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Selected excerpts:
Recently, Timur Kuran has observed: "We must guard against turning the [past] successes of neoclassical economics into a license to stop thinking. If a broader, more refined framework might prevent blunders and explain more successfully a wider set of phenomena, science mandates that we develop and explore it." Progress in science occurs by constructing new analyses that work to resolve difficulties perceived in existing theories.... [Preface, p.ix]
The binding rules of the economic game are uncertain because these rules are often implicit. Even if there were some codification upon which everyone could agree, we could still never guarantee against alteration, simple nonobservance, or even subversion. By definition, rules cannot be specific enough for every possible case. There is always room for interpretation. Genuine differences in interpretation and the willful distortion of rules to promote individual interests are, therefore, always possible and often very difficult to differentiate. Scarcity and invidious comparisons make these problems of distribution decidedly nontrivial. [p.14-15]
Sometimes we speak as if uncertainty can arise only from too little information, but its source can also be too much. We cannot see all things at all times; we must choose and create images, else we are bound to be baffled. [p.15]
While Kirzner focuses on behavior that emanates from conscious and explicit decisions, Heiner examines all sorts of actions, not just by human beings but also by animals and micro-organisms. Examining the generalized finding from "signal detection experiments," he asserts that the greater the uncertainty (or, rather, the gap between the complexity of decision problems and our ability to calculate), the stronger is our (and lower beasts') incentive to adhere to rules and thus the more behavior is "rule governed." Given what can be gained and lost by taking a certain action, the reliability of any action that deviates from the rule must approach perfection as the probability of making the correct choice decreases below a certain point. Accordingly,
... an agent's repertoire must be limited to actions which are adopted only to likely or "recurrent" situations. Thus a general characteristic of such a repertoire is that it excludes actions which will in fact enhance performance under certain conditions. [p.25]
Every decision, a necessary antecedent to human action, must involve two structural elements: an idea or understanding of a given situation, and, given that understanding, a selection of the most desirable course of action. [p.30]
Unfortunately, most don't have an understanding of the predicament of man.
And here we shall further assume that individuals never pose problems too difficult to solve; it is the task of the process of understanding itself to simplify in order to manage, and to do otherwise is counterproductive. [emphasis mine, mh, p.31]
In our faculty of reason and imagination, we are fortunately endowed with the means of coping with uncertainty. We can make inquiries, deliberate about the variety of actions possible in any set of circumstances, and find those that are best suited to the particulars. Once discovered, ideas transform states of doubt into those that support action. Indeed, our second fact is that, under uncertainty, individuals seek ideas that enable them to deal with given situations, terminating this search only when such understandings have been obtained. [p.31]
This sounds a little too rational. I can't envision many people making "inquiries and deliberating about the variety of actions possible."
For scientist and layperson alike, however, the essence of reasoning consists of the ability to make comparisons. It is this that makes possible the drawing of inference, deduction, and analogies, and the creation of allegory and metaphor. But comparison making itself requires a basis, and that basis is paradigm.... Examples constitute our very mental process, and examples are, literally, paradigms. [emphasis mine, mh, p.33-34]
Paradigms elicit our faith that their implied vision is true because our livelihood depends upon action, and our action depends upon our paradigms. We cannot even entertain the possibility that the basis of our action is false ex ante. In other words, we posit faith in the veracity of our viewpoint. We may doubt the veracity of the selected paradigms, but only ex post. [p.39]
Paradigms tend to have normative as well as predictive implications for the individuals who adopt them. For people who must act, the line between "is' and "ought" is not clearly demarcated. Nor are scientists wholly exempt from this tendency. In their field, a paradigm or theory must be treated as provisionally and potentially true, unless or until proven false. Although scientists are required to abandon a theory if it compares unfavorably to another, they are not obliged to abandon it at the first sign of trouble. As Popper himself would argue, even scientific discourse requires the existence of committed proponents of competing theories. One of the chief reasons for adhering to a hypothesis is the lack of a better hypothesis. [p.40]
Individuals tend to be quite loyal to their paradigms and to revise them only over time and at the margin -- that is, within the context of other paradigms to which they hold fast. This is not to say, however, that individuals will never forsake their paradigms. They are not genetic codes built into our natural makeup, but rather mental equipment we have chosen to help manage our lives. They can be and will be replaced -- just not continously or even continually. When these changes finally come, in brief, they come much like a shift in gestalt. The behavioral patterns we actually observe as a consequence of this sort of revision of paradigms should, therefore, exhibit great continuity for a time, followed by great discontinuities, leaps to new patterns of action that will themselves prove stable for a considerable stretch before yielding to new ideas of being. [p.44]
Only when a situation is truly problematic are we open to all sorts of suggestions. Desperately seeking a paradigm and paralyzed until we find one, in the face of genuine novelty, we are free of preconceptions, commitments, and inflexibilities.
Proposition 2 (Paradigm Seeking). When faced with uncertainty, an individual will search for a suitable paradigm; the search will continue until one is identified and uncertainty is resolved.
This merely restates the necessity of action and its impossibility without paradigms. The process of paradigm seeking is also the process of decision making.
Corollary 2a (Learning). The decision-making process i sa learning process.
Learning is the process by which we acquire understanding of, or the ability to deal with, a situation that we could not make sense of, or deal with, before. When we are faced with an unfamiliar situation, for example, we are driven to search for a paradigm to cope with the novelty. Once the process is completed and an appropriate paradigm is identified, the decision is made. The situation is no longer regarded as uncertain, since we know how to act. Note that we can now deal with a situation we could not handle before. A decision-making process is, therefore, a learning process.
The novelty of a situation consists in our failure to identify a suitable paradigm -- perhaps because we have none at our disposal or perhaps because our "assignment paradigm" has yet to come up with one we have already filed. [?] Faced with uncertainty, we begin to search either by "stretching" existing paradigms or by acting randomly. The former is the more likely approach, consistent with how we deal with a variety of problems by means of reason and imagination; it may also resemble the process by which we understand metaphors (see below). In the end, we add a new paradigm to the file or restructure the assignment paradigm. And because we now know what to do in what used to appear to be a baffling situation, we have gained understanding or "learned" from our experience.
In the sense here of involving the process of identifying a paradigm, learning does not take place in a vacuum. It is both enabled and restricted by prior learnings -- by the paradigms already in our possession. We come to understand and deal with novel situations by using paradigms we have already acquired, and our understanding and coping styles are limited to what is possible within the context of our existing paradigms, however imaginatively and creatively we may impose them. [bold emphasis mine, mh, p.47-48]
In a group setting, we therefore have ample and greatly beneficial opportunity to learn from others. Timur Kuran has made the following observation:
[T]he individual cannot formulate an opinion and take a position on every human issue. To protect his nervous system from overload, he must be very selective in choosing what information to seek and process...[deferring] on most matters to the judgments and choices of others. [p.56]
The evolutionary process through which individuals collectively generate conventions is bounded at both ends: by means employed by lower forms of life at one extreme, and by the mediated approach of the ideal scientist at the other. As creatures with with well-developed craniums, we have an ability to reason like scientists. But, as practical beings, we share with lower animals the urgency of action, which imparts a certain inflexibility to our behavior and tends to make the criterion of paradigm choice that of value rather than truth. [bold emphasis mine, mh, p.70]
...once a certain behavior happens to get established however fortuitously as convention, it will tend to be upheld even if the social outcome to which it gives rise is inferior to those supported by other practices. [the author uses "QWERTY" as an example, p.86]
Without a crisis, however, there can be no social change of radical proportion. Growing opportunity is necessary but not sufficient to overthrow one set of conventions in favor of another. Conventional wisdom must also be questioned. People must abandon the means by which they have traditionally made possible social cooperation and coordination and search for new methods. In order to do so, most must be very troubled indeed, that is, they must be "in crisis." Crisis may be precipitated by a major shock to the system, or it may develop gradually by a fortuitous sequence of unrelated events that seem innocuous, one by one. In any case, a gap between the actual and the potential must be too glaring to ignore, and would-be reformers or innovators must propose to close it. They will succeed if and only if other are sufficiently disgruntled to follow suit. [p.109]
I find it interesting that individuals are simply resigning themselves to working until the age of 80 or so (see this article). This should/could be the shock that launches a new paradigm, but individuals are unable to see it as such. Opportunity? I can hear the voice-over now: "Maybe you can retire at 65...."