Moral Lucas Critique
Pre-Script: Sorry it has been so long since the last post.
In my last post I covered how everything in the social sciences is subject to Lucas critique and there are no “deep parameters” on which to base model for our understanding of social structures, only deeper or less deep.
I will now develop this idea to how due to performativity policy actions may alter moral preferences. Performativity is a generalised term for the Lucas critique theory.
Pre-Script: Sorry it has been so long since the last post.
In my last post I covered how everything in the social sciences is subject to Lucas critique and there are no “deep parameters” on which to base model for our understanding of social structures, only deeper or less deep.
I will now develop this idea to how due to performativity policy actions may alter moral preferences. Performativity is a generalised term for the Lucas critique theory.
Economics policy model often assume that people the utility
people receive from monetary incentives is independent of non-monetary utility
received. So if you offer money for people to give blood, more blood will be
donated, right?
U(non-monetary benefits) + U(monetary benefits) >
U(non-monetary benefits)
Therefore introducing monetary benefits it stands to reason
more people will donate blood.
Studies have shown when money is offered for blood donation
less is donated, as it undermines the non-monetary utility of the action (nef,
2013). The independence assumed in our model is not only wrong but gives the
wrong conclusions.
But if policy actions are introduced which assume non-monetary and monetary utility independence, will people start expecting monetary payment for doing “good” things?
This can be seen in Gneezy & Rustichini (2000) where they investigate the effects of placing a fine on parents who are late to pick up their children from day-care, in hope to deter the behaviour. They find that the introduction of a fine actually increased the rate of late arrivals. Perhaps the introduction of a fine reduced the non-monetary cost of being late to a greater extent than the increased monetary cost. This in the logic of common sense is entirely understandable, people do not rush to get their on-time as they think paying for the luxury of being late. There is no guilt for being late, no group pressure to be on time.
Although, this is a tricky problem for policy-makers it is not the real crux which Gneezy & Rustichini (2000) find. They find that once the fine is removed the rate of lateness does not revert back to the previous lower level. The norm of lateness has been established.
This means that the assumption of independence between non-monetary incentives and monetary incentive has actually changed the revealed preferences in a non-reversible manner. This leads economists to have to expand their work. We not only have to work out the effects of policies on variables such as unemployment and inflation but also we have to work out whether this will have any implications on individuals’ underlying preferences.
This post may sound like a behavioural economist, having a psyco-bable rant to the rest of the profession. But this is actually one of the key criticism levied against behavioural economics. That for example paying students to do well in school has the moral implication of teaching children not to learn to have line up their preference with their meta-preferences. Which subsequently could create a society of instant gratification [insert socio babble].
In the last post I said no model is free of the Lucas Critique, because there are no deep parameters. By a similar argument no policy (or absence of policy) is completely free of a Moral Lucas Critique. Every policy creates an interaction between monetary and non-monetary incentives, this is not a nihilist position that we should not do anything out of fear of changing morality, but that we as a profession need to expand our remit. We need to interact and produce work with the other social sciences more and investigate the possible moral implications of our policies. Then when we present policy options to politicians we need to also include possible moral implications of instituting this policy. This will allow politicians to make more informed and hopefully better choices.
Nef, (2013), New Economics Foundation, “Money and giving: Do
financial incentives deter or encourage co-operative behaviour?”
Gneezy, U., & Rustichini, A., (2000) “A FINE IS A PRICE”, Journal of Legal Studies, vol. XXIX.
