by Robert Sugden (Author)
About the Author
Robert Sugden is Professor of Economics at the University of East Anglia, Norwich. He has been a prominent behavioural and experimental economist since the pioneering era of the 1980s. He is also well known for his work in economic theory, methodology of economics, and philosophy of economics. He is the author of The Economics of Rights, Cooperation and Welfare, Experimental Economics: Re-thinking the Rules, and many papers in leading journals of economics and philosophy. Recently his work has focused on reformulating normative economics so that it avoids unrealistic assumptions about individual rationality without becoming paternalistic.
About this book
The Community of Advantage asks how economists should do normative analysis. The growing consensus in favour of paternalism and 'nudging' has urged normative analysis towards the satisfaction of individual's preferences. Its conclusions have supported a long-standing liberal tradition of economics that values economic freedom and views markets favourably. However, behavioural research shows that individuals' preferences, as revealed in choices, are often unstable, and vary according to contextual factors that seem irrelevant for welfare. Robert Sugden proposes a reformulation of normative economics that is compatible with what is now known about the psychology of choice.
Reformulations that assume that people have well-defined 'latent' preferences which, because of psychologically-induced errors, are not always revealed in actual choices. According to these reformulations, the economist's job is to reconstruct latent preferences and to design policies to satisfy them. Challenging the controversial idea of using behavioural insights to guide public policy The Community of Advantage argues that latent preference and error are psychologically ungrounded concepts, and that economics needs to be more radical in giving up rationality assumptions.
Sugden advocates a kind of normative economics that does not use the concept of preference. Its recommendations are addressed, not to an imagined 'social planner', but to citizens, viewed as potential parties to mutually beneficial agreements. Its normative criterion is the provision of opportunities for individuals to participate in voluntary transactions. Using this approach, Sugden reconstructs many of the normative conclusions of the liberal tradition. He argues that a well-functioning market economy is an institution that individuals have reason to value, whether or not their preferences satisfy conventional axioms of rationality, and that individuals' motivations in such an economy can be cooperative rather than self-interested.
Brief contents
1. The Liberal Tradition and the Challenge from Behavioural Economics 1
1.1 Mill and the Community of Advantage 1
1.2 Neoclassical Welfare Economics 4
1.3 The Challenge from Behavioural Economics 7
1.4 Reconciling Normative and Behavioural Economics 13
2. The View from Nowhere 17
2.1 The Impartial Spectator 17
2.2 The Benevolent Autocrat 19
2.3 Public Reasoning 24
3. The Contractarian Perspective 29
3.1 Hobbes’s Contractarianism 30
3.2 Hume’s Contractarianism 33
3.3 The Contractarian Perspective 37
3.4 Why a Contractarian Cannot be a Paternalist 42
3.5 The Four Alls 50
4. The Inner Rational Agent 53
4.1 Behavioural Welfare Economics: The New Consensus 53
4.2 Autonomy and the Model of the Inner Rational Agent 63
4.3 System 1 and System 2 67
4.4 Does the Concept of Latent Preference Have Empirical Content? 68
4.5 SuperReasoner in the Cafeteria 72
4.6 Savage and Allais 75
4.7 Purifying Allais Paradox Preferences 77
4.8 Akrasia 79
4.9 Summing up 82
5. Opportunity 83
5.1 The Individual Opportunity Criterion 83
5.2 Preference-satisfaction 85
5.3 ‘Mere’ Preferences? 88
5.4 Opportunity when Preferences are Liable to Change 96
5.5 The Continuing Person 100
5.6 Responsibility 106
6. The Invisible Hand 107
6.1 The Basic Idea 110
6.2 Exchange Economies 112
6.3 The Interactive Opportunity Criterion 115
6.4 The Strong Interactive Opportunity Criterion 117
6.5 Competitive Equilibrium 119
6.6 The Strong Market Opportunity Theorem 122
6.7 Production 124
6.8 Storage Economies 126
6.9 The Wine Economy and the Responsible Agent 133
6.10 How the Invisible Hand Works 137
7. Regulation 140
7.1 Neoclassical Arguments for Regulation 141
7.2 Choice Overload 143
7.3 Self-constraint 148
7.4 Obfuscation 156
7.5 Fixed Costs and Price Discrimination 160
7.6 Public Goods 164
7.7 Otto per Mille 168
8. Psychological Stability 174
8.1 Equality of Opportunity 175
8.2 The Division of Knowledge 180
8.3 The Other Invisible Hand 185
8.4 Why Markets Cannot Be Fair 190
8.5 Looking Forward 193
8.6 Can Everyone Expect to Benefit from the Market? 197
8.7 Underwriting Expectations of Mutual Benefit 201
9. Intrinsic Motivation, Kindness, and Reciprocity 205
9.1 The Virtue-ethical Critique of the Market 208
9.2 Intrinsic Motivation and Crowding-out 211
9.3 Reciprocity: The Experimental Evidence 214
9.4 Reciprocity and Social Preferences 220
9.5 Reciprocity and Social Norms 223
9.6 Escaping from the Paradox of Trust 229
10. Cooperative Intentions 232
10.1 Team Reasoning 232
10.2 Practices 236
10.3 Voluntariness in a Simple Model 240
10.4 Voluntariness Generalized 244
10.5 Intending Mutual Benefit 248
10.6 Four Examples 252
11. The Principle of Mutual Benefit 256
11.1 Morality and Norms 256
11.2 A Contractarian Perspective on Morality 260
11.3 The Principle of Mutual Benefit 262
11.4 How the Principle of Mutual Benefit can be Self-sustaining 264
11.5 A Question too Far 269
11.6 Correspondence of Sentiments 272
11.7 The Community of Advantage 277
Endnotes 283
References 297
Index 313
Paperback: 352 pages
Publisher: Oxford University Press (September 17, 2018)
Language: English
ISBN-10: 9780198825142
ISBN-13: 978-0198825142
ASIN: 0198825145