Andy's Math/CS page

Friday, April 13, 2007

Math and MarketThink

I recently stumbled upon a book that made me really happy. It's called 'No One Makes You Shop At Wal-Mart: The Surprising Deceptions of Individual Choice', by Tom Slee (who has a very nice blog going as well, called Whimsley). This is a clearly written, engaging treatment of classic game-theoretic situations as encountered in consumer decision-making. It outlines what I think are some of the simplest and most powerful ways to challenge the thesis that consumers can reliably 'vote with their dollars' to promote the goods, services, social structures, and way of life that they most value.

I say 'challenge', not 'refute'. Slee takes a patient approach, showing readers how to construct simple economic models and reason about their consequences. The models, in fact, are deliberately oversimplified in order to isolate patterns and identify their potential recurrence in a variety of situations.

Slee's title example is a schematic fable of the rise of big outlet stores on the fringes of town: Wal-Mart comes in, underprices the smaller and economically interdependent downtown stores; consumers, who value access to a vibrant downtown, nevertheless 'selfishly' shop at Wal-Mart when it suits them, relying the patronage of others (upon which they 'free-ride') will keep downtown afloat. Downtown declines, and consumers are (potentially) all made worse off as a result.

This little story alone is (as Slee recognizes) hardly an indictment of Wal-Mart. But it is an internally consistent model that is no more schematic than the implicit model of commerce (which Slee calls 'MarketThink') underlying much economic discourse. It puts failure of 'market democracy' on the table as a thinkable, plausible outcome; as such it can shift the terms of debate and orient more empirically-grounded investigation.

As I see it, unregulated free markets, and crude forms of MarketThink, have at least two serious weaknesses:
1) they fail to adequately address concerns about equity and the welfare of the worst-off;
2) they fail to give adequate provision of public goods (like clean air and water, nature, community development, etc.), and they overproduce public 'bads' (like traffic), with similar potential problems involving fashion goods, network goods, and other goods proeducing 'externalities' of various types.

The claims of the disadvantaged upon public conscience and policy in the US have, on the whole, come a long way in the past century; but as no objective measure of human welfare has been widely accepted, their foothold within economic theory remains tenuous. GDP, 'consumer surplus', and other measurable constructs--generally biased towards markets and equity-insensitive--serve as dominant proxies for human welfare. Problem 1) poses a serious challenge, in discourse as well as on the ground.

On the other hand, problem 2) (which is Slee's focus) has (to an extent not realized by many people) long been recognized and taken seriously by economic theorists. The 'Welfare Theorems' inspired by the writings of Adam Smith, which undergird the general confidence in markets by neoclassical economic theorists, explicitly assume away the possibility of goods whose production and consumption directly affect anyone except buyer and seller. (They also make a certain technical assumption, involving convexity, that is meaningfully restrictive and worth pondering--another post, maybe.) Economists have acknowledged real-world violations of these assumptions, and proposed various remedies (often market-based), at least since Pigou in the '30s. Game theory has expanded and clarified these debates (as Slee shows, while also showing how little in the way of 'hard math' is really involved to make the basic points).

Still, the Welfare Theorems form the 'core message' of most introductory econ texts I have perused or studied from, and the Invisible Hand is the most pervasive idea (often implicit) in popular discussions of markets. Further, I believe that many critics of market absolutism have, in their suspicion of economics, insufficiently tapped the Prisoner's Dilemma and related ideas of game theory, which combine

-simplicity;
-generality;
-memorability;

-establishment credentials and currency within the discourse of economics, without being dependent either on the crudest assumptions (e.g. "money's all that matters") popularly and incorrectly attributed to that field, or on assumptions and concepts foreign to it;

-considerable integrity and truth.

This is not to say game theory doesn't have shortcomings--it does. Nor is it to say that game theory points the way to any clear solutions to the dilemmas it diagnoses, or that any rival to market liberalism can definitively solve them. Again, Slee's book doesn't aim to describe a master theory, or match theory to observation, or save the world. Instead it illustrates that mathematics can help us think (and argue) about social reality without laying claim to full knowledge, denying the world's complexity, or suppressing and devaluing the unmeasurable. This alone is enough to make me hope 'No One Makes You Shop At Wal-Mart' gets widely read.

7 Comments:

  • I read the first chapter of Slee's book, and appreciated his attention to the political discourse on "choice." The starting point of his argument is the economic dynamics of consumer choice; but I think he needs to analyze desire first. One cannot discuss the choices people make without an understanding of cultural definitions of desire. [Maybe he writes about this later in the book, but only the first chapter is available online.] My question is: How do people "know" what they want?

    Slee writes: "A thread that runs through the whole book is that we can make sense of the world by making the respectful assumption that people generally make the best choices they can in the circumstances in which they find themselves. There is no need to resort to arguments that people are tricked, or are behaving against their best interests, or are somehow gullible."

    I think the way desire operates is much more complex than a consumer's "gullibility," and certainly people have agency while making impulse purchases, even if they themselves feel their behavior is out of control. I agree that people try to make the best decision for themselves in their situation in a way that should resist moralization -- for example, a person who lives in an area with zero employment opportunities might turn to dealing drugs to pay his elderly mother's rent, thus bending his own morals to solve an economic problem. Should the gov't focus on solving this city's employment problem, or its drug problem? This person isn't being "tricked" by hip-hop lyrics or made gullible by ads glamorizing intoxication. We can and should talk "respectfully" about reasons behind this choice, and here I agree very much with Slee.

    But think about another example of economic choice-making: beauty magazines know that their readership will fall drastically when they put an African-American model on the cover. I forget the exact statistics, but a shockingly smaller number of women will buy a familiar mag from the newstand if they see a black face. Now, can the media change the perception and definition of beauty by changing how it represents non-Europeans? Certainly -- when a particular fashion is trumpeted, people buy it. Then why won't consumers buy a magazine from a trusted publisher they usually read, if it suddenly has a black person on the cover? What about all those hundreds of women who don't buy the magazine with the black woman on it -- are they all racists? How would they explain their "choice" not to pick up this month's Vogue? My point is, economic arguments are more compelling when there is cultural analysis of what shapes the desires behind the choices.

    We are used to thinking that desire is an essential, close to biological function. My best answer to this is to recall part of Proust's novel "Swann's Way." (Forgive this synopsis, pls, it's been a while; this description will save you several hundred pages, but you'll miss the art of it...) A character meets a woman and is not particularly smitten; over time, however, as his friends speak so highly of her charms, he falls madly in love with her without seeing her again. The society's recommendations supersede his own "desire."

    I very much like Slee's statement: "As a subtext, this book is a call for the reinstatement of collective action into politics. The neo-conservative right has wielded the promise of individual choice very effectively to discredit organized collective action such as that carried out under the umbrella of trade unions or governments, presenting unions and governments as obsolete bodies whose sole purpose is to restrict choices. But if individual choice can lead us into traps, we will need collective action to make our escape."

    Yet I think we should also take seriously the need for changing what we want -- for example, the fact that an ad about sustainable farming successfully managed to sell me a shirt made of bamboo. Yes, I feel a little sheepish about that slightly-too-expensive bamboo shirt, but overall, it convinced me that my rational desire not to wear the food of pandas could be overcome by the faddish desire to cause less harm to the planet.

    By Anonymous ~A., at 8:53 PM  

  • Thanks for the very thoughtful comments.

    I agree that desire should not be taken as an unproblematic 'given' in every situation, and that the problematic character of particular desires is complex, contentious, and not necessarily reducible to false beliefs about what will lead to (some fixed conception of) success/happiness.

    Although challenging the formation & character of individual desires is not the focus of Slee's particular challenge, I think he would agree as well, and argue that the kind of 'logic of collective action' his book discusses can offer useful perspectives on the issue.

    This is evinced by at least one part of his book. In one of his analyses he uses the example of opening up a traditionally male-dominated occupation--stock trader/analyst--to women. A manager (let us assume) is considering transferring a qualified female employee into the trading division. The manager knows the employee is capable of doing the job, but fears the damage to morale of the misogynist boys'-club will detract from the division's overall performance.

    As a result, even if the manager is (narrowly speaking) non-sexist, and even if the manager knows that promoting this employee will contribute to an industry-wide perception that women are capable and deserving of employment in trading, thereby gradually 'changing the game' presented to other managers in similar situations (all of which Slee supposes in his analysis),

    the manager may still decline to transfer the employee, 'rationally' concluding that the immediate damage to the company's bottom line outweighs the personal value the manager places on the social contribution to ending workplace misogyny. The social value of a principled stand by the manager may be high, but the potential beneficiaries--would-be women traders and their 'enlightened' managers everywhere--are not party to the decision, and their interests may go unheeded. Thus not only the exclusion of women, but also the problematic desires of a sexist male workforce, may be perpetuated by a failure of collective action.

    (continued...)

    By Blogger Andy D, at 4:40 PM  

  • The extent to which such a manager is blameworthy, or trapped by a situation, or both, is of course up for debate. Certainly we should criticize a manager who takes the shape of the workplace's misogyny and its likely adverse reaction to a female co-worker as fully given in advance (esp. when the manager has tolerated and perhaps even encouraged this culture thus far), as if there were no room whatsoever for leadership or the personality of a courageous employee to challenge and change this culture, and the shape of its desire, in the immediate context. It may well be that some male traders dislike and resent the dominant culture but are too intimidated to openly challenge it (another failure of collective action, but also a latent source of power for social change). But we should also acknowledge that leadership and courage are limited resources (while challenging them to grow).

    The dilemmas analyzed by game theory do not, in a narrow sense, have 'solutions' at all. When we recognize them as seeming to pertain in the real world, we are in trouble, and it is only to the extent that the dilemmas form an inadequate or incomplete description of our situation that we have latitude to seek better outcomes by 'changing the game'. (This humility in at least some uses of game theory is part of what I like about it--it's model-building that encourages us to prove the models wrong.)

    One important way of challenging the game is by seeking means of collective action. Another, as you rightly note, is by critically analyzing and working to change the desires and objectives that 'players' bring to the table, so that (for example) social and individual interests are less likely to clash (btw, I don't mean to posit 'the social good' as a simple or unproblematic concept).

    Slee doesn't say exactly how we should challenge the 'games' we are offered in consumer society, and he seems sympathetic both towards changing the rules and the players' objectives.
    But thru the employment example described above, he makes a meta-point: both changing the rules and changing desires are goals which are likely to themselves require collective action, and face some of the same difficulties offered within the game we set out to challenge.

    Please let me know if this makes sense/sounds reasonable. In summary, I suggest that Slee is aware of the value of cultural critique and the analysis of desire, as one of two complementary approaches for 'changing the game'. These approaches are not necessarily separable. Slee wants to motivate his readers to challenge the games we are made to face, but his book is diagnostic and does not itself provide a detailed toolbox for achieving social change.

    By Blogger Andy D, at 5:57 PM  

  • PS a note, the term 'logic of collective action', a phrase due I think to Mancur Olson, is here used to describe the kind of social difficulties Slee describes, rather than a prescription for effective collective action.

    By Blogger Andy D, at 6:01 PM  

  • But we should also acknowledge that leadership and courage are limited resources (while challenging them to grow).

    And, I should add, lest it's not clear from the context of discussion, while vigorously enforcing anti-discrimination legislation to bring managers' interests better in line with the rest of society.

    By Blogger Andy D, at 9:06 PM  

  • Marginal revolution has a review of the book here: http://www.marginalrevolution.com/marginalrevolution/2007/05/no_one_makes_yo.html

    By Anonymous Johan Richter, at 12:48 PM  

  • Thanks, I saw it. Good for Tom.

    By Anonymous Andy, at 3:02 PM  

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