Deconstructing Bob and Jeff

20 November 2007 at 7:33 pm 7 comments

| David Hoopes |

For better or worse the hard-hearted authors at O&M have hurt the feelings of our colleagues in other fields. In the spirit of being more specific about why the bloggers here are so harsh I’d like to take a look at an award-winning paper from the Academy of Management Review (Ferraro, F., Pfeffer, J., and Sutton, R.I., “Economics Language and Assumptions: How Theory Can Become Self-Fulfilling”). In this paper we are told how the language of economics (the assumptions that people are selfish cheats) encourages people to be selfish cheats. Aside: in my opinion sociologists have a much darker image of humankind than economists (if we must make careless generalizations).

As I note in an earlier post, the idea of self-interest is often grossly misrepresented. Perhaps economists can thank themselves for this. I don’t know. However, it is important to examine this component of price theory by looking at its roots. In developing public policy toward government intervention in the allocation of goods (mercantilists vs. free traders in Smith’s day) allowing people to make their own decisions is more efficient than having a handful of people making the decisions for everyone. And even if individuals focus on their own needs the result for society is better than having a few people guessing at what everyone else wants and imposing their guesses.

The starting point of the AMR critique is the ever-present complaint about the economics world telling us all that we need to be selfish and greedy (make decisions based on our own self-interest). From here, our friends in the org. theory camp state, “If people are relentless in the pursuit of their own self-interest and equally relentless in the their lack of concern for others’ interests. . . .” What? Where did that second part come in? A very important bridge theory has been added. If people pursue their own self-interest then they also cannot care about anyone else. Management scholars wonder why their (our) work is not used in public policy debates. Small wonder.

Using examples from Lincoln Electric, General Electric (guess they haven’t read the newer case), and a Japanese restaurant chain (Global Dining), Ferraro, Sutton, and Pfeffer explain how “the assumptions and ideas of economics . . . create a world in which the ideas are true . . . and produce a world that corresponds to the assumptions and ideas themselves” (p. 12). And there you have it, these three companies have employees compete with each other and this proves that the economists’ dogma creates a world where people relentlessly pursue their own interests and relentlessly lack any concern for others.

One of the most disturbing implications of such work is that it shows a very poor knowledge of the field of economics. A common malaise of those who make very broad (and seemingly baseless) critiques.

An interesting counter-example to the claim that economists are teaching everyone to only look out for themselves is Jack Hirshleifer’s 2001 book The Dark Side of the Force: Economic Foundations of Conflict Theory. The force is, unsurprisingly, self-interest. How is this a counter example? I think it shows that Professor Hirshleifer was not “relentless in [his] lack of concern for others.”

Of course anyone with a passing knowledge of economics might note how hard economists attempted to prove that monopolies were destructive (see Bain and S-C-P “model”). Also, many economists dedicate their lives to promoting “consumer welfare.” No, not consumerism, how government policy can maximize what consumers receive for their money.

Keep on the lookout for a wonderful paper by Nicolai and Teppo that addresses these issues with much more rigor and detail.

Entry filed under: Former Guest Bloggers, Management Theory, Myths and Realities, Papers, People. Tags: .

Organizational Learning: Observations from the Shadow of the Fires Seven Wonders of the Totalitarian World

7 Comments Add your own

  • 1. Steve Phelan  |  20 November 2007 at 10:21 pm

    Nice post, David. I, for one, would be interested in hearing your ‘darker image of humanity’ thesis.

  • 2. Graeme Pietersz  |  21 November 2007 at 2:39 am

    It is not what Adam Smith said, and it may not be what all economists say, but it is an ideology that genuinely exists, and it does affect people’s values.

    The strongest evidence for the idea that economics contributes to this are the various studies showing that economics graduates are more selfish in their behaviour.

    What ever Adam Smith said, there is an implicit assumption that is often made by economists that “rational” means “pursues self-interest”.

  • 3. dhoopes  |  21 November 2007 at 1:09 pm

    I recall seeing an article discussing the results you mention. I doubt it is so conclusive. I certainly don’t find economists as a race any more selfish than any other academics.

  • 4. Karl Wennberg  |  22 November 2007 at 9:03 pm

    Well, actually there are a number of such studies, one of them a longitudinal one showing that student _become_ more reliant on “pursuing self-interest” by undertaking an economics degree (which I happily did). I think these are cited in Ferrarro et al., article. I would suspect one could dig up a number of objections, such as self-selection of selfishly inclined students or alternative explanations of psychological or sociological nature – such as regression towards the group mean – , or socialization in a group with cohesive norms. The questions remains: what is the value which these studies?

    In interesting application of these arguments would be to the peer review process: I have limited experience reviewing at econ journals, but my friendly tell me stories of 10-months waiting times and reviewers being more insulting than professional. I would be fun to hear the opinion of someone with lots of experience from both econ and management journals…

  • 5. Paolo Mariti  |  23 November 2007 at 12:10 pm

    Self-interest is but an assumption economists make to draw conclusions about human behavior. As such, it does not imply that people are all and/or always selfish. One may not even know what his own interest is in given circumstances. It may require much self-knowledge and information. Nor, as such, is it stating that people are someway impeded to care for others. And game theory convincingly tells us that self-interest is not necessarily conducive to the best outcomes.

    Yet there is some truth in what Graeme Pietersz says: It is [also] “… an ideology that genuinely exists, and it does affect people’s values”. Is economics responsible for that? Are economists?Some probably are.
    French Blaise Pascal wrote that man is somewhere in between an angel and an animal. Animals are typically self-interested. To study human behavior under the assumption of self-interest is certainly not a complete theory of human behavior but it is more than a starting point.

  • 6. Gavin Kennedy  |  24 November 2007 at 2:40 pm

    If people are misled that economists assert ‘relentless self interest’ (in its extreme the ‘greed is good’ perversion) we have George Stigler to thank (Wealth Of Nations ‘is a stupendous palace erected upon the granite of self-interest’).

    It is a misreading of that famous passage about the ‘butcher, the baker, and the brewer’ (WN I.ii.9: p 27). Smith specifically enjoins you to address yourself ‘not to our own necesities, but of their advantages’.

    In bargaining that is what we must do: address the other party’s self-interest, not our own. If we both relentlessly address own interests, we would never agree to a deal. We must mediate our self interest by taking account of the other party’s self interests.

  • 7. michael webster  |  9 December 2007 at 3:55 pm

    I think that a more correct thesis is that in game theory the study of the non-cooperative solution has been unfortunate. Methodological individualisms does have its limits.

    Cooridinated game theory has a wealth of insights which have been overlooked by the theoretical insistence on “self-enforcing” solutions.

    If the nash solution, and its variants, are self-enforcing in an serious manner, I will eat my hat.

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