Preferences, self-interest & morality: economics & ethics lesson plan

Economics & Ethics lesson plan

This lesson plan and notes are derived from [EconTalk episode "Michael Munger on Desires, Morality, and Self-Interest"]

Notes:

how economists look at preferences

Roberts:

• what makes us do what we do. How we choose, how we make decisions.
• The economist's view of what is rational, morality.

Munger:

• First, the way economists usually look at preferences is that we say preferences are rational.
• Now, all [that] rational means is complete and transitive.
  • Transitive means that I can't really say, you can't trade things for me and then have me want something else.
  • Complete means that I can make a choice between any different preferences
    • note: When a preference order is both transitive and complete, then it is standard practice to call it a rational preference relation [Preference (wiki)]
• are preferences rational?
• or do other things motivate preferences?
• such as selfishness
  • Christopher Hitchensfamously said: The most selfish person he'd ever heard of was Mother Teresa.
    • Mother Teresa was only motivated by her preference to help the poor.
    • she only wanted to maximize her own goals--her own preferences.
    • Mother Teresa was selfish because she was acting in accordance with her own preferences and goals.

• There's a whole different set of preferences that are completely morally or legally proscribed
  • the biggest restriction we're going to place on them is that they're relatively fixed
    • as Becker and Stigler explained, it's not because we actually think preferences are fixed, but because invoking preference change as the first stage in an explanation, you could explain anything by what preferences change. (see notes on Becker below)

Roberts:

• Ariel Rubenstein's definition of rationality: he says
  • What is feasible?
  • What is desirable?
    • You ask yourself those two things; what is desirable, what is feasible?
    • And then you choose the most desirable of the feasible alternatives.
• Economists don't judge, it's subjective
  • not under the purvey or purview of economists
• discusses that changing preferences isn't something economists discuss or think about, they can change... but:
• When we look at ourselves, or our children, the idea that we should take preferences as given is absurd.

Munger:

• James Buchanan said that we have the freedom to become the man that we want to become
  • that is the Aristotelian, Aquinas, Montesquieu project.
• economics [useful] if we want to know how many potatoes people buy, or how much lettuce they buy, absolutely, that's a good way of approaching it.
  • Montesquieu "the Spirit of the laws"
  • but Montesquieu: the justification for liberty is so that human beings can do that which they ought to will.
    • That is: What I want and what I ought to want may be different things.
      • I don't have liberty to do what I want.
      • I have liberty to do what I ought to want.
    • And the question of what I ought to want is something that takes contemplation.

• one way that we could approach this problem is to think of morality as a constraint.
  • sometimes people still do what we might think is the right thing
    • even if it cost them something, even if they know there's no chance that they're going to be caught.
• But, for the most part, the Madisonian approach, is to think of morals as being a constraint and that they're enforced by a law.
  • Morality becomes embedded in the law
    • and if we violate morality, we'll be punished
  • the reason we obey morality is that otherwise we're going to be threatened with punishment.

• distinction between Buchanan and Hayek
  • Hayek example:
    • to decide where to pave a path, we have to wait two years and see where the muddy paths emerge
  • Buchanan is more constitutional
    • we need some kind of central plan

thus:

• you have an overall culture or set of received morality that comes down to us from the past
  • = law (laws that emerge)
  • n a sort of Humean, Burkean sense: those things are the muddy paths, and we have law to do that.
• sometimes we also have to have constitutions
  • = legislation (laws decided upon)

Roberts:

• legislation is what legislatures do, like 55 mile an hour speed limit.
• law is what is the expectations that people have about what is acceptable and what is not acceptable
  • so actually the speed limit is really 62, or 59, or whatever in your jurisdiction
• the letter of the law is only legislated
• the actual laws emerges from the behavior of the police, the behavior of drivers, and so on.

• the Hayekian, Buchananian--it's like there's three things
  • There's constitution, legislation, and law
• in the Hayekian world, law are the norms
  • the expectations that arise, the patterns that arise that allow us to make our plans and act accordingly.
• the muddy path is the law.
• the paved path would be the legislation

Munger:

• And the location of the buildings is the constitution

• Montesquieu, and the question of what we ought to will.
  • And, that comes to us [from] a set of cultural norms and beliefs about the way that we ought to act.
  • remember, Montesquieu said that liberty enables us to do what we ought to will.
  • And, he thinks that there is some objective, shared, collective truth about what we ought to will
  • that he would call culture

• there is a common theme on this show--habits.
  • Alfred North Whitehead has that famous quote
  • that civilization actually was essentially the replacement of settings where we had to give things thought.
    • = habit replaces thought, so civilization sets habits

• is this right or wrong? having a habit of doing the right thing?
  • that's exactly Aristotle's notion of character.

• Aristotle's notion of character
  • = explains why preferences might be relatively fixed.
  • So I might apply certain principles to decide how to act.
  • But, over time, I come to situations that are relatively the same
  • and I develop the habit of saying, 'Oh, I recognize this.
  • And, since I know what to do in this situation, I don't have to think about it anymore.

• Our character is the collection of virtues and vices that have become habits.
• habits are really hard to break.

• we might cultivate habits of acting in a way that is virtuous.
  • But, in any case, we're going to cultivate habits of acting in ways that are vicious.
• you cannot avoid developing a character.
• Aristotle's point is that your character is going to be vicious--that is, characterized by vice--rather than virtuous, characterized by virtue.
  • So, it is your job to make of your life a project, to develop good habits.
    • Note: sometimes this is mischaracterized that the unexamined life is not worth living.

• Adam Smith was really optimistic about this
  • because he thought there was an outside force acting to aid us
  • propriety.
    • Propriety is the received wisdom that the culture has accumulated over time.
    • propriety helps us to develop a character that is more virtuous than vicious.

• people who live outside of good society propriety is not a constraint
  • But people who care about propriety are most likely to rise in society, and it's partly for that reason.
  • So, society itself provides us with a mechanism for making this something more than just a constraint.

• so two modeling strategies
  • one is to treat morality as a constraint
    • and I think most economists are tempted to do that: 'We will do anything we want to do, except that morality and the law,' by which I mean the law, not legislation, 'act as a constraint.'
    • in addition, legislation might act as a constraint. We might be forced to do things that are wrong.
    • in a repressive society, I might be forced to do things that are wrong against my will, even though I know that they're wrong.
    • that would mean that I would cultivate a character of viciousness.
    • Some societies can be bad that way.

• Instead of making it part of a constraint, you could make morality part of the objective function.
  • "objective function" = "An objective function attempts to maximize profits or minimize losses based on a set of constraints and the relationship between one or more decision variables." [Objective Function (myaccountingcourse.com)]

• the reason that I act well is not that I will be otherwise
  • but because it feels good to act well
  • and if you cultivate the habit of giving yourself plaudits and rewards for acting well, you can actually greatly increase your ability to do that.

• example, vising a hospital: I don't want to go to a hospital and visit someone who may be dying.
  • It's really sad and depressing, and I might catch something. Hospitals are scary places.
  • Except that if you do it, and you start to realize that it makes a difference, maybe more than most of the other things that we do as professionals,
  • it becomes part of the objective function.

• Rousseau said the correct way to solve the problem was to
  • 'inscribe the law on men's hearts.'

• two kinds of injustice
  • One is we're forced to do what we ought not to will
  • the other is to will things we ought not

• the second is the problem of the individual
• first is the problem of the state.
  • bringing those things in harmony, the constitution, the legislation, and the law, is a really hard, collective problem.

Roberts:

• problem of the found wallet
• What does economics predict?
  • keep it and spend the money = "high level of utility"

or

• • return the wallet so you don't feel guilty
  • = example of putting morality into the objective function, into the preferences.
• Do I want to raise my children to not feel guilty?

Munger:

• Suppose it actually is really expensive or difficult for me to find a person.
  • What on the margin that'll make it less likely because demand curve slope down.
  • Now, I don't know what the level is, but at the margin, it'll make it less likely.
• suppose that I really and probably cannot get caught and there's $10 in it.
  • Then I'm probably going to return it.
  • Suppose there's $1000? Suppose there's $10 million in it?
  • Is there a price where anyone, literally anyone would not return the wallet?
  • It's just that they differ about what price that is?
  • Is there a different level at which all of us would say: This is so much money, I'm keeping it.

Roberts:

• Demand slopes downward.
  • Or, it might be to save the life of a child, like Jean Valjean stealing a loaf of bread.
  • You know, it's: We all have our price.
• And yet, when you tell that to people who aren't economists, they find it deeply offensive.
• in economics, we have a term for this: lexicographic preferences.
  • It means I have certain things I take care of regardless of price.

Munger:

• E.O. Wilson, the famous entomologist says that we should understand biology, at least, evolutionary biology as a contest between two forces.
  • First, any selfish individual will always dominate any altruistic individual.
    • So, you could call it altruism. You could call it morality. It's a big drawback for the individual.
    • if we only were individuals, then the selfish individuals might very well out-compete the altruistic individuals and they wouldn't exist.
  • Second, groups of altruistic individuals will always dominate groups of selfish individuals, because we care about each other.
    • And it's not just that we are militarily better.
    • We are better in society; we're happier; we reproduce more; we're more economically active;
    • we're able to trust each other; contracting costs are less.
  • any society has this tension between individual and group domination.

• small groups, 150 people have constraint on each other's behaviors
  • known as Dunbar's number:
    • Dunbar's number is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships—relationships in which an individual knows who each person is and how each person relates to every other person [Dunbar's number (wiki)]
• larger groups do not, the sociopath can hide among 1 million people

• Rule Utilitarianism
  • we have is a set of rules and habits.
  • there's actually just a few little sets of rules that we can choose among.
  • If you choose the one that's the best on average, sure, sometimes you end up paying costs,
    • but you actually become invested in the rule that you've selected.

Roberts:

• the Pandora's box of discretion
  • you find yourself erring, making mistakes, doing what's self-interested, harming your reputation, doing things you're ashamed of.
  • self-constraint, of tying yourself to the mast, an Odysseus-like method of giving up freedom, of giving up the discretion in this any one case
  • you sacrifice some well-being, on average, because you know that the alternative is actually much worse

Munger:

• David Schmidtz book "The Elements of Justice"
  • Having discretion means that you're going to get a bunch of rent-seeking contests where people know that the better argument they come up with
    • they're going to be able to win, when it's unlikely that the weak are going to win those contests. It's going to be unjust anyway.
  • And the second is that it's just a giant waste of time.
    • You're actually better on average doing the thing that seems not as good.
• Aristotle talks about cultivating a character in exactly those terms

additional notes

• Gary Becker wiki article:
  • He argued that many different types of human behavior can be seen as rational and utility maximizing. His approach included altruistic behavior of human behavior by defining individuals' utility appropriately. He was also among the foremost exponents of the study of human capital.

> ex. re. Discrimination Becker recognized that people (employers, customers, and employees) sometimes do not want to work with minorities because they have bias against the disadvantaged groups. He went on to say that discrimination increases a firm's cost because in discriminating against certain workers, the employer woud have to pay more to other workers so that work can proceed without the biased ones. If the employer employs the minority, low wages can be provided, but more people can be employed, and productivity can be increased. > Becker's insight was to recognize that deadweight losses put a brake on predation. > Deadweight loss, also known as excess burden, is a measure of lost economic efficiency when the socially optimal quantity of a good or a service is not produced. Non-optimal production can be caused by monopoly pricing in the case of artificial scarcity, a positive or negative externality, a tax or subsidy, or a binding price ceiling or price floor such as a minimum wage. wiki