Collective Action and Social Welfare Optimization – A White Paper and Meta-Analysis

 

I. What are the questions?

A recent article I read in Quartz via The Atlantic entitled, “What I learned about selfishness after using the ‘prisoner’s dilemma’ on my college class,” was thought provoking, yet unsatisfying [1]. I was concerned with its simplistic investigation of the connections between the pertinent core issues: rationality, humaneness, selfishness, individuality, personal preferences, collective action, and social welfare. It was a provocative article that presented a basic, canonical game theoretical model in a context ripe for stimulating multidisciplinary discussion, but unfortunately, it was void of sufficient objective information to justify inferences about these underlying problems or their solutions.

Amidst my whirlwind of thoughts as I was reading, I was also struck by the apparent novelty of the game for most readers. Topics such as the ones presented in the article are far too important to leave ambiguous, vacant of objective understanding of the issues, triggering peoples’ instinctually overconfident harmful speculation, misinterpretations, and opinions devoid of any academic validation, which proliferate of misinformation.

These days, the copious amount of whimsical assertions of right and wrong, or good policy and bad policy, formed on bias and inadequate understanding, come as no surprise given our collective lack of education and lack of respect for empirical fact, our limited geographic and cultural experiences, our cognitive dissonance and confirmation biases, and the very finite conscious processing power of the human brain. Fortunately or unfortunately, in today’s world nothing and no one is trivial – our beliefs and our decisions affect human lives! This is often difficult for us to see, as we are grotesquely incapable of thinking on a global scale.

As humans, our conscious brain has difficulties visualizing approximately 100 things (say people in a room, leaves on a tree, or grains of sand in a cup) [2]; we cannot even begin to comprehend the number of people living on earth today – over 7.1 billion! Without an objective starting point and the proper tools, this very finite processing power precludes the most basic understanding of our complex world on its present global scale, and prohibits the most primitive awareness of what will make it better.

In our world that evolves much faster than our understanding of it, let alone our ability to empirically plan it, how should we move forward in this high-stakes modern age? How should we approach the big puzzles like those at the crux of the article: How do we achieve collective action to optimize (global) social welfare, and avoid “the tragedy of the commons”? I proceed to illustrate these issues in my Meta-Analysis and Personal Manifesto. This is merely an elementary step to highlight the serious challenges and possible solutions to Collective Action and Social Welfare Optimization.

II. Understanding the problem

A. The fundamental condition: appreciation for knowledge

Models (e.g. the prisoners’ dilemma) and theories (e.g. game theory) can be extremely informative. They facilitate applied researchers’ identification of causal channels, which in turn develop our understanding of challenges in our world and build appreciation for its degree of interconnectedness and complexity, thus expanding our perspectives. The variation of the classic prisoner’s dilemma (the commons dilemma) game in the article resembles realistic collective action problems. We need these intellectual frameworks to approach the problem. From a general framework, we can critically reason through best-response strategies for oneself and the other players, and the outcomes based on rational best-response (Nash equilibria). A simple mode can also elicit relevant questions like, “how could the outcome have changed if communication was enabled, and credible commitments and interpersonal trust prevailed?”

Going with this example, if we were to allow for communication between players, in order to achieve the cooperative outcomes, the additional conditions of sufficient trust and homogeneity of preferences must be present. In this game, if all students wanted to maximize the number of points awarded to the class on the final grade and minimize inequities (i.e. social welfare maximization problem), then they could work together. However, if too many students don’t communicate, don’t trust one another, or don’t care about achieving the same objective, then coordination fails. Further knowledge is critical to understanding more complex and realistic collective action problems, but these key conditions, preferences and generalized trust, guided by morality, remain central to the core solutions.

Models in Public Economics illustrate welfare theorems quite clearly. The standard micro approach aggregates society’s preferences to form its utility function [3]. We typically take these preferences as given during any analysis. Then the analyst/social planner begins contemplating Pareto Efficient policies and weighing different approaches to welfare maximization based on the peoples’ preferences. Typical approaches take the form of either a) policy that maximizes society’s aggregate utility (Utilitarian), or b) policy that minimizes inequities between the utilities of individuals or groups within the society (Rawlsian), or c) something in between.

In public policy – but especially as citizens and voters – we may be getting ahead of ourselves to begin the discussion with our choice definition of “efficiency” (whether a Utilitarian or a Rawlsian approach should be taken). By taking preferences as given, we limit ourselves from the very beginning. These basic microeconomic models of social welfare inform us that the limited ways to change equilibria boil down to 1) redistribution, or 2) changes in peoples’ preferences. (I will not open up a discussion on redistribution, and with respect to the latter, no, I’m not proposing a Machiavellian plot).

Microeconomics demonstrates how sweeping changes in our world can arise simply as a result of changing individual preferences. In this discussion, I’m referring generally to any definition of preferences that one can think of including utility derived from consumption of various products or services, as well as utility derived from non-market goods like the environment and helping others. Since preferences are so influential in their determination of market outcomes, then why don’t we scrutinize them more often in our analyses, or challenge them when we see that our micro-decisions might have destructive macro-effects? – It’s surely not because preferences are cemented at birth. Preferences evolve over time. Preferences can also be intentionally molded by external forces, for better or for worse, such as in political campaigns, marketing, media, and our peers and role models. In the case of marketing, campaigns create demand where there previously was none. In politics, strategy can push and pull the electorate. In these examples, the objectives to alter peoples’ preferences generate a shift in the demand curve, which result in new, more desirable equilibria for the company or the political party, which thus reel in more money or votes, respectively. I will argue that through their effects on preferences, education, experiences, and morality – when used appropriately – can result in equilibria that improve aggregate welfare by shifting society’s social utility function.

A social welfare-improving shift cannot be forced by inorganic drivers and private interests. It should be precipitated by improved information and knowledge that creates a new consciousness of self, others, and the world we live in. An educationally and socially informed shift in preferences is the natural catalyst for realistic and sustainable welfare enhancements. Rather than merely opening the door, revised aggregate preferences will establish ethical businesses and social enterprises as the new norm. While many people would argue that we’re human and we each want different things, or that shifting preferences is costly, the fact of the matter is that collective action is everyone’s problem. Therefore, it’s not acceptable to contemplate excuses to avoid doing one’s part – perhaps because one stands to be relatively unaffected – when it’s the lives of everyone on earth that’s at stake, young and old, as well as all of the future generations.

Even a little convergence in preferences can go a long way towards achieving a socially optimal outcome. However, when our preferences so greatly diverge, it is all the more difficult to achieve a satisfactory solution for aggregate social welfare. Our divergence in personal incentives and preferences is exacerbated by our infamous, conspicuous disparities in endowments of wealth and privilege. For example, beliefs about the returns to personal initiative (i.e. “hard-work”) versus “free-riding”, the risk of borrowing to invest in human capital, and utility from various consumption decisions, drastically fluctuate based on many variables including where one falls in the wealth distribution.

Despite our motivation to maximize our personal utility, Behavioral Economics provides sheds light on our frequent failures act rationally. Aside from altruistic motives, which sometimes explain why humans don’t make the individually optimal decision, there many other explanations. Psychologically, we rationalize, trivialize, and cloud our judgement with personal biases. Troublingly, cognitive limitations also play a huge role. Independent of human behavioral irrationalities, the sheer computational complexity of the cost-benefit analyses we must internalize are frequently (and often severely) miscalculated, resulting in suboptimal decisions. The problem is not practice. We internalize a cost-benefit analysis in almost every decision we make, whether or not we realize it.

One general, yet complicated, case is that of money and happiness: A “self-made” person who amasses a fortune does not necessarily imply a more rational decision maker than the average person. The accumulation of a fortune, independent of inheritance or great luck, more accurately indicates one’s ability and desire to make money in the market using one’s skills and assets rather than one’s decision-making capabilities for utility maximization. In short, one’s time spent accumulating wealth and the ability to consume, after attaining a certain bliss point, may come at the expense of one’s utility. This is intertwined with a similar limitations on our abilities to balance and value the present and future, which leads us to frequently inappropriately discount time (undermine future welfare by overemphasizing the present, or vice versa). If we’re often so inadequate at successfully calculating a personal cost-benefit analysis to act in accordance with long-run utility maximization, then how can we possibly consider all the variables necessary to make choices that optimize society without making major sacrifices to our own welfare?

We must improve our collective knowledge if we hope to avoid the pitfalls of uninformed preferences. In reality, decisions are much more complex and dynamic than we’d like to admit, or that our theoretical modeling can allow for. Sometimes expected outcomes are often not achieved in real life due to search costs, transactions costs, and informational asymmetries, which we misjudge or assume away in basic models. It can be heartbreaking to realize that following your dreams by moving out of a “bad” neighborhood or leaving one’s home country for a dream job has negative impacts on those left behind, especially when others like you are doing the same. For example, models of segregation in cities show that – absent of “taste-based” discrimination – disadvantaged citizens still bear the brunt of residential sorting’s negative externalities which occur as a natural result of interactions between the education, labor, and housing markets [4]. The notorious “brain drain” phenomenon operates similarly. Overwhelmingly, good intentions are simply not enough. Therefore, to begin this convergence, we need to start small, identifying the simplest things which we know are at least an infinitesimally small improvement over the status quo.

To make matters even more complicated, for preferences to substantially converge, we must consider that it’s not only one’s own resources and endowment that affects one’s happiness and utility, it’s also obviously dependent upon the utility and behavior of others. As the Quartz piece points out, it’s innately human to have empathy [1] (though the amount of it varies by the individual and it’s often dependent on manmade groupings we use to categorize one another). Empathy and care for the wellbeing of others is the bright side of interpersonal utilities and non-rational preferences are often a good thing if it’s coming from a place of generalized love for humanity (hopefully combined with some educational awareness, of course). Our downfall is another fact of human nature: jealousy and greed.

Regardless of satisfied needs – let’s say a shirt to wear to work, a safe car to drive, or a safe house in a safe neighborhood – interpersonal comparison of utilities can bring us down. The culture that we live in doesn’t help, where in-group biases abound and dreams of luxury and out-consuming the “competition” dominate the television. It is a combustible mix to combine poverty, severe inequality, and poor education. Selfish, shortsighted values and consumption habits can start by destabilizing households and lead to undermining society, as a whole. Often, our decisions are so negatively influenced by our cultural downfalls that they even fail the test of individual rational payoff maximizing behavior!

Interestingly, cognition also fails – in different ways based on gender demographics – to meet the criteria of rationality when it comes to competition. Male overconfidence (discrepancy between one’s belief in their abilities relative to others and their actual abilities relative to others) leads men to over-compete in tournament settings (promotion, investing, business management, etc.) [5]. For women, this phenomenon is reversed. The result is an inefficient outcome in which neither men nor women choose to compete in a way that maximizes their individual payoffs because, in the case of men, inappropriate assessments their own abilities relative to the other competitors, or in the case of women, aversion to competition [5].

I think it’s important that we become keenly aware of behavioral or cognitive traits like overconfidence and “taste” for competition. While competition may, in some cases, lead toward positive outcomes like increased productivity, we must carefully consider the tradeoffs like erosion of trust, health, teamwork and social cohesion, and the tendency to be opportunistic at the expense of others. Do our institutions and regulations harness our evolutionary instincts for good, or further incentivize these type of behaviors in ways that aggravate negative effects on society?

In large part, the ability to distinguish rational choices from self-harming ones is embedded in the need to provide more widespread quality education. This will lead more people to behave consciously of the fact that our world deserves respect for its complexity, and will lead to better understanding and decision-making regarding issues such as environmentalism, discrimination, racism, violence, healthcare, and poverty. Education will pave the way for more common ground for the world’s more than 7.1 billion people – independent of nationality, race, and creed – and this one planet that we share. We need to expand our awareness of reality, including how our actions and policies affect the world, often in many ways unseen and unknown, and our future learning.

In their book, Creating a Learning Society, Joseph Stigliz and Bruce Greenwald draw from a wealth of existing research to demonstrate how closing knowledge gaps is central to growth and development [6]. This conclusion goes beyond education’s recognized positive externalities like reduction of criminality and violence [7] [8], increased labor mobility [9], improved infant health outcomes [10], knowledge spillovers [11] [12] [13], and social cohesion and participation in democratic institutions [14]. Stigliz and Greenwald emphasize creating a learning society is elementally critical to sustaining improved living standards in advanced countries [6].

Why is it that virtually every college student – or even high school student – isn’t getting exposure to basic models, like the one in the article, which have enormous interdisciplinary relevance and general practicality for all levels of collective action problems? The tools should better equip us to improve our own welfare, as well as society’s; tools such as financial literacy, and all sub-disciplines in economics, sociology, political science, psychology, anthropology, environmental sciences and all others connected to social welfare. The scale of ignorance to these simple tools that help make sense of how to improve the human condition highlights our ineptitudes as decision makers. How can we seek to achieve collective action, if the general population has no formal framework for understanding fundamental problems? What is an education worth if it doesn’t provide sufficient contextual knowledge to allow for practical application of things like grammar or mathematics; or even scratch the surface as to the wealth and diversity of human knowledge across academic disciplines? Of course, access to education is a challenging topic in itself; similarly, there will never be consensus as to the ideal educational curriculum for each individual, but there are some obvious improvements that can be made.

We can think of necessary improvements occurring at the extensive (access) – and intensive (thoroughness and quality) margins. By addressing some of the grave deficiencies in our education systems, we can help people to more efficiently sort into utility maximizing positions in the labor market. Currently, even for the best educated, an array of informational asymmetries obstruct the success of individuals, their ability to efficiently sort into specialized areas of study and labor, and their contributions to society. In tandem, multidisciplinary exposure (prior to advanced skilling) and improved access, could perhaps not only promote the skill development, but also improve sorting by helping to erode informational asymmetries between the individual and life’s opportunities. A thorough, well-balanced education can help us to better understand our own problems and those of our society. If at times we already lack altruism, how can we achieve desirable collective outcomes if we also lack essential cognitive skills? In world filled with selfish and non-rational agents, we expect neither empathy nor the rational “best-reply”, a combustible mix that leaves us in neither a cooperative nor a Nash equilibrium!

To see further proof of the essentiality of education, let’s take consumption theory in provision of public goods. Here, we face a similar predicament as that of the commons dilemma in the article. In a decentralized solution, each member of society independently chooses to invest some amount of personal resources to contribute to the creation of a public good. Intuitively, individuals value both their private consumption and consumption of the public good. The rational decision for each individual is found by equalizing their private marginal valuation of the public good with their private marginal cost. Under standard assumptions (including rationality), the result is a Nash equilibrium in which society faces under-provision of the public good [3]. When decision-making is decentralized, members of society do not calculate the positive effect of the quantity of their contributional investment on other members of society; they only calculate their own costs and benefits [3]. The assumption of rational agents and decentralized decision-making leads to a disappointing outcome – so what are the alternatives?

A social planner, allowing citizens no freedom of choice (i.e. a benevolent dictator), could allocate taxes such that optimal provision of this public good is achieved; this case is obviously unrealistic due to its bold institutional and political assumptions [3]. Other, more favorable, solutions to this analysis involve further, scarcely realistic conditions. In the completely decentralized scenario, optimal public good provision is possible if all members of society agree on the amount of the public good to be provided [3]. While in the centralized case, the social planner requires extremely rich, detailed information about society’s preferences and, further, that the social planner does not face adverse selection from citizens (members of society do not act on the incentive to misrepresent their preferences for the public good for individual gain) [3].

The constant across all of these unsatisfying solutions is that we’re dealing with rational agents. Remaining within the context of consumption theory, the contrast I would like to pose is a slight digression from the standard assumption of rationality: let’s assume now that members of society are some part humanistic and some part rational. Relaxing the assumption of strict rationality and substituting this gap with altruistic motives leads to a solution much closer to optimal public good provision, maximizing society’s aggregate utility [15]. Imagine this public good is education. Do our heterogeneous, self-guided interests yield suboptimal provision? Subsequently, could deficiencies in education at the extensive and/or intensive margin be driving adverse effects on society with cyclical repercussions?

Collective action experts like Elinor Ostrom, who devoted her career to building a more integrated understanding of the dynamics of coordination problems, made major contributions. Her work demonstrates that asymmetries between agents often generate detrimental outcomes, and that there are humanistic elements involved. These asymmetries – rather, the need to minimize them – are central to my focus on how individual preferences translate to aggregate preferences, hence how micro discrepancies can amount to extreme outcomes at the macro level. In her book, Governing the Commons, she reveals how a multitude of variables including knowledge and know-how, psychological, sociological, anthropological, political and institutional factors, bargaining power, and virtually all other context, influence outcomes [16]. Ostrom used a dynamic (repeated periods) game of prisoner’s dilemma to demonstrate successful resolutions can be achieved via incorporating the right combination of the following conditions: 1) enforcement via punishments, 2) communication, and 3) trust and reputation [16]. Unfortunately, however, the typical policy debates hastily focus on either a more centrally planned economy or a more freely regulated private market as the easy resolution, distracting our focus from the importance of the combination of conditions 1-3.

An appreciation and quest for knowledge, can give us direction when our intuition leads us astray, and present us with tools for objective valuation of the tradeoffs, up to the point where we must resolve philosophical or moral dilemmas. Is loosening regulation to allow riskier pharmaceutical drugs to market saving lives or destroying them? Is raising the interest rate in the midst of an economic recovery a responsible way to prevent more major shocks (for an interesting start to the argument see this opinion piece by Joseph Stiglitz in Project Syndicate [17]), or do credit constraints undermine the recovery by disproportionately adversely affect workers seeking more and better jobs with higher wages; and which has the greater effect on aggregate growth – or equitable growth – or should we be shooting for something in the middle? Or, is the interest rate a blunt instrument that often serves as a distraction from even more effective policy tools that should be paid more attention given the current institutional circumstances?

Not everyone has the same answer. The tradeoffs to these questions, and so many others like environmental protection and national healthcare and social security budgets, are enormously more complex than this basic discussion. Academic knowledge provides the foundation from which we must approach these intricate and interconnected valuation problems, in order to exclude misinformation and bias from the outset and to more fully understand the complete range of consequences of our decisions. These examples of important collective (theoretically, under a democratic system) decisions not only affect the present generation, but future generations. Borrowing from future generations, whether it’s money, healthcare, or environmental resources, these are all part of the academic, philosophical and moral dilemma over social welfare optimization.

B. The role of ethics

As humans, we face problems that knowledge cannot completely resolve, leaving us to reconcile with moral implications to our decisions, as well. This is a complex matter. Humans almost certainly differ on issues that pertain in part to ethical or moral grounds. For example, when the colonists arrived to America, ethical views of property rights were a stark example of how humans’ cultural preferences had grown apart. Colonists had rigid views of property rights designed to insulate people from expropriation from others (including the government), and the Native Americans’ was one of a much more empathetic, trusting, and forward-looking perspective; to a large degree going as far as putting the welfare of the planet and its other living things on par with the welfare of man.

Treat the earth well: it was not given to you by your parents, it was loaned to you by your children. We do not inherit the Earth from our ancestors; we borrow it from our children.

–Ancient Native American Proverb

These two polar opposites – from the most noble (altruistic), to the self-interested (rational) – are just one example of how drastically preferences can vary based on one’s viewpoint and ethical considerations, or lack thereof. Garrett Hardin, in his famous article, “The Tragedy of the Commons,” finds that in the context of environmental constraints, our long-run consumption maximization problem has no technical solution; it requires a fundamental extension in morality [18]. After first objectively understanding the problem, a vastly improved social outcome is made possible by integrating reasonable moral guidance; in this example, sufficiently preserving tomorrow’s resources at that cost of more self-interested consumption today.

How, then, should one form preferences as to achieve coordination and minimize asymmetries? I’m suggesting that preferences should be formed by integrating, within reason, individual rationality with a social cost-benefit analysis. A hybrid personal and social cost-benefit analysis can largely resolve negative externalities (and enhance positive externalities) that arise from our own actions. This effectively converges our preferences slightly, and brings us closer to the socially optimum equilibrium [15]. Weighing our decisions from a social point of view changes our aggregate demand, internalizing positive and negative externalities that would otherwise lead us to losses for society caused by under- and over-consumption, respectively. In aggregate, small changes to individual preferences, where we integrate not just our private marginal costs, but also the social marginal costs, can cause a major shift in the demand function, which in turn results in major improvements in social outcomes as a result of new equilibria [15] [3].

Immanuel Kant provided a helpful framework for ethical decision-making. Kantian Ethics require us to consider two questions whenever we decide to act: (i) Can I rationally will that everyone act as I propose to act? If the answer is no, then we must not perform the action. (ii) Does my action respect the goals of human beings rather than merely using them for my own purposes? Again, if the answer is no, then we must not perform the action [19]. The “veil of ignorance” method developed by John Rawls provides further insight and perspective to help us weigh our decisions from the standpoint of society instead of self-interest: “No one knows his place in society, his class position or social status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and strength, and the like [20].” The idea is that if all of your attributes were randomly reshuffled and you had to proceed from there, you would more carefully consider the disadvantages and advantages of others unlike yourself.

C. Consolidating what we know

As is now clear, it’s first essential that we are educated and informed. Next, we require the condition of ethical decision making, which includes genuinely conveying our preferences and demonstrating them through our actions whenever possible in a way that provides rich information and a meaningful signal to others and policy makers. To summarize so far, it’s up to each individual to 1) get educated with an essential base of multidisciplinary education and real-world experiences with people and places of diverse characteristics, 2) to question, challenge, and to reconcile this new information with one’s mindset, experiences, behavior and morality, and 3) to make real changes in our lifestyle.

We can do more by simply becoming socially conscious of our personal consumption, charity, and willingness to speak out and improve objective, benevolent communication on these issues. Before we vote with our wallet, we can think, “what statement am I making, what signal am I sending, where could this dollar have a more positive impact, what vicious cycles am I fueling, what is the environmental footprint of my excess, what are the ethical standards of the provider of the goods and services?”. Unfortunately, the behavior and consumption habits that we observe in reality are proof of the fact that our preferences do not reflect those of aggregate society.

I’m emphasizing that these solutions are embedded in the free market, but they will only be achieved if individual preferences begin to align with aggregate welfare. The importance of “socially rational” preferences which I am advocating essentially suggests rethinking our personal incentives and how this changes the dynamics and consequences of Adam Smith’s invisible hand concepts (with far fewer assumptions needed in terms of imperfect credit and risk markets and transaction costs), where socially rational decisions lead to slightly less asymmetric outcomes, and depend less on initial endowments. Re-thinking our preferences by internalizing a social cost-benefit analysis prior to our decisions minimizes the need for costly and inefficient interventions that rely on formal aggregation of citizen’s preferences and political economy feasibility consideration. Socially rational preferences alter market outcomes and precipitate policy change through our institutions. Policy change without a major shift in preferences is not only politically cumbersome, but also forcibly altering market prices through taxes or subsidies can cause huge distortions in the long-run [21].

Furthermore, we know that we cannot complacently rely on institutional change (civic engagement is also part of Kantian ethics, though) because social choice theory warns us how messy it is to aggregate preferences through a voting system. Arrow’s Theorem proves the difficulties in achieving satisfactory institutionalized change: in ordinal preference rankings there are no procedures (sorry Democracy) to satisfy basic conditions for collective decision-making [22]. Contrastingly, in the market, preferences do matter, and they dictate almost everything, including positive changes via democratic institutions once our preferences align strongly enough. Redistribution can be used to address residual discrepancies between the current state of society and a more desirable equilibrium, but this should always be thought of as an unreliable backup because of the aforementioned challenges with ordinal preference aggregation, as well as various other frictions, on complex issues like taxation and government spending. With socially informed preferences, we will shift the equilibrium outcomes we observe even in the free market (of course with sufficient protection against market failures and corrections for residual externalities like consumer safety, human rights, and environmental protection), but the economic outcomes and the institutional rules of the game will always reflect the preferences, decisions, and actions of the individual agents within it.

In our conversations about social welfare, we must be weary of distractions, disguises and misguided information that can undermine our collective future. We must make a greater effort to improve our knowledge, while reconciling our ego with ethics, to enhance our collective social consciousness. We often avoid confronting these discussions as if they threaten the status quo, or as if the inertia is too great for one person to change anything. These big issues in our world might not seem so daunting if we all just start small. Just starting is the hardest part, but a collective nudge can break the inertia. Collectively, our nudges can redirect momentum. Remembering the Kantian logic, what if we as voters or consumers all acted in the same way? With today’s powerful communication tools, we can almost rationally start to consider ourselves and our actions pivotal, as social networking and group mobilization can be achieved in momentous velocity and volume.

III. What are the solutions?

It is an academic, philosophical, and moral movement that will manifest the positive changes that, from an aggregate perspective, we hope to see. This change begins from within, with a hope, a dream, and a belief. Knowledge exclusive of morals and morals completely void of knowledge lack worth, but through nurturing and interacting the two there is hope. This new world will not develop overnight. It took thousands of years of humans literally cutting down others to get to where we are today. Now, we have the immense privilege, responsibility, and luxury of being able to make small changes, simple day-to-day decisions, which optimize social welfare – or at least minimize damage – as we go about maximizing our own utility.

Our world is the richest it has ever been. And while it is hard to align preferences in such an economically and culturally diverse world, it’s not just the top 1% that need to respond – it is all of us, all the way down to the poverty line. It’s easy to point fingers and say who has the most money to make an impact, but trade places for a moment. With the vast majority of people from rich countries living above the poverty line and behaving just as – or more – selfishly as you and your peers in the top 1%, would you trust the commons and the current status quo with a meaningful gift from your own elite fortune, and have the faith that those financial resources will be optimally divided, utilized and invested? We, too, must start showing some proof that we understand the importance of both rationality and ethics.

Too much good can be achieved to let the prisoner’s dilemma pit the wealthy against the middle, ultimately leading to the misfortune of the poor who inevitably suffer the harshest consequences. We cannot free-ride on the ethical decision making of others; we must each demonstrate our position with informed action, not just words. Don’t underestimate the power and potential for change in sheer number of lives, especially when people are unified. When the tradeoffs to action reach a break-even point, the establishment will change, but it takes the masses at the middle to follow a path of convergence toward a new cognitively informed social conscious.

The simple decision even NOT to consume at times, NOT to compete based on interpersonal comparisons, and NOT to marginally improve the present at the decimation of one’s (or others’) future. We need to invest in knowledge and invest in morality. Be careful not to mislead others, or to put your own interests over the health of your family household, your community, and global society, all in the name of whatever shortsighted form of consumption brings you immediate gratification. Ensure that self-interests are not also driving you to feed an unhealthy or toxic culture in the home, the community, or the workplace.

For example, greed dominates much of business culture; we see that regardless of the social value of production or end products and services, unhealthy competition within the workplace, including the insane use of performance enhancing drugs, can ultimately be detrimental to the health of society; mentally, physically, and emotionally. As our individual and collective consciousness shifts, so will preferences and behavior, but again, totally unforced. We’ll be amazed how the power of the markets respond. Markets will blossom for social enterprise and collapse for anti-social ones; resources will naturally make their way into the socially optimal destinations.

Sometimes the failure to make these small changes is referred to as indifference. Sometimes the conscious decision to exploit others’, including those who choose to do right, depending on the context, is called free-riding, opportunism, or sometimes it’s called being Machiavellian; whatever it is, it’s an intentional motivation to profit at the expense of others and capture the rents of their contributions that would otherwise benefit the whole. Cutting others down for selfish gain and stealing from the table of society, ultimately sets a precedent. When the sun sets on our lives, the future generations are left do deal with the consequences of our actions and whatever culture we have perpetuated. The knowledge (or ignorance) as well as non-market goods such as cultural ethics and environmental resources we bequest to future generations – these ethical intergenerational transfers – are pivotal in the social welfare optimization problem.

We shouldn’t use the law of man to substitute our need to build trust, among other virtues. Trust leads to reciprocity and is self-fulfilling. When we make laws to insulate ourselves entirely from the need to trust others, we fuel greed and even hateful behavior towards those outside of our in-group. Institutions and rule of law can provide assistance, but why should we entrust our residual welfare that is outside of our control to public policy if we, first, cannot trust each other? It’s naïve to believe too strongly in favor of solutions on one end of the spectrum or the other in hopes that it will solve all the problems, as there are constraints on both sides. Rather, we must find some way to inch toward common ground. Like most elements that comprise and mold preferences, trust is not built overnight.

Of course, every great individual who works to break the mold and has the boldness and bravery to be a leader in these fields is helping to raise awareness, shift preferences, and make a direct impact. The full potential of the positive impact, however, cannot be realized until aggregate demand shifts from the ego to the commons, thus solidifying the place of ethical business and social enterprise as sustainable in a competitive market place, free from the environmentally damaging, human rights indifferent, and consumer safety-cutting businesses and conglomerates that dominate almost every lucrative sector, fueling their growth by means of investors that care about nothing more than private returns. It is all interconnected, but nothing can change until we change our collective social conscious; and this begins with ensuring access to education. Without an education, an understanding of the issues is vacant, and even the best of moral intentions can go awry or have unintended effects.

Avoiding traps like statistical discrimination, although perhaps individually rational, in aggregate and in repetition, has a reinforcing effect of vicious cycles. In Thomas Schelling’s model of segregation, seemingly insignificant micro-motives of each individual (here as it relates to their tolerance or intolerance levels for members of a different group in the neighborhood) translate to extreme shifts in macro-behavioral outcomes, where small, ordinary personal preferences catalyze massive change, which can mean the difference between residential integration and segregation [23]. Small levels of personal intolerance can result in extreme intolerance at the macro level; this is an example of how internalizing social benefits only for oneself or one’s in-group can have serious consequences on the rest of society.

Segregation creates poor social networks and negative peer effects, which are potential contributors to poverty traps. Segregation makes it difficult to build social capital – including friendships and productive social network coordination, identity and culture, and trust and reciprocity – that is necessary for social mobility and improving welfare of minorities. The market reacts (unfavorably) to segregation, ultimately reinforcing socioeconomic problems. Although cycles and systems are not well understood empirically, the consequences can often be obvious in cases of intergenerational poverty, dynamic collective action games, education, etc., generating negative feedback loops and fueling confirmation bias.

Just like relative appraisals of interpersonal utilities, comparing personal costs and sacrifices put toward altruistic deeds and contributions to social welfare, is a trap to be avoided, as it can be as destructive of a force as any at tearing us apart and misaligning our preferences. We must each do what we reasonably can without feeling wronged by others who we judge to be more selfish than ourselves. Whether or not there will always be selfish people, we cannot fight greed with jealousy or contempt. Admittedly, these decisions are not easy when a business, personal, or even family sacrifice enter the social cost-benefit analysis. Love, generosity, reciprocity, hope and positivity are the only means to conquer what we perceive to be hate, injustices and egotism of others.

There is hope. Ethics and morals have come a long way. There is less war and murdering than ever, there is more charitable giving than ever, and there are world leaders and the Pope talking about the environment and equality (of many varieties). Also, humankind keeps growing. We’re currently over 7.1 billion, and while we consistently hear about tragedies, we often don’t hear enough about the overwhelming fraction of people in the world who are doing well, who have their freedom, have food, water, and shelter, and access to healthcare and life expectancies decades longer than we would have thought imaginable a couple of centuries ago. We must fight the psychological temptation to slip into attitudes of anonymity permitted by our cognitive limitations to accurately calculate the contribution of our actions on the global scale and an infinite time horizon. We must realize that when we form preferences and make decisions, in this world, we’re each affecting other human lives!

We even have communication tools like never before to help us discuss these issues and to come to some consensus, at least starting with the smallest things. There must always be the first steps. It’s apparent to me, at age 28, that leaders of the previous and current generations have taken the first steps; for proof, look no farther than the academic leaders referenced herein, or take, for example, the multitude of individual activists, organizations, and social enterprises of the past and present in the areas of education, civil rights, development, etc. I’m convinced that current and future generations will keep taking these small steps in the right direction; as well as small steps in new directions, more educationally enlightened, philanthropic, and moral directions.

We cannot allow our limited conscious cognitive abilities, laziness, or selfishness to be an excuse. All of us must reconcile our ego with ethics, as these problems that manifest socially and economically are at their roots both academic and ethical. Even the first steps demonstrate honesty in action, and foster the growth of generalized trust. Truth must be demanded from businesses, and pro-social marketing campaigns must be scrutinized for authentic validity. Powerful companies, with massive informational advantages over vulnerable people cannot implicitly be left to their own devices when the incentives of money and shareholders often clash with social welfare. Transparency must be demanded in everything – from labels on the food we eat, to terms of our employment contracts and healthcare benefits, to online data collection. There will be initial costs, but such is the definition of an investment. Sometimes we must lose in order to gain. It’s up to all to start taking small steps, to change inertia, and then to accelerate with caution, guided by the expansion of knowledge and morals. Continue to hold your decisions to a social cost-benefit analysis. Even if you are not always the primary beneficiary of your own investment (or charity), do the ends justify the means?

IV. References

[1] D. Selterman, “What I learned about selfishness after using the “prisoner’s dilemma” on my college class,” Quartz, 28 August 2015. [Online]. Available: http://qz.com/489083/what-i-learned-about-selfishness-after-using-the-prisoners-dilemma-on-my-college-class/. [Accessed 10 September 2015].
[2] G. Dvorsky, “​How to Comprehend Incomprehensibly Large Numbers,” io9, 26 February 2014. [Online]. Available: http://io9.com/how-to-comprehend-incomprehensibly-large-numbers-1531604757. [Accessed 10 September 2015].
[3] A. Mas-Colell, M. D. Whinston and J. R. Green, Microeconomic Theory, New York: Oxford University Press, 1995.
[4] R. Benabou, “Workings of a City: Location, Education, and Production,” Quarterly Journal of Economics, vol. 108, no. 3, pp. 619-652, 1993.
[5] M. Niederle and L. Vesterlund, ” Do Women Shy Away from Competition? Do Men Compete Too Much?,” National Bureau of Economic Research, vol. No. w11474, 2005.
[6] J. E. Stiglitz and B. C. Greenwald, Creating a Learning Society: a New Approach to Growth, Development, and Social Progress, Columbia University Press, 2014.
[7] L. Lochner, “Education, Work, and Crime: A Human Capital Approach,” International Economic Review, vol. 45, no. 3, pp. 811-843, 2004.
[8] S. Machin, O. Marie and S. Vujić, “The Crime Reducing Effect of Education,” The Economic Journal, vol. 121, no. 552 , pp. 463-484, 2011.
[9] S. Machin, K. G. Salvanes and P. Pelkonen, “Education and Mobility,” Journal of the European Economic Association, vol. 10, no. 2, pp. 417-450, 2012.
[10] J. Currie and E. Moretti, “Mother’s Education and the Intergenerational Transmission of Human Capital: Evidence from College Openings,” The Quarterly Journal of Economics, pp. 1495-1532, 2003.
[11] E. Moretti, “Estimating the Social Return to Higher Education: Evidence from Longitudinal and Repeated Cross-sectional Data,” Journal of Econometrics, vol. 121, no. 1, pp. 175-212, 2004.
[12] E. Moretti, “Human Capital Externalities in Cities,” Handbook of Regional and Urban Economics, vol. 4, pp. 2243-2291, 2004.
[13] E. Moretti, “Workers’ Education, Spillovers, and Productivity: Evidence from Plant-level Production Functions,” American Economic Review, pp. 656-690, 2004.
[14] T. S. Dee, “Are There Civic Returns to Education?,” Journal of Public Economics, vol. 88, no. 9, pp. 1697-1720, 2004.
[15] J. E. Roemer, “Kantian Equilibrium,” The Scandinavian Journal of Economics, vol. 112, no. 1, pp. 1-24, 2010.
[16] E. Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, 1990.
[17] J. Stiglitz, “Fed Up with the Fed,” Project Syndicate, 7 September 2015. [Online]. Available: http://www.project-syndicate.org/commentary/us-fed-interest-rate-hike-low-inflation-by-joseph-e–stiglitz-2015-09. [Accessed 10 September 2015].
[18] G. Hardin, “The Tragedy of the Commons,” Science, vol. 162, no. 3859, pp. 1243-1248, 1968.
[19] “Kantian Ethics,” Sacramento State University, [Online]. Available: http://www.csus.edu/indiv/g/gaskilld/ethics/Kantian%20Ethics.htm. [Accessed 10 September 2015].
[20] J. Rawls, A Theory of Justice, Harvard University Press, 2009.
[21] K. L. Judd, “Redistributive Taxation in a Simple Perfect Foresight Model,” Journal of Public Economics, vol. 28, no. 1, pp. 59-83, 1985.
[22] K. J. Arrow, “A Difficulty in the Concept of Social Welfare,” The Journal of Political Economy , pp. 328-346, 1950.
[23] T. C. Schelling, “Dynamic Models of Segregation,” Journal of Mathematical Sociology, vol. 1, no. 2, pp. 143-186, 1971.

 

 

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My Graduation Address

I’m very late in adding this, but such has been the case with all of my blogging—especially throughout the duration of my Master’s studies. In fact, I debated whether or not to post this at all. We always want our best to shine through. I think my graduation speech was just one of those occasions in which that simply wasn’t the case. Nonetheless, as my own harshest critic, I know that expectations I hold for myself can be too ambitious, or even unrealistic. From the very moment I was asked to speak, I felt tremendously honored and couldn’t pass on this unique opportunity. Despite preparing it while concurrently juggling final exams, completing my thesis, transitioning into a new job, and reuniting with my parents for the first time in about a year, I still had fun with it—even though, if you notice my anxious demeanor in the video, “fun” might not be the adjective that comes to mind.

A broader graduation ceremony recap can be found here.

As economists, we try to model reality. But the most important model we’ll ever construct is that of who we choose to be and what we desire to become.

—BJA

Personality: How to Build It – Lessons from the Past

I didn’t unlock the secret to success. Although, it’s likely that I’m in a slightly better position than I was yesterday. On a recent and brief trip to Cadaqués for the purpose of a little relaxation and recuperation, I embarked on an unplanned adventure through time that unexpectedly gave me a much-needed lift on my perspective. The mechanism through which most of this change occurred was through the relaxation of the mind by virtue of one of the most fascinating and curious reads I’ve ever had.

It was a book on personality, lent to me by one of my best friends who I met while studying my master’s degree in Barcelona this past year. While skeptical at first, the catalyst for me actually opening the book was my understanding that that this book was published in 1915 and that it had been in the family of my classmate (who hails from Germany) for at least 3 generations. Humorously, I had misunderstood the origins of the book. It was actually a gift to him during his undergraduate studies in the States from one of his professors who was an avid book collector. The fact that the book was a portable size and just 120 pages also helped my cause.

This book, called “Personality: How to Build It,” was written from the perspective of a French man, who presumably was himself, “successful”. In this book, the author is concerned with conveying what he believes to be the recipe for success in terms of creating for oneself an aura, a reputation, and a unique identity focused around cunning, sensible discretion, winning ways, and various categories of achievement relative to others. The key element of the author’s taxonomy of a winner, who he refers to as “adroit arrivers”, which I could not reconcile, was this conditionality and relativity to others.

The author, to be fair, in all of his brazen, omniscient authority, certainly conveys some advice which is helpful and relevant today – perhaps even timeless. The way he eloquently speaks of exposing something original to the world and knowing oneself well enough to identify special qualities and to develop them, is inspiring. Care and vigilance, energetic sincerity, perspicacity, determination, and perseverance are all astutely analyzed as elements necessary to form a personality. While pride, envy, jealousy, and conceit are graphically described and demonstrated as defects to be overcome.

But what is most fascinating is that valuable insights can be derived even from the elements that aren’t accurate or relevant today. By combining a contemporary perspective, a reflective mind and a little multidisciplinary academic knowledge, it’s possible to infer from the contextual setting of the author, valuable lessons to better understand the world of yesterday and today, and the people in it. For one thing, the world was much simpler back then, or at least our understanding of it was. Now globalism drives our world economy, almost everything we know about our world is available online, and greater attention gets paid to social issues such as poverty, equality, human/civil rights, and climate change. Also, Psychology (the study of the human mind and behavior) was in its infancy – and still is, really; although it has come a long way since 1915.

Despite the author’s elegant early 20th century language and convincing tact when conveying his point of view, I still disagree with a couple of concepts. Although the author masterfully sells the ideology of “arriving” and that of narcissism, using subtle descriptions, intriguing anecdotes, and profound assurance in his tone, I couldn’t come to grips with his outlook. Maybe it’s not so obvious at first, what’s so bad about “arriving” or being a “winner”. Aside from the conditionality of the author’s definition on one’s position relative to others; is there really a definitive end, a point at which we can confidently say, “I’ve arrived; I’ve won; I’ve done IT!”?

I do not agree that this belief in a definite goal – which still requires maintenance to retain one’s position over others – is superior to the approach that life is a journey with no predefined script where the only instructions for this role are those related to self-improvement. Not to mention that progress or achievement defined dependent upon one’s initial position across the spectrum of others, may not maximize one’s potential. Rather, competing with one’s self is a strategy better designed to maximize one’s potential. Aside from fulfilling our potential, happiness and meaning can come from other sources – often those we least expect – like everyday wonders that occur when we stop to smell the roses. This highlights the importance of also enjoying the journey; cherishing the present.

Perhaps another thing that our overwhelmingly complex world of today impresses upon us is the consciousness that each of us is but a blip in the grand scheme of time, generations, cultures, and societies. To live with this realization, it is essential to have humility. If we have great faith in something, it must come from some source more profound, more enduring than our selfish ego. Trusting too much in one’s mind can be tempting but dangerous.

The author seductively paints the portrait of the ideal personality as one who must necessarily think critically and strategically about how to advance one’s position via self-centered manipulation of the mind. Depending on how you look at it, this can work out well as in the case of the Medici family with the help of Niccolo Machiavelli during the Italian Renaissance period. These teachings make me think that the author must have been skilled in his ability to overpower his cognitive dissonance with confirmation bias. I further hypothesize that he lived within society in which his state of mind actually served him quite well. Perhaps the author’s stance still maintains great advantages at an individual level, but on an aggregate scale, I don’t think the general equilibrium outcome would be so wonderful if too many in the population subscribed to his outlook.

Our brains are an indispensable tool, but we shouldn’t fool ourselves by overestimating its ability to unlock the answers to some of the greatest challenges we’ll face in life. Excessive stroking of the mental ego can actually build a toxic immunity to one’s humanity. Ego-centrism puts self-interest ahead of building relationships, serving others, improving the livelihoods of those we touch and the welfare of the greater global society. Our humanitarian instincts can mysteriously tap into the unknown, and more likely build a connection to something infinitely vaster than one’s self.

The read was fascinating, helpful, humorous, curious, and even a little disconcerting (at the moments I was hoping that not everyone in the world is thinking the same way as the author with respect to “arriving” on a narcissistic shuttle). At the dismaying moments it seemed possible that the elite establishment of this previous era were the precursor to the dominance of unfettered global capitalism, and the seeds of the now robust and rising tide of neoliberal politics and academics we observe in the US and in parts of Europe? I clearly connect the author’s categorical mindset to statistical discrimination and virtuous cycles for the upper classes and vicious cycles for the poor.

Developmental psychology tells us that some of the personality traits the author addresses are not so easy to change, and traumatic life experiences during sensitive stages of life can have a much more formative impact on one’s psychology than a self-help book or coach as an adult, when one’s personality is all but cemented. Nonetheless, we should always celebrate and foster the full evolution of our character, personality and unique identity, while not failing to take lessons from the past; and let’s motivate ourselves to maximize our potential in ways that can only be defined more broadly.

The first thing to avoid is that chronic and contagious folly, fashion, which changes our habits, our thoughts, our body and our life. Accept it only in reasonable form, follow it from a distance and under the least enslaving form.

Conserve your innate originality. Don’t be dragged into tastes which are not your own. Defend yourself against any characteristic of others. Learn to judge everything for yourself without being the perfect repeater of the judgements of others.

… Live stoically on the borders of a promised land, in spite of revolts and unbeliefs which mutter within you. Be the captain of your ship of destiny launched on the ocean of life.”

— H. Laurent, “Personality: How to Build It”

 

(Image © Benjamin Anderson 2015)