68. Selfishness, Altruism and Rationality, Part 1

Note: This post is the sixty-eighth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's topic is the book, Selfishness, Altruism and Rationality, by Howard Margolis

Margolis' goal in this book is to extend the Economic Theory of Rational Choice so that it covers political situations as well as Economic ones.

He opens the book with a quote from James Coleman which eloquently outlines the problem, while also covering our now familiar choice between two versions of self-interest,

"Classical economic theory always assumes that the individual will 'act in his interest'; but it never examined carefully the entity to which 'his' refers. Often, as when households are taken as the unit for income and consumption, it is implicitly assumed that 'the family' or 'the household' is the entity whose interest is being maximized. Yet this is without theoretical foundation, merely a convenient but slipshod device. In this case, as in many others (e.g. when a man is willing to contribute much, even his life, to national defense, rather than use a strategy that will push the cost onto others), men act as if the 'his' referred to some entity larger than themselves. That is, they appear to act in terms, not of their own interest, but of the interest of a collectivity or even of another person. Indeed, if they did not do so, the basis for society could hardly exist.

Yet how can this be reconciled with the narrow premise of individual interest ... we could simply solve the problem by fiat, letting 'his' refer to whatever entity the individual appeared to act in the interest of. This would obviously make the theory trivially true, and never disconfirmable. A more adequate solution is one which states the conditions under which the entity in whose interests he acts will be something other than himself."

We saw in the last post that James Buchanan was willing to settle for a theory that based human motivation solely on the desire for material gain, arguing that the desire for material gain is always present to some degree in people.

But Margolis isn't willing to settle so easily,

"A satisfactory theory of social choice requires a model of individual choice that is consistent with the way human beings are observed to behave. Yet, even after a generation of work on the problem of applying the economic 'rational choice' perspective to social choice, often leading to striking results, this fundamental problem remains unresolved. We still lack a model that accommodates (without fudging) such obvious observations as that citizens bother to vote and do not always cheat when no one is looking. A resolution of this difficulty can be expected to require some departure from conventional assumptions."

Margolis goes on to indicate that, in his opinion, the main difference between situations which can modelled fruitfully using the traditional model and situations requiring a new model is that situations where the old model works are economic in nature whereas situations where a new model is required are political in nature (echoes of Mancur Olson specifically indicating that this theories on collective action only applied to economic groups, not groups formed for no-economic reasons.

Says Margolis,

"This classical model is profoundly shaped by its root concern with the problems of the marketplace. But in politics we are dealing with goods allocated largely through some coercive process, not through voluntary market transactions; and political 'goods' (such as justice) are often inherently unmarketable. Nonmarket effects (externalities) which are aberrations - market failures, which one seeks to correct - for most economists are the central feature of political life for political scientists.

We can expect that Samuelson's notion of public goods (which can best be understood as a generalization of the notion of externalities) would play a central role in any viable formal theory of politics, and indeed that is the case. It is not too strong a statement to say that societies, and hence politics exist because public goods exist."

Margolis spends a chapter illustrating his argument that the classical rational choice models fails to handle political situations via a series of 3 examples:

* Voting
* Repeated Prisoner's Dilemmas
* Public Goods

In the case of voting, the rational choice model fails to explain why people might go the trouble of voting even when they know their vote won't affect the outcome.

In the case of the repeated Prisoner's Dilemma, the model fails to explain why people will generally cooperate even though on any given iteration they could gain by defecting against the other player in the dilemma.

In the case of public goods, the model fails to explain why people will make contributions to things that are publicly available to everyone. Margolis asks us to imagine a hypothetical man named Smith who is planning a $10 donation to his favourite charity. The classical economic model says that Smith would do this because he wants the charity to have $10 more available to it than it does currently.

But now imagine Smith finds out that someone else has just donated $10 to the charity. Under the classical model, Smith, realizing that his favourite charity is now $10 richer just as he wanted it to be, no longer feels a need to make a donation.

Of course in reality there may be some relationship between how much money a charity has raised and how much people contribute, but it is nowhere near this strong a relationship. Clearly there must be something more to Smith's motivation than simply wanting the charity to be $10 richer, but the classical model has no answer to what that might be.

Margolis argues that there are two altruistic motivations that need to be taken into consideration. We have an altruistic motivation based on wanting other people to have more, and an altruistic motivation based on wanting to contribute our fair share (what Margolis calls 'participation').

Margolis also notes that all of his examples are prisoner's dilemma type situations, which is not surprising since the Prisoner's Dilemma is the formalization of situations where what is in the self-interest of participants is opposed to the group interest.

In the next post we will look at the solution that Margolis proposes in order to create a model of rational choice that can model human behaviour accurately in the case of prisoner's dilemma / public goods type situations.