The other day, I woke up thinking I fancied toast for breakfast rather than my usual muesli. I got up, got dressed, put the kettle on…and got myself a bowl of muesli. Force of habit overcame my conscious choice.
I mention this because of a post by Jason Smith, in which he questions economists’ assumption that people make deliberate choices. “I do not think humans are "really thinking" about many of their economic choices” he writes. My breakfast was an example of that.
Now, I don’t want to get into high-falutin’ grand theory here. Instead, I’ll just suggest four things that might support Jason’s scepticism.
One is that a lot of our economic behaviour is like my breakfast – a matter of habit. Most of us are shat, showered, shaved and in the office before we’ve thought about it. We can waste half our lives this way. Our everyday labour supply “decisions” are to this extent unconscious. We’re more like unthinking automata than deliberate choosers.
So too is much of our consumer behaviour. Millions of us stick with the same banks, utilities and insurance companies out of habit, at least until a threshold of dissatisfaction is breached.
Savings behaviour also fits this pattern. Much of this takes the form of a monthly direct debit into a pension or Isa. And rightly so. It’s easier to get into satisficing habits than it is to make optimal ad hoc decisions. As Alfred North Whitehead said, “civilization advances by extending the number of important operations which we can perform without thinking about them.”
Secondly, the feasible set might be so small that there’s not much to choose from. Granted, even the poor can choose between Lidl and the pound shop – and perhaps have to make more deliberate choices between them than we richer people with our weekly Ocado habit. But they don’t really have a choice about how much to save. And many of us don’t have much choice of job (because of high job-specific human capital, not just loose labour markets). Nor do we have much choice of how much to work: it’s 40 hours a week or zero for many.
I suspect it’s no accident that the idea of economics as the study of individual choice only fully emerged in the late 19th century – because before then, economic behaviour was mostly a matter of habit and tradition rather than choice. Peasants got up, worked the land and went to bed not because they chose to do so but because that’s just what they did for generations. Yes, things have changed since then. But by how much?
Thirdly, Maynard Keynes asserted that firms can have little knowledge of the future – a claim corroborated by Rosewell and Ormerod. This suggests we should think of entrepreneurship and investment projects not so much as conscious choices – and certainly not optimizing ones – but as a form of evolution in which the market selects (imperfectly) for randomish mutations. Maybe it’s only the hindsight bias that causes us to impute skill to successful businessmen.
Blind natural selection doesn’t just operate upon corporate strategies. Hayek argued that market economies and property rights also emerged via this process:
Rules generally tend to be selected, via competition, on the basis of their human survival value. (The Fatal Conceit, p20)
You wouldn’t describe an ant colony as being the product of the conscious, deliberate, maximizing choice of individual ants. Why, then, try to describe complex emergent human societies in this way?
Fourthly, our economic behaviour and beliefs are shaped by the past – even the distant past. For example, American attitudes today (inequality (pdf), right-wing racist (pdf) whites and black “underclass culture”) is in part the product of 19th century slavery – as is African under-development. To take another example, areas of western Europe that were conquered by Napoleon enjoyed faster economic growth decades later, in part because of the institutional changes he imposed. Or to take another example, the fact that the same surnames dominate elites over centuries in different societies points to a persistence in inequality that’s hard to reconcile with the idea that choice and agency determine our fates.
To all this we must add that our high incomes in the west are due not to our own actions but to centuries of growth. I’m one of the 1% of richest people who ever lived. Perhaps nine-tenths of this is due to having been born in the right place and time. To attribute this to my choice and agency would be a self-serving lie.
You might reply to all this that there mere fact that incentives matter suffices to establish agency. I’m not sure. Sunflowers turn to face the sun. They behave as if they are responding to incentives. But they have no agency.
I don’t think that in saying all this I’m saying there’s no role for choice; for that view, try Daniel Wegner’s The Illusion of Conscious Will. Nor am I saying that microfoundations never matter. Instead, when we ask “why did he do that?” we must look beyond “max U” stories about mythical individuals abstracted from society and look at the role of habit, cultural persistence and constraints. As someone once said, “men make their own history, but they do not make it as they please.”