Framing and Incentives

29 September 2006 at 11:39 am Leave a comment

| Nicolai Foss |

Here is one more cultural conservatism post, but one that relates to the economics themes that we often treat here at O&M.

I have just completed reading Theodore Dalrymple’s splendid Life at the Bottom: the Worldview that Makes the Underclass. This is confirming, challenging, and inspiring reading for somebody who subscribes, at least to some degree, to the economic worldview, i.e. notions that people respond (rather predictably) to incentives and in many ways react fairly rationally, that separating actions and consequences is often highly unfortunate, etc. 

Dalrymple  is a prison and hospital doctor in Birmingham. He has first-hand experience with the underbelly of UK society. In one extremely well-written chapter after another he presents the dire consequences, particularly for the very poorest, of the separation of actions and consequences that effectively follows from the dominant ideology that defines the causes of crime, poverty, illiteracy, teenage births, fragmented families, alcoholism, child abuse, etc. as somehow emerging from “society.” Thus, the production of severe negative externalities is prompted by a particular ideology of social policy, a particular way of cognitively framing actions, responsibilities, and outcomes. 

This seems to me to be an instance of what sociologists/”social theorists” call “reflexivity” (if not, I am sure Omar will tell me). In case after case, Dalrymple argue (and illustrate) that  many evils, e.g., crime or drug abuse, may often be very consciously chosen — and that they are almost always rationalized ex post (by  the “victims” themselves) as caused by forces outside the chooser’s control. 

Of course, Dalrymple’s book is social criticism, rather than social science. However, his oeuvre challenges social science research in interesting ways. Thus, the interplay between incentives, opportunities and ideology that is involved in his basic argument is fascinating (and highly scary!).  There is a strong suggestion that incentives and cognition (framing) interact in subtle ways.  Thus, the incentives for engaging in all sorts of anti-social behavior are strengthened by a prevailing ideology of no-blame, no-consequences, no-shame, no-values, etc.  This suggests the existence of a cognitive and moral dimension to institutional design that economists may have been rather blind towards.

Entry filed under: - Foss -, Recommended Reading. Tags: .

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
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Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
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