Where do Norms come from?
By Paul
Here’s an interesting webcast of a speech of George Akerlof;
"Akerlof spoke on how inclusion of certain norms changes our view of macroeconomics, by negating the concept that decision makers are utility maximizers. He put forth a view of motivation that involves individual dignity and behavioral expectations, the use of which broadens the application of the utility function for each individual. The implication of these motivations is that it is not only outcomes that lead to certain behavior, but also expectations about what should occur. These missing motivations give us a better understanding of why people make economic decisions, and may recommend a more naturalistic and observational approach for understanding decision-making processes. "
As Akerlof says;
“This lecture has shown that the early Keynesians got a great deal of the working of the economic system right in ways that are denied by the five neutralities. As quoted from Keynes earlier, they based their models on “our knowledge of human nature and from the detailed facts of experience.” They used their intuitions regarding the norms of how consumers, investors, and wage and price setters thought they should behave. There is a systematic reason why such knowledge and experience is likely to be accurate: by their nature norms are generated and known by a whole community. They are known to those who abide by them, and those who observe them as well.
We have shown ways in which macroeconomic variables will be affected by norms. The five neutralities, which deny a role for norms systematically suggest that the Keynesians got it wrong. Consumption should have no special dependence on current income; investment should be independent of current cash flow; wages and prices should not depend on nominal considerations. But the Keynesians. initial intuitions got it right because they included norms whose implications are widely understood. This understanding yielded insights into behavior that must be absent from the five neutralities, whose very construction denies the possibility that people’s decisions might be influenced by their views regarding how they, and others, should behave. In this broader view it is then no theoretical surprise that in consumption, investment, and wage and price determination, macroeconomists have found excess sensitivity to variables that the five neutralities say should play no role at all.
It is time to restore the missing motivation to macroeconomics.”
Related Links:
- A non-human example of the cultural transmission of social norms
- An earlier post related to norms in society
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