comment on ken arrow: the social determination of...
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Comment on Ken Arrow: The social determination of behavior
Karla Hoff
The standard model assumes a rational actor
Stable & autonomous preferences
Market
Autonomous people
Under some conditions: Perfect competition No missing markets No asymmetric
information
The Fundamental Theorems of Welfare Economics
The 1st theorem The competitive economy is always Pareto efficient. The 2nd theorem Every Pareto efficient allocation is a competitive equilibrium for some distribution of purchasing power. Arrow 1951
The assumptions in economics about how individuals make decisions have become contested
--Kahneman 2011
Thinking fast & neglect of ambiguity
Kahneman 2011
1990s—Psychology departs from universals in cognition
The human mind is a pattern-matching machine Categories and other mental models help us process information and sort the world into easer-to-read patterns Definition of culture: the set of mental models that we use to process information:
They shape attention, construal, memory, & emotion responses They include inconsistent representations.
Example from Brazil: Soap operas of societies with low fertility
• A company deliberately crafted soap operas with characters who had few or no children
• The fertility decline in a municipality began after the first year the municipality had gained access to the TV soap operas.
• The decline was greatest for respondents close in age to the leading female character
• For women of age 35–44, the decrease was 11% of mean fertility.
• Causal identification: based on the arguably random timing when different parts of Brazil obtained access to the TV emissions
La Ferrara et al. 2012
Jensen (2012) hired 8 call center recruiters and sent them to 80 villages
Randomized controlled trial in 160 villages in India
• One day per year, for 3 years, one information session was held
• 3 years of continuous placement support to women, by phone
• 11 job matches on average per village over 3 years
• Proportion of young women with call center jobs increased from 0 to 5.6 points
Social impact on women of age 15-21
Markets with call center recruiters in the village
Recruiter Sellers
• Proportion married drops (71% control, 66% treatment)
• Proportion with children drops (from 43% to 37%)
Social impact on women of age 15-21 & on girls
Markets with call center recruiters in the village
Recruiter Sellers
• Proportion married drops (71% control, 66% treatment
• Proportion with children drops (from 43% to 37%) • BMI of girls
The treatment closed 30% of the gap between village girls and the wealthiest residents in Delhi
Social rigidity
Because social experience shapes stereotypes, prototypes, and other mental models, society can be rigid.
Example: 2 mental models of parents’ utilty gains from educating a daughter, VP & VA .
Hoff and Stiglitz 2016
Distribution of benefits to parents from an uneducated daughter • .
. • .
Market outcomes can affect who we are.
Markets shape how we think—they have a “schematizing role”
Standard Economics
The rational actor
Guided by • Incentives
Standard Economics Behavioral Economics
The rational actor
The quasi-rational actor
Guided by • Incentives
Also guided by • Context in the moment of
decision under “fast” thinking
Source: Kahneman 2011
Standard Economics Behavioral Economics Strand One Strand Two
The rational actor
The quasi-rational actor
The enculturated actor
• Endogenous preferences • Endogenous cognition • Endogenous perceptions
Guided by
incentives
Also guided by
context in the moment of decision
(primes, frames)
& also guided by
experience & exposure that create mental models, e.g.
• Prototypes • Narratives • Concepts • Identities
Thank you.
Extra slides
New paradigm with the enculturated actor
Preferences & cognition depend on
Experiences/exposure that shape the tools with which we process information
Primes & frames
A big social change can happen if enough people change their way of look at things at about the same time from, e.g.
Shocks to demand Soap operas & theater for development;