prior probability

In a recent blog post dated 20 October on his blog Marginal Revolution, our friend and colleague Tyler Cowen, an economist at George Mason, shared with his readers his typology of economic approaches to the world: (1) the rational actor approach or “Econ 1.0,” a world full of stable preferences and populated by cold and calculating utility maximizers, i.e. fictional creatures who are maximizing hypothetical utility functions; (2) the behavioral approach or “Econ 2.0,” a world full of biased, imperfect, and cognitively-challenged individuals who are “satisficing” as best they can their unstable preferences; and (3) the cultural or social approach or “Econ 3.0,” a world full of flesh-and-blood people with complex and overlapping mixtures of cultural self-identifities and social loyalties. (For the record, we include Prof Cowen’s typology in full below the fold.) For our part, we find this typological triad to be very useful, and we agree with Cowen that Cultural Econ (Econ 3.0) is the way to go. Classical Econ (Econ 1.0), corresponding to what our intellectual hero Ronald Coase used to derisively describe as “Blackboard Economics,” generates true but mathematically trivial (for the most part) results. Likewise, Behavioral Econ (Econ 2.0) doesn’t get us very far, since our biases tend to run in opposing directions. In short, as much as we love building formal theoretical models, history and culture are just as important as mathematics and psychology. Continue reading →

This is our final post regarding the new Routledge Handbook of Libertarianism, a remarkable collection of erudite essays which was published earlier this year. (During the previous three weeks, we have reviewed 11 select essays from the Libertarian Handbook.) In this concluding post, we shall go back to first principles to point out two foundational problems with libertarian theory, a predicament that is not solved in the Libertarian Handbook. Simply put, the problem is this: What is the moral basis of libertarianism? Do we have a natural, God-given, or pre-political right to liberty, or is freedom simply a pragmatic or instrumental means to an end? (Or in the words of John Thrasher, who contributed an excellent essay to the handbook: should we “base libertarian conclusions on some deontological basis (e.g., natural rights) or [should we] adopt a consequentialist justification”? 

Furthermore, whether we prefer a deontological or consequentialist approach to liberty, how are we able to justify any reasonable limits on our liberties? Simply saying that “my freedom ends where your freedom begins” (or “my right to swing my fist ends where your nose begins”) is by itself totally unhelpful without a general theory of consent or a general theory of harm. After all, what if two men are participating in a consensual boxing match, or what if I have to defend myself or my family from an unprovoked aggressor? In these cases, consent or the threat of imminent harm, as the case may be, can then serve as a powerful moral justification (or moral trump, pun intended) in favor of the use of force. (Or consider the meme pictured below. Why should freedom end at one’s nose, so to speak? Why not take into account the slippery slope of so-called psychic harms?) Is there any way out of this normative swamp? Instead of committing ourselves to either a rights-based justification of liberty or an instrumentalist one, we would create a general rebuttable presumption in favor of liberty. That is, in the absence of a good justification for restricting freedom (and regardless of the moral source of such justification), people should be free to do whatever they want. This libertarian formulation is by no means perfect. What is? But at least it avoids moral slippery slopes by shifting the burden of proof onto the enemies of liberty.

Really?

With this post, we review the last of eleven select essays published in the new Routledge Handbook of Libertarianism: Hillel Steiner’s erudite essay on “Free markets and exploitation.” (Dr Steiner, a political philosopher and Emeritus Professor of Political Philosophy at the University of Manchester, is the author of An essay on rights; see book cover below.) Steiner raises an important theoretical question: what makes an economic transaction or relationship an exploitative one? After posing some hypothetical scenarios, Steiner concludes that exploitation occurs when a person’s rights are violated or when his endowments are reduced in some way. Unfortunately, this formulation is empty and vague. A person’s endowment includes all the entitlements, claims, liberties, powers, or immunities that he is entitled to, but where does this circularity take us?

The ultimate problem with Steiner’s analysis of exploitation is his moral commitment to redistribution. Just as traditional libertarians are dogmatic about the supposed evils of coercion (and thus have trouble explaining when restrictions on liberty are justified), Steiner is likewise dogmatic about the supposed evils of economic inequality. In the name of redressing economic inequality and righting past “undressed violations of property rights,” Steiner would deny an individual’s liberty to leave bequests to his heirs, and he would impose enormous restrictions not only on property rights in land, but also on the ownership of all natural resources. But from a policy or “applied” perspective, Steiner’s ideas are even more far-fetched and outlandish than Javier Hidalgo’s defense of open borders. At least a policy of “open borders” is imaginable, since federations like the USA and European Union already have open borders among their member states. We can’t even begin to imagine what a world without voluntary bequests would look like.

Here is a small sample of the essays, papers, reports, etc. we’ve learned the most from this week:

1. Derek Parfit’s last paper (via the Journal of Philosophy & Public Affairs)
2. The seven deadly sins of AI predictions (Joost Swarte, via MIT Technology Review)
3. Why fake islands might be a real boon for science (Emma Marris, via Nature)
4. When the revolution came for Amy Cuddy (Susan Dominus, via NY Times Magazine)
5. Blade Runner timeline (Jon Miller, via Movie Pilot)

Credit: Felix Tindall (@FT_in_NZ)

It’s been a few days since our last post on the new Routledge Handbook of Libertarianism. (We have already reviewed nine works from this remarkable collection of theoretical and applied essays.) In this post, we will review Jahel Queralt’s excellent essay: “Economic liberties are also the liberties of the poor.” It’s one of the best essays in the entire collection and deserves to be read in its entirety. [Dr Queralt, a law lecturer at Pompeu Fabra University in Barcelona, is the author of Igualdad, suerte y justicia (“Equality, Luck, and Justice”); see book cover below.] In summary, Queralt explains why libertarian theory is so relevant to the lives of working men and women around the world. From a theoretical perspective, she shows how economic liberty–defined broadly as the right to engage in whatever trade or business one wants without governmental interference–is both “autonomy-protecting” as well as “autonomy-enhancing.” Economic liberty protects and enhances individual autonomy because it allows us to decide for ourselves what occupations to engage in, what goods to make, or what services to provide. But more importantly, economic liberty is essential from a practical perspective as well. In the eloquent words of Dr Queralt (the links are hers too): “The poor have a strong interest in having their economic liberties respected. Indeed, in developing countries approximately half of the workforce is self-employed. This includes pushcart vendors, itinerant barbers, shoemakers, and other entrepreneurs that run small businesses against all sorts of government failures—onerous and cumbersome business regulations, bribery, and corruption. Such obstacles not only make it extremely difficult for them to succeed in the market and to earn a livelihood. They also create a division between them and wealthy individuals who can handle regulatory costs and are able to hire legal aid in navigating the maze of red tape. To put it bluntly, infringements of economic liberties can perpetuate poverty and deepen inequalities in the marketplace. When this happens, economic unfreedom harms the poor even more than it harms the rich.” In a nutshell, Queralt’s defense of economic liberty is one of the best we’ve seen in a long time.

Behavioral economist Richard Thaler was awarded this year’s “Nobel Prize” in economics. But with all due respect, the Swedes got it wrong. If the selection criterion for winning a Nobel in economics these days is going to be original work integrating human psychology into economics (or “how human traits systematically affect individual decisions as well as market outcomes,” to quote the Royal Swedish Academy’s press release), isn’t economist John List far more deserving of this award? True, Thaler may have marginally pushed the pioneering work of Amos Tversky and Danny Kahneman further by actually testing economic theory in laboratory settings, but it was List who figured out creative ways of testing these lab tests themselves! Unlike Thaler and company, who conduct their economic experiments on North American undergrads in artifical environments and for small stakes (coffee mugs and chump change), Prof List has pioneered the use of field experiments in which ordinary people (not just undergrads) play for real stakes. Maybe next year …