Preferences > Awareness
I recently asked:
The vast majority of economic papers and books that offer explanations for human behaviors don’t bother to distinguish if their explanations are mediated by conscious intentions or not. (In fact, most papers on any topic don’t take a stance on most possible distinctions related to their topic.) …
Yet I’ve had even economics colleagues tell me that I should take more care, when I point out possible signaling explanations, to say if I am claiming that such signaling effects are consciously intended. But why would it be more important to distinguish conscious intentions in this context, compared to the rest of economics and social science?
Bryan Caplan answers:
Standard signaling models assume that people dislike sending the signal. It is this assumption that implies that signaling equilibria are highly inefficient – or even full-blown Prisoners’ Dilemmas. If people enjoyed signaling, in contrast, signaling equilbria could easily be ideal. What superficially appears to be a vast zero-sum game turns out to be fine because the players like playing the game.
So why don’t economists clearly acknowledge the centrality of conscious desire when they apply signaling models to the real world? Because we usually focus on cases where most people plainly don’t enjoy sending the signal. When I wrote The Case Against Education, I definitely double-checked this fact; but I probably wouldn’t have even launched the project if I’d spent a lifetime inside classrooms packed with jubilant learners.
I agree that, when explaining human behavior, it can often be important to be clear about the preferences that one is postulating. The same behavior explained by different preferences can have different implications for if we should encourage or discourage that behavior.
But when explaining behavior, postulated preferences and conscious intent are just separate and independent topics on which one can be clear. There is no obvious or necessary relation between them.
For example, the real reason that people go to school could because they like school, or it could be because they want to show off smarts, conformity, etc. And for either real motive, people could be fully conscious of that motive, or they could be self-deceived and in denial about it. For example, people could think that they enjoy school, but really go to show off, or they could think that they are trying to show off, but really go because they enjoy school.
While I’m pretty sure that Caplan claims that we go to school more to show off, I’m not actually sure if he has taken much of a stand on how conscious we are in choosing to go to school for this purpose. And that’s my point: I can love his new book (buy it) even without knowing this stance. Like most good economists, he doesn’t bother to distinguish how much his explanation of schooling is mediated by conscious intent.
The broad category of conscious intent contains different kinds of rationality. Do we postulate that behavior is chess-rational or sideways-looking-rational? I'm sorry that I don't know the official social-science terms. I'd better explain what I mean.
Think about an employer introducing an incentive scheme. There are four initial responses, chess-rational - think through one's options and what bonus they will earn, booklet&training-rational - try to do what the employer said was the right way to respond to the new bonus scheme, conservative - just keep doing what you've always done and hope for the best, headless-chicken - something, anything.
But after a few months the first bonuses are paid and the employees get to discuss and compare. Over time they copy each other. More specifically they decide who is doing well under the bonus scheme, more money, not too much effort, and attempt to do the same themselves. This is sideways-looking-rationality. It is not available initially because it is not forward looking, but it is much easier on the brain than chess-rationality because one isn't trying to work out hypotheticals. Sideways-looking-rationality is a popular strategy for getting through life. You get off to a slow start but in the end you do as well as a clever person with their chess-rationality, because you end up copying them. (or maybe you end up copying some-one who practices headless-chicken rationality and got really lucky; sideways-looking-rationality can work out well in the end, even if there is no chess-rationality to copy.)
It is hard to make detailed predictions about how sideways-looking-rationality will work out. It is a social and psychological theory. How honestly will people share their knowledge? How fast will they learn? But maybe that doesn't matter. Usually it ends up with much the same outcome as chess-rationality, so an economist can hope to get an approximate long term prediction by putting on his chess-player's hat and just thinking about what is the best way to play the incentive scheme.
However, this leads to rival economists talking past each other. The first economist assumes that people respond to incentives without bothering about how this happens and how conscious the responses are. The second economist sees the first using the chess-player approximation to get a prediction and pounces on this as the actual mechanism.
It is usually pretty easy to refute chess-rationality. Look at the dynamics. Chess-rationality predicts that every-one starts gaming the system from day one. That doesn't happen. Maybe the system falls apart in year three as too many employees learn to game it, but it doesn't go splut on day one.
Another way to refute chess-rationality is to investigate the micro-foundations. Talk to the employees. What do they say. Well, Alice copies Betty, Betty copies Carol, Carol copies David, they clearly aren't playing chess.
So economist number two thinks he has convincingly refuted economist number one. Economist number one doesn't understand the criticism because he merely assumed that people respond to incentives, not that they do so consciously.
The discussion goes downhill from there because the issue is not conscious versus unconscious, but chess-rational versus sideways-looking-rational.
Daniel hausman has written an entire book on this question, which is likely the most nuanced take.