
so far, so I'm calling it the Poppy Game for our purposes.
Most games that I've read about tend to confirm the view that each
individual is basically selfish but also has a 'reserve' of altruism which,
if exercised in prescribed conditions, helps others, and ultimately
himself. Altruism doesn't necessarily conflict with self-care. However, the
Poppy Game gives a much more gloomy view of our nature -- though it has
resonances with the findings of anthropology about the importance of rank
in human society. This is something else that economics has yet to take on
board.
<<<<
The economics of envy
RICH BASHING
Adam Smith famously argued that an invisible hand of self-interest guides
markets to beneficial results. Today, rational and unemotional agents,
rather than altruistic angels, lie at the centre of most equation-choked
economic theories. But a new paper, "Are People Willing to Pay to reduce
Others' Incomes?" in the February issue of "Annales d'Economie et de
Statistique", suggests that Smith should have paid more heed to another
hand: the one that cuts down tall poppies.
Daniel Zizzo of Oxford University and andrew oswalkd of Warwick University
crafted a series of experiemtns in which groups of four people were given
nearly equal sums of money. The four had to gamble with their new wealth in
random, computerised bets; two came out each time with more cash, and two
with less.
Richer or poorer, each was then given the chance to spend his money to
reduce the take of his fellow subjects. There was no prospect that it would
make him any richer. Indeed, it would cost him anything from 2 to 25 cents
for every dollar destroyed that belonged to his fellow players.
Economic man would surely never spend his money merely to hurt others,
while leaving himself poorer? The professors were shocked to find that
even at the price of 25 cents for every dollar burnt, 62% of the
participants paid for the privilege of impoverishing their peers. What
accounts for this?
One answer could be the players' sense of fairness. another, of course,
could be envy or Schadenfreude. The poor souls who lose some of their
initial wealth like to burn the undeserving who receive a lot. No surprise
to novelists. But the idea that man is a social animal, more concerned with
relative rank and status than with absolute well-being, sits awkwardly with
economics.
Even the rich winners in the experiment like to see others taken down a
peg; they destroy the wealth of the rich and poor alike. The authors
speculate that the plutocrats expect the plebians, out of jealousy, to
destroy their wealth. Pre-emptive retaliation preserves their rank. Nothing
irrational about that.
>>>>
�The Economist 16 February 2002)
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�Writers used to write because they had something to say; now they write in
order to discover if they have something to say.� John D. Barrow
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Keith Hudson, Bath, England; e-mail: [EMAIL PROTECTED]
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