Wednesday, October 02, 2013

Social Welfare Propositions

"THE INVISIBLE HAND, OPPORTUNISTIC BEHAVIOR & BOUNDEDLY RATIONAL BEHAVIOR" by sanchayannath · in Economics, Public Policy, Reflection (© Sanchayan Nath 2013). HERE
“Some thoughts based on my readings of the concepts of institutional economics”
“The concept of “opportunistic behavior” metaphorically explained by using the phrase “self-interest seeking with guile” appears to be interesting when we compare this concept to the concept of the “boundedly rational behavior”. While opportunistic behavior through “lying and cheating” implies a desire to take advantage of the decision making process based on “information asymmetries at the expense of other people”; bounded rationality is about individual limits on information processing capabilities – so, if we plot information asymmetry on a straight line, would these two concepts lie on different ends of this line?
Thus, if the invisible hand of collective rational decision making is expected to “serve the interests of … society at large”, opportunistic behavior and boundedly rational behavior at the individual level places limits on how optimally social welfare can be optimized.”
This seems to be saying that “the invisible hand of collective rational decision” serves the interests of … society at large”, and “opportunistic behavior through “lying and cheating” at “the individual level places limits on how “optimally social welfare can be optimized”.  
In short, as “society at large” consists of individuals who need not (and we have good reasons to believe they are numerous and do not) share the same “bounded rationality”, then, ignoring the pseudo-proposition of collective rational decision-making making “serving the interests of society at large” and just concentrating on the “society at large” it must consist in the aggregate of a net effect of the two trends – the collective rationality and the individual “opportunist bounded rationality” of “lying and cheating”.
That is not serving the interests of society. 
Moreover, if enough individuals operate by “lying and cheating” is a majority or a large enough proportion of a society it would seriously affect the social optimum, making the first proposition non-operable. 
As there are numerous cases of individual self-interest acting against others (Smith identifies over 70 instances of such behaviour in WN) the first proposition is suspect.


Blogger Nate Kratzer said...

Do you have another post with more about the 70 exceptions Smith notes? I have a short list of some of them, but I'd love to see a complete list. Thanks, Nate

2:56 am  

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