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Philoeconomica

Economics as Cultural Tell

Why do economic explanations feel so much more insightful than humanistic explanations? The answer may be that economists take social types as their axioms, the unsplittable atoms of the economic universe, whereas humanists take mental states to be their atoms. And we have lost the capacity to believe–really, truly believe–in the inner life.

Consider economist A.O. Hirschman’s argument that monopoly may be better for consumers than the sluggish competition of highly concentrated markets if “exit is ineffective as a recuperation mechanism, but does succeed in draining from the firm or organization its more quality-conscious, alert, and potentially activist customer or members.”

One immediately has the experience of insight here. Yes! If the competitors are already so large that most customers can’t abandon an underperforming firm, but there remain enough options that activist consumers can still bail on underperforming behemoths and buy from some scrappy startup on the competitive fringe, then the behemoths won’t be subject to voice–to the pressure campaigns that only activists are likely to bring–and so the big firms may well perform worse than if there were a single monopoly and the activists were to have nowhere to go but into the streets, onto the message boards, and to Congress to compel change.

What’s driving this experience of insight? The answer is the division of the consumer group into types. Hirschman posits the existence of an activist type, and a sleeper type who does not complain about poor quality. This typology does all of the work in his argument, as the sleepers bail out of underperforming firms when competition persists, depriving all consumers of the massive positive externality that is their activism applied to big firms.

Now consider a humanistic explanation of the same phenomenon. The sociologist, for example, might argue that competition is sometimes worse for consumers than monopoly because the absence of alternatives to a monopoly focuses consumers’ minds on using complaints and activism to induce the monopoly to reform. Whereas the existence of competition leads to apathy, because consumers know that they have the option to buy elsewhere in response to bad behavior, even if they do not exercise that option.

This humanistic explanation does not produce the same experience of insight as Hirschman’s account, at least for me. And yet it is saying exactly the same thing.

Hirschman doesn’t actually know that there are activist types, human beings who have fixed personalities that make them prone to activism in ways not true of other people. But Hirschman does know that there is a human tendency toward activism that is expressed more under some conditions than under others. The mechanism of expression is simply unclear to him and to us all. It could be that there are fixed activist types, as Hirschman suggests, but it could also be that people do change, there are no types, and activism is really a contingent mental state, called forth by monopoly buying, as the humanist suggests. Both Hirschman and the humanist are describing the exact same phenomenon, but imposing upon it different preconceptions regarding the causes of social behavior.

The humanist ties the explanation to an intellectual worldview in which mental states are the axioms, the first principles that produce the experience of insight when applied to observed phenomena. Whereas Hirschman ties the explanation to an intellectual worldview in which personality types are first principles.

But why is Hirschman’s type-casting move so intellectually irresistible?

The reason may just be that we feel more comfortable on an intuitive level dealing in human types than in mental states. If Hirschman had said that monopoly makes us complain, or makes us angry, we would have dismissed him as fishing in the soup of introspection, conjuring up emotions to suit his explanatory tastes. We would not hear “the feeling of being trapped” and say: yes! That’s why consumers discipline monopolies!

But when we hear that activist types can’t bail on monopolies, we feel a veil pulling from our eyes because we already think in terms of types informally. We all already know that there are activist types out there in the world. We have seen them with our own eyes marching in the streets. Economics is satisfying because we intuitively accept its axioms.

In other words, our love of economics should teach us that we do not really, truly, fully believe in the inner life. We feel more comfortable, as a cultural matter, with the immutable personality type than with the notion that the human is a vessel the contents of which are constantly changing as circumstances change, as new thoughts and emotions pour in and old ones pour out. Feelings are, to us, arbitrary, untrustworthy, a kind of magic trick or supernatural spirit conjured up by lazy thinkers to gloss a reality that lies elsewhere. We don’t actually believe in feelings despite all the lip service we like to pay to them.

Somehow I’m reminded of an experience watching a couple of movies with foreign friends in graduate school. One of the films was an American romcom. The other was a film by Almodovar: Women on the Edge of A Nervous Breakdown. I’d seen the romcom before and it was one of my favorites; I’d felt that it was all about the human condition, feelings, and so on.

But watching it with this crowd, and back to back with the Almodovar, was, well, embarrassing. I realized that the entire romcom was a vehicle for the expression of a single emotion at one discrete moment in the film, a kind of exhausting, Herculean effort to get in touch with feelings by a culture for which feelings remain distinctly unnatural to this day. My friends were bored out of their minds.

By contrast, the Almodovar, which for me was dizzying and inscrutable in the way that its characters seemed constantly buffeted by unseen forces, was engrossing and deeply insightful for my friends. I realized that unlike my romcom, the Almodovar film didn’t struggle to present a feeling so much as it took feelings for granted, making of them a vast ensemble of principal players in a drama that unfolded almost entirely on the plane of the inner life. With respect to that plane, that film was like the Mona Lisa standing next to the stick figure of my romcom.

All of economics is a tell regarding this type-casting value system of ours. The economist’s basic model of human behavior is the immutable preference function. When economists model individual behavior, they write down a single function, the utility function, which defines the consumer’s preferences, and then they model the consumer as acting always in a manner consistent with those immutable preferences. Thus for economists, people are always just types. The rise of so-called behavioral economics has not changed this one bit; it has just changed the menu of types.

The economist has no defense for the type-casting approach, anymore than Hirschman could possibly have been prepared to defend his attribution of activism to types as opposed to the changing mental states of consumers. It is simply in the nature of economics to approach the world in this way. You are asked to take it or leave it. And we take it, and have taken it, to a far greater extent than we have embraced any other field of social science, because economics creates for us a more visceral experience of insight.

That tells us something ultimately about ourselves.