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If we base our answer on the material covered in the first year of core courses in economics graduate programs, then it would seem to not be very important in my discipline.  Yet, this is an unfair way to approach the question.  The next question should really be:  “Important for what?”

Let’s try a different route.  It does not seem very important to know the grand history of your discipline to be a contributing member because your contributions are made at the research frontier.  You only need to know the other relevant literature also at the frontier.  (Or maybe the cynic would say it matters a little for establishing credibility with reviewers who want you to at give at least cursory mention to famous papers/books in your introduction.)

I remember learning this lesson as an undergraduate when I saw the list of references in one of my professor’s papers.  I naively asked him how he could have neglected to cite Adam Smith’s Wealth of Nations.  He chuckled and said that he’d never cited Smith in any of his papers.  I was shocked.  I wondered how it was possible to do economics without relating your work to Adam Smith.

Although I left this sweet innocence behind years ago, I often find myself revisiting my discipline’s history.  Doing so gives me insightful perspective into how my own work fits into the overall discipline.  It also aids in teaching because students love stories;  if you can teach them a little history behind ideas and controversies, they are more excited about the material.  But even better than these practical reasons is the thrill of encountering the evolution and synthesis of ideas.  Living in the world of ideas is one of the best perks of our profession.

How important is it to you to know your discipline’s history?  In what ways?

And while I have your attention, I should say that my few weeks as a guest blogger are up.  Sincere thanks to the orgtheory crew and commenters for the experience.  But you haven’t seen the last of me;  I will regularly appear with snarky comments to prevent you from forgetting me.  Alas, if I never acheive greatness as a researcher, I can always obtain five minutes of fame for timely put-downs and insults.  Oh, and by the way, I have cited Adam Smith in exactly one of all of my papers.  So far.

Standard economics textbook models of markets assume that firms act to maximize profits.  In real life, of course, firms may have various objectives not related to profit (e.g., craftsmanship, community service), and firms might not even maximize (e.g., they satisfice or follow some other rule).  However, the profit maximization assumption is short, sweet, and, most importantly for the instrumentalist, it yields some pretty useful predictions about market outcomes.

My question for you:  what would be the counterpart in the as-yet-unwritten economics of religion textbook which seeks to provide a simplified version of religious market competition?

In case you didn’t know, there is no standard economic model of religious competition.  The closest thing would not really be a specific model but more of a convention to use Hotelling-like location models in which religious groups “locate” or “product differentiate” by requiring different degrees of commitment (strictness).  But while different papers frame competition as spatial competition, they make different assumptions about religious group leaders’ preferences.  In a couple of my own papers (one coming out in AJS, another coming out in Economica), I assume that denominations act to maximize membership size.  Barros and Garoupa (Econ Journal 2002) assume that a denominations seeks to maximize the welfare of its adherents and also considers a variation in which the denomination.  Montgomery (Rat&Soc 1996) assumes that the group’s behavior is determined by the “voice” of its members.

In real life, of course, different religious groups may have very different preferences from one another.  But let me clarify:  I am not asking you what religious groups actually seek to accomplish;  I am asking what is the best assumption to make in a textbook model.  Of the assumptions mentioned above, I like the one I use because I find it most useful for not only my own research interests but also for teaching students in my economics of religion class.  It allows for a model that captures religious market entry, regulation, and the forces that result in religious market pluralism and participation.

I acknowledge that the “best” choice for a textbook would depend on the purposes of the textbook writer, so please feel free to also offer what you think might be good objectives for such a model.

It is frequently claimed that game theory has not lived up to the potential that its founding fathers (alas, there were all men) envisioned for it, i.e., that it would be the grand unifying scheme for the social sciences.  My belief is that human behavior is sufficiently rich and the philosophical foundations for social science sufficiently complex that there should and will always be a market for various methodologies.  If this belief is correct, then game theory’s not meeting its potential was due more to a misplaced vision than a lack of progress in game theory.  However, for the sake of conversation, I’ll revisit this grand vision of game theory’s potential.

What game theory still has going for it:

1.  It is a terrific way to describe the structure of many multi-person decision making scenarios, especially certain types of market competition with fixed technologies and firms, collective action, and more.  This is true whether or not one applies equilibrium concepts.  (I heard Schelling say that the best thing about game theory was the invention of the extremely useful game matrix.)

2.  The methodological assumption that a social phenomenon can be understood as an equilibrium of an underlying game allows for numerous insights to be gleaned by constructing what one considers to be the game being played.  This makes more sense if the phenomenon exhibits some type of stability (see 5 below), yet many phenomena have such stability, and equilibrium analysis is tailor made for those cases.

3.  There is a blossoming literature on the game theory of social networks–both games played on networks and games of network formation.  A social network provides a mathematical way to structure interaction in games that fits nicely into standard game theoretic analysis. I think examples from this literature will soon make their way into standard game theory textbooks, which is a good sign of acceptance in the profession.

What hurdles still exist:

4.  People just don’t conform to the axioms of rational choice.  This is not a death blow to game theory because classical game theory will always provide important an normative benchmark.  However, until the models more accurately reflect actual decision making, game theory as descriptive analysis will always be constrained.  Some changes could be quite simple to make, e.g., incorporating Prospect Theory or quasi-hyperbolic discounting and then doing standard equilibrium analysis.  Some changes would be more ambitious, e.g., drawing upon research in neuroscience to better capture new insights into how the mind works when making decisions.

5.  Despite #2 above, many important economic and social phenomena are best thought of as out-of-equilibrium phenomena, e.g., think of markets adapting to new technologies or cultural change.  We have well-known tools from evolutionary game theory that provide ways to study some out-of-equilibrium interactions.  But I see the need for a more general “dynamic game theory” (distinguished from equilibrium analysis of games with timing) of which evolutionary game theory would be a subset.  There’s much to learn about out-of-equilibrium dynamics.  Some transitions from one equilibrium to another, even if ever reached, are chaotic.

6.  The name.  See earlier post.

… is its name.  The first image half of the people out there get upon hearing the name “game theory” is that of a nerdy programmer of chess software holed up in a dark, dark upstairs bedroom of his/her parents house.  The other half of the people think of poker instead of chess.  Either way, the current name is a good way to draw public interest in certain applications of game theory, but it is not a good way to convey serious social science.

I’d like to propose a few alternatives, and I welcome your thoughts and suggestions.  I think I’ve heard of some of these before (from sources I cannot remember), so I do not deserve any credit for originality.

1.  Decision science.  This name would get it taken very seriously, though you would have some group of people who would question whether or not it is actually science.

2.  The Theory of Social Interactions.  A bit vague in and of itself, and some social scientists would think it too presumptive.  But it is grand enough to convey the potential that people had in mind for game theory.

3.  Strategic Interaction Theory.  Probably more accurate than the other two with regards to classical game theory, but it could be misleading unless people understand that strategic does not necessarily mean intentionally strategic (think evolutionary game theory).

This blog generates some good cocktail party material.  That’s one of my favorite standards to use when judging the value of social scientific work.  While reading the research, I envision myself at a party and visualize whether or not the crowd around me grows or shrinks as I attempt to mix wit and charm in describing the empirical patterns and theoretical explanations.  If the crowd grows, then the topic meets the cocktail party standard.

What other topics in social science meet the cocktail party standard?  I can immediately think of two:  happiness research and research on sex workers.

How much of your own research meets the standard?  I’d say about 60% of my research does (my research on happiness, religion, and conflict).  The other 40% fails the standard miserably.

The perception among many academics, most of whom are left of center, is that the happiness research supports the left-wing vision of the state.  If increases in income have small permanent impacts on happiness once a subsistence level has been reached, then public policy could raise happiness by helping those below the subsistence level.  If the hedonic treadmill is strongest for the wealthy, then taxing them heavily won’t affect their happiness, and the money raised can be used to improve health and primary goods access to the poor.  And so on.  Sounds like a good case, right?

Not so fast, according to Albert Brooks in his latest book.  Religion, family, and work, not left-wing government interventions, are the secret to happiness according to the data, he claims.  Not to be outdone, Will Wilkinson of the Cato Institute writes that the happiness research poses no serious threat to the libertarian vision.

Who can rightfully claim the happiness high road?  Well, each side can find ways to interpret the data to fit its agenda, so I don’t see a clear winner.  I welcome your thoughts on the topic.

Perhaps a more appropriate question is:  to what extent should raising happiness be a goal of public policy?  Of the life (security/basic health), liberty (freedom), and pursuit of happiness triad, the first two seem easier to tackle via government action because there seems to be more objective measures and standards on which to base policies.  This is a conclusion reached by the father-son Kenny team in their enjoyable book on happiness.  But even they still advocate various ways for government to improve happiness.  Hmmm, they must be left of center.

That’s the headline for this story at cnn.com:

http://www.cnn.com/2008/WORLD/meast/06/26/iraq.american.death/index.html?eref=rss_world

An unfortunate tragedy for a woman who risked her life studying how the transition to democracy affects the “regular” people.  Some of us academics may rightfully be accused of being too far removed from real life, but not Nicole Suveges.

I wish her family and friends the best at this time.

Earlier this year, Thomas Schelling visited UC Irvine to give guest lectures on nuclear proliferation and the management of greenhouse gases.  After lunch on the first day of his visit, my department chair and I gave him a quick walking tour of part of the UCI campus, sharing with him some interesting game theoretic aspects of the campus’s design (e.g., its lack of a focal point).  To our surprise, a young man jumped from out of nowhere, stated his name, explained that he knows of Schelling’s work, expressed his excitement to meet Schelling, announced that he is considering graduate school, and asked for Schelling’s advice on what to study.

With a smile, Schelling warmly shook the young man’s hand and said he is happy to meet him.  Then Schelling paused and looked off into the distance as if in deep thought.  (I’m not exaggerating here.)  Finally, he looked the young man in the eyes and told him (to the best of my memory) that the young man should study economics because it will teach him to think clearly about social interactions, but that he should read broadly and once out of graduate school not feel confined by the boundaries of the academic disciplines.

Upon reflection, I admit Schelling’s training as an economist likely biases him in his recommendation of economics for graduate school.  And while his advice to read outside of economics could be construed as another imperialist economist trying to conquer other social scientists’ territory, I think an interpretation more in line with the admittedly little I know about him personally is that he is acknowledging the wealth of minds and good ideas across the various disciplines.  And he is encouraging the student to think outside the box.

What advice do you give prospective graduate students?

After Michael’s and Fabio’s posts and ensuing comments, I decided to look up coercion on wikipedia and found this:

[1st sentence of entry]  Coercion is the practice of compelling a person to behave in an involuntary way (whether through action or inaction) by use of threats, intimidation or some other form of pressure or force.

[In 6th paragraph of entry]  In the terminology of rational choice theory, coercion does not remove a person’s objective function, but only affects the constraints under which such function is maximised.

Various improvements could be made to the part about rational choice.  First, the last phrase blurs the distinction between the choice set and the feasible utility set.  Generically speaking, the first is sufficient but not necessary for the second.  Consider these examples.  Being put in prison would change my choice set, and my utility possibility set is clearly affected as a result.  However, a friend who does not smile at me because of my unethical act does not really affect my choice set so much as reduce the benefits I receive from the friendship.  My friend and I can still pursue activities together, so the choice set is unchanged.  But I am constantly worried that s/he thinks lowly of me, so I do not enjoy those activities as much as I used to.  My underlying preferences haven’t changed either;  it is that certain actions now entail an additional cost.  This distinction between choice set and utility possibility set should be clear in the wiki entry.

A second issue is something for which there could be more disagreement.  Suppose I do something like pressure my child into taking piano lessons or attending church, the assumption being that s/he would not do these things without my parental “coercion.”  Could these things not be thought of as changing my child’s preferences?  The standard rational choice characterization says we start with fixed and stable preferences, but the rational addiction/habit-formation literature (Stiglitz & Becker, Becker & Murphy, etc.) shows that the rational choice notion of preferences is more flexible than what many people think.  I think it is better to distinguish possibly changing “point-in-time-preferences” from fixed “meta-preferences” which determine, based on a person’s experience, the dynamic evolution of that person’s point-in-time-preferences.  Thus, there is scope in rational choice for coercion as changing someone’s preferences.

A third, more subtle, issue is that the word “involuntary,” which is in my mind the key word people think of when using the word “coercion,” is not really well-defined in rational choice, and this may imply that there is no such thing as coercion in rational choice.  Choice in rational choice involves three things:  (1) a choice set, (2) preferences over outcomes resulting from the choices, and (3) the ability to choose among the choices in my choice set.  My argument above discusses the usage of coercion in reference to changes in (1) and (2), but (3) seems to me a foundational methodological assumption in rational choice.  And so long as we have (3), then any choice (according to rational choice) is “voluntary” even if the choice set is severely restricted or if the preferences have been manipulated by an outside party.  Hence, no coercion in rational choice.

Which of these points merit edits in the wiki article?  Or is this just too arcane for wiki readers?

A tangent from Teppo’s post…  A well-known, true story goes like this.  Nobel-winning economist Paul Samuelson, arguably the single biggest influence behind the mathematization of economics in the 20th century, was once challenged by the mathematician Stanislaw Ulam, who was skeptical of the value of social science, to name a single social scientific proposition which is both true and non-trivial.  Samuelson couldn’t think of anything on the spot, but years later he realized what, in his mind, is the correct response:  comparative advantage (see wikipedia).

Regarding comparative advantage, Samuelson said:

That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.

I think Samuelson’s choice of comparative advantage is an excellent one and probably the best choice from economics.

But what would be other good answers to Ulam’s question?  Is there an obvious answer from sociology?  From political science?

Well, I actually don’t know if he was the first, but Adam Smith can legitimately be classified as an economist of religion.  His insights into religious organizations put forth in the Wealth of Nations have been largely ignored.  Why?  IMO, the short answer is that there is a tradition of thinking that religion was outside of the realm of economic analysis–a view that is still held by many.  E.g., the Penguin edition of Wealth of Nations that I purchased and read as an undergraduate had actually removed those sections, probably because the editors naively thought those comments by Smith had nothing to do with economics.  So I was not exposed to Smith’s insights until well after finishing graduate school.

There have, however, been some attempts to reintroduce Smith’s ideas to the academy.  In a 1988 Journal of Political Economy article, Gary Anderson summarizes Smith’s ideas:

(1) he offered a theory explaining the participation of individuals in religion based on his theory of human capital, (2) he modeled the suppliers of religion as self-interested income maximizers, (3) he extended his theory of competitive markets to the supply of religion, (4) he analyzed the [medieval] church as a kind of firm devoted to the economic effects of its monopoly in the Middle Ages, and (5) he attempted to show how the self-interest of the clergy and political leaders interacted with economic growth and development.

In a 1991 Rationality and Societyarticle, Larry Iannaccone gives a different summary:

Smith argued that self-interest motivates clergy just as it does secular producers; that market forces constrain churches just as they do secular firms; and that the benefits of competition, the burdens of monopoly, and the hazards of government regulation are as real in religion as in any other sector of the economy.

What is the big lesson here?  Isn’t it obvious?  Don’t settle for anything but the unabridged Wealth of Nations for your own bookshelf.

And I guess a second lesson is that maybe, just maybe, economics does have something to contribute to our understanding of religion.

Just had to put this up in response to Teppo’s post from earlier today.  Here’s a different connection between Austrian economics and economic sociology (or at least economic sociologists who like game theory).

According to Andrew Schotter, one of Oskar Morgenstern’s (you know, of “von Neumann and Morgenstern” fame) last pupils:

In terms of economics, however, The Theory [of Games and Economic Behavior] … must be appreciated as a milestone in the evolution of Austrian Economics…

[I]t is clear that Morgenstern saw game theory… as a formalization of a revived “neo-institutional” economics.  …  [H]e saw game theory as a tool to allow social scientists to define the set of possible, mutually exclusive, institutional arrangements that could emerge given a social situation…

This emphasis on institutional analysis is distinctly Mengerian…

It is probably no surprise that the work of Martin Shubik (Morgenstern’s most famous student) has consistently been in what he calls “mathematical institutional economics.”

(From “Oskar Morgenstern’s Contribution to the Development of the Theory of Games,” in Toward a History of Game Theory, ed. Roy Weintraub, Duke Univ. Press, 1992):

People still debate the relative contributions of Morgenstern versus von Neumann to Game Theory, but it appears that Morgenstern’s Austrian background allowed him to see more dynamic applications for mathematical modelling than the neoclassical approach of the Anglo-American economists.  Von Neumann, who had recently reworked the formulation of quantum mechanics, was similarly influenced by his new physics.

… that religious organizations must confront the free-rider problem. This could be a self-serving claim because the idea is central in my research on religious groups. But I argue that I use the idea because it’s the best idea, not the other way around!

Here’s the gist of it. Many of the benefits of religious participation arise from the time, money, emotional effort, and other resources expended by multiple persons. This applies to both this-worldly benefits such as social insurance and friendships as well as other-worldly benefits such as fervor, transcendence, and confidence in religious teachings. However, because others’ efforts can substitute for my own in some ways (they can sing instead of me) and my own efforts are costly, I have the incentive to free-ride or easy-ride on others’ efforts. To thrive in the religious marketplace, a group must provide quality services by sufficiently overcome this free-rider problem.

*

Of course, there is no set formula for doing this, but most religious organizations use one or more methods. Probably not surprising to this audience, these methods are similar to those used by other organizations engaged in collective production: 1. moral suasion (obviously); 2. selective incentives whereby those that contribute more to production receive benefits not available to those who contribute less; 3. monitor members to identify the high contributors; 4. require members adhere to certain observable but socially costly standards (distinctive clothing, diet restrictions, etc.) that can be used to screen out those more likely to free-ride. These various methods are all strengthened by organizational efforts to foster strong social network ties among members. This overall logic is used by Iannaccone (see his March 1994 AJS article) and others to explain the vitality of (moderately) strict churches; strict churches flourish because they use more of these methods.

A couple caveats are in order. First, this idea is best applied to western not eastern religious traditions because the collective religious production is best conceived as a congregational activity. Second, it could be argued that that the best idea in the economics of religion is the more general notion that there is a religious marketplace in which religious compete. It is a point well taken, but I’ll stand by my claim.