Cameron Harwick: Inside & Outside Perspectives on Institutions
This is a guest post by EPERN member Cameron Harwick. We’ve invited Cameron to follow up on his December 2020 EPERN seminar. The paper presented in the seminar is now forthcoming at the Journal of Contextual Economics.
Written by Cameron Harwick
In a series of recent books, cultural anthropologist Joseph Henrich gives numerous examples of seemingly irrational cultural practices – taboos, rituals, and so on – that turn out to help societies effectively navigate their physical and social landscapes. Interestingly, most of the time when you ask a practitioner why they do what they do, the explanation is – as he puts it – “generally post-hoc and often wrong.” Apparently, people don’t need to know how their institutions work in order for them to work.
In fact, we can go even further than this. Not only is it possible for institutions to work well without anyone knowing how the work; certain features of human social life make it necessary that their practitioners remain in the dark about how they actually work. That’s what I argue in a new paper in the Journal of Contextual Economics called “Inside and Outside Perspectives on Institutions: An Economic Theory of the Noble Lie.”
Doing things together – that is, collective action – is what it means to say that humans are social. Most of what humans do would not be possible without others working in concert. But, there’s a reason economists think about collective action as a problem: as anyone who’s been part of a group project at school knows, it’s hard to motivate people to contribute their fair share when the outcome isn’t much affected by what they do individually. At larger scales, this is the basic problem of governance.
Now, people do successfully engage in collective action all the time. But this shouldn’t blind us to what a monumental and unlikely feat this is, especially at large scales, and we can’t be satisfied with too-easy answers:
• Don’t cooperative people actually do better than uncooperative people? (No: cooperative groups do better than uncooperative groups, but you can never eliminate all the opportunities for uncooperative individuals to do better for themselves inside a cooperative group.)
• Doesn’t it work if people can punish uncooperative individuals? (Yes, but why would a selfish individual expend effort to punish?)
• Don’t people care what other people think of them, or want to do the right thing? (Yes, but the deeper question is: why, if they can do better for themselves by not caring?)
• (If any of this makes you think “well duh” or “that’s obviously wrong”, I’d encourage you to read the paper for the fuller argument, which addresses numerous objections like these!)
The upshot is that it’s never possible to motivate everyone in large groups to engage in collective action, if you simply appeal honestly to their self-interest. This means that if collective action is to get off the ground, people have to engage in behavior that makes them worse off relative to what they could otherwise achieve. Which means they must believe it to be in their interests to do things that aren’t in fact in their interests.
In other words, an understanding of how exactly an institution works, of the kinds of patterns and outcomes that arise from particular norms and beliefs, is also a recipe for how to exploit it for one’s own benefit. And this isn’t just true of faraway tropical tribes; it’s a key feature of any sort of governance, including our own liberal-democratic institutions. After all, how much of our civic mythology is aimed at reinforcing a respect for procedure, even in the many instances when we might do better by not respecting procedure?
So it’s no accident that preferences and beliefs blur together for most people – in other words, they adaptively engage in motivated belief. A sense of sacredness protects certain crucial values and institutions behind a sense of offense at attempts to analyze them, and it is this tendency – so often decried by rationalists – which diverts our focus away from our own interests enough to make collective action possible.
There are a number of implications of this story; for example, it’s certainly not guaranteed that the norms guarded by the sense of the sacred will always be healthy or functional. It also means that the automation of governance, for example through smart contracts, can never totally replace human discretion. And finally, the attempt to marry activism with analysis can frequently be analytically correct and yet corrosive to social cooperation. All these implications are explored more fully in the paper.
But most importantly, we should be understanding of the adaptive value of the human qualities that we often think of as foibles. Not merely that we lack the brainpower to be perfectly rational, but that our very irrationalities (from an individual perspective), our willingness to accept “noble lies”, are what makes it possible to engage in collective action at all.
Download “Inside and Outside Perspectives on Institutions: An Economic Theory of the Noble Lie” at The Journal of Contextual Economics or from SSRN. To watch Cameron’s EPERN presentation, click here:
