Behavioural economics & finance: where's Marx?

[Die Neue Zeit]

http://en.wikipedia.org/wiki/Behavioral_economics

Much has been said long ago about cultural hegemony and obstacles to class consciousness. However, is it possible that some behavioural economics and finance can explain other obstacles?

Classical political economy was all about the "rational," "self-interested," and "utility-maximizing" human being - a.k.a. "homo economicus." Marx, naturally, based his critique of political economy on a materialistic basis.

However, consider the right-wing worker who consistently votes for politicians who immiserate himself and his class. That certainly isn't "rational," "self-interested," or "utility maximizing." Thoughts?

[MarxSchmarx]

However, consider the right-wing worker who consistently votes for politicians who immiserate his class. That certainly isn't "rational," "self-interested," or "utility maximizing." Thoughts?

Hmm.... there is always the "false consciousness" approach. I think Gramsci looked at this problem as well, commenting on how the superstructure mediates otherwise "rational" worker behavior. But neither approach strikes me as particularly empirical. I think one difficulty is on the issue of how you measure, for example, "class consciousness", given that "class" has proven to be a rather fluid term itself.

My understanding is that this is a "classic" problem in political science (e.g., the famous book "what`s the matter with kansas").

A deeper problem, I think, is the difficulty of phrasing Marx`s predictions in terms of individual behavior. This isn`t really a problem, because Marxist analysis never really sought to account for how individuals, as opposed to classes or societies, behave. Thus, the lack of a "Marxian" framework for behavioral economics is probably rooted in the ambiguity of the role (much less nature) of the individual in Marx. However, if one does believe that as a matter of principle Marx`s predictions and analysis, should be derivable from individual behavior (like "utility maximization"), then this project must account for behavioral economics.

[Vanguard1917]

However, consider the right-wing worker who consistently votes for politicians who immiserate himself and his class.

Workers need to be won over to "correct" ideas -- i.e. to the ideas which we believe are correct. The working-class acting in what we feel is its objective interests is not an automatic process. To paraphrase the Communist Manifesto, every class struggle is a political struggle to unite the working-class in the fight against capitalism.

As for workers voting for rightwing parties, this is often an expression of their demoralisation at the hands of the so-called leftwing parties of government. In Britain, for example, it was the assaults on the labour movement by the Callaghan Labour government which paved the way for Thatcher. "Faced with a choice between a party that assaulted the workers and prepared the ground for Thatcherism in the 1970s (Labour) and a party that seemed a little more competent in economic affairs and promised to deliver an economic upturn (the Tories), voters plumped for Thatcher." (link (http://www.spiked-online.com/index.php?/site/article/5841/)) This was not so much the result of working-class "irrationalism" as the fact that the alternative -- another Labour term in government -- was not exactly viewed as cause for optimism.

[gilhyle]

The essential point about behavioural economics is that it cuts against the idea that the irrationality/flawed rationality/partial rationality of persons is a zero-sum game from which one can abstract in order to consider society as being made up of rational agents.

One of the reasons I continue to like the theory of the labour aristocracy is that it leads to conclusions similar to those to which behavioural economics leads stock market analysts.

It is a mistake to think that to say of a person that she is a member of the working class is to describe (and circumscribe) her material interests as being those common to workers. The commonality of interests among workers is something which has its foundation in the political economy of capitalism but which is realised only through the unfolding of capitalism and, in particular, through class struggle and the reaction to class struggle.

In an analogous way, behaviour economics shows how the existence of foolish investors who mistake risk structures the rationality of those who do not so mistake risk and leads to heterogenous, collective behaviour patterns which are neither summable as if the behaviours of a single rational cognitive agent nor capable of being disregarded.

The concept of the 'working class' is a concept identifying a potential uniformity of material interest rather than any actual uniformity of material interest and therefore consistent with heterogenous patterns of behaviour.

[mikelepore]

Classical political economy was all about the "rational," "self-interested," and "utility-maximizing" human being

I'm sure that some of the theoreticians knew that they were model making, and representing what would happen IF they had a society of perfectly rational beings who had perfect information and perfect competition. This is something like the problem in Newtonian mechanics where you decribe what would happen IF you had a massless and frictionless pulley, etc. But then some people, who usually call themselves Libertarians, think it's literally true.

[Die Neue Zeit]

Thanks for all the responses. I've spent extra time reading blogs.


In an analogous way, behaviour economics shows how the existence of foolish investors who mistake risk structures the rationality of those who do not so mistake risk and leads to heterogenous, collective behaviour patterns which are neither summable as if the behaviours of a single rational cognitive agent nor capable of being disregarded.

And in mainstream circles, the conclusion of behavioural economics is that some force hierarchically above the main actors has to induce them to behave "rationally."

What was the term Keynes used for "irrational" tendencies of consumers? I think we're on to a unified theory of "irrationality" that expresses itself "behaviourally" for investors, such-and-such term that Keynes used for consumers, and "false-consciously" for workers.

In regards to the third, this pretty much kills the ultra-spontaneist notion that the non-vanguard workers can "self-organize" under a period of bourgeois hegemony. The classical Social-Democratic division of authority between those working-class elements in a coordinating/leadership/"voluntarist" function (educator-theoreticians, rhetorical agitators, and grunt organizers) and the non-vanguard worker-followers still applies.

[Die Neue Zeit]

I've come to the realization that I'm treading upon dangerous waters here. Those who conceptualized "behavioural economics" did so for the purpose of doing to "consumers" what Bakunin wanted to do to the working masses in general: invisible dictatorships, realize rational self-interests through action upon action, etc.

[cyu]

Not sure what you're referring to here, but is the following relevant?

Participate in your own manipulation. (http://everything2.com/title/Participate%2520in%2520your%2520own%2520manipulati on.)

[Lynx]

Not sure what you're referring to here, but is the following relevant?

Participate in your own manipulation. (http://everything2.com/title/Participate%2520in%2520your%2520own%2520manipulati on.)
Yes, and so is this (http://en.wikipedia.org/wiki/Rational_ignorance) - both can be applied to economic decision making.

[gilhyle]

Jacob I think your 'realization' may be more dangerous than your original interest. When we are conceptualising agents we need to avoid both the extremes of the rational and the irrational agent. We avoid that by understanding the complex way in which agency comes into existence - i.e. how decisions get formulated and how decisions transmit into actions (which sometimes precede them).

The essence of the correct Marxist conception of agency is a conceptualisation of agency as the consequence of structured relations which lead to a non-transitive totality, which does not simply sum its parts. Behavioural economics supports this perspective.

This applies both to the individual agents and the relationship between that agent and the elements of her personality and applies also to collective agents.


You wrote originally:
consider the right-wing worker who consistently votes for politicians who immiserate himself and his class. That certainly isn't "rational," "self-interested," or "utility maximizing."

It is often quite possible to postulate a rational self interest in such activity as such persons are rarely just 'workers' but more often come from layers which are formally workers but have various petit bourgeois aspirations or social or economic links. It would be incorrect to think that persons who, from within the working class, support reactionary ideas are just 'wrong', have just misconceived their own interest. The matter is far more complex.

The political implications of this are very important. The interpretation that they are just wrong leads into an Enlightenment cocneption of political practice as essentially education. The alternative conception sees the political process as one that progressively changes interests - it might be seen as like a strategic investor who changes what is logical for all other investors by what she does: central banks kinda do this in money markets.

[Die Neue Zeit]

Jacob I think your 'realization' may be more dangerous than your original interest. When we are conceptualising agents we need to avoid both the extremes of the rational and the irrational agent.

Not at all. I didn't arrive at the other extreme of workers being purely "rational." I've said elsewhere that the class consciousness of "ordinary workers" tends to be like the mind of a horny teenager (as someone else said, "a provocative and light-hearted way to convey that the group as a group has high and sometimes erratic and mixed aspirations but no advanced game"):

http://www.revleft.com/vb/party-still-viable-t102885/index.html?p=1375357


I said "centralized" and "disciplined" for a specific reason. To imply that "discipline" is centralized control would be redundant. Instilling class discipline to counter the adventurism of something like the July Days would be like the relationship between a horny teenager on his way to maturity (working-class "masses") and his parents and high-school teachers (the "vanguard").

[EDIT: Most "vanguardists" (neo-Blanquists) see their relationship with the working class as one between a parent and a (preteen) child. That's "patronizing." I brought up horny teenagers in order to illustrate the situation much more accurately; they are maturing, may live on their own upon graduation, but will live their own lives upon maturity. Parents tend to have a generally passive relationship with teenage offspring. High school teachers, meanwhile, expect more maturity, too.]

It's just that the "irrational" position can be used or misused to justify elitism of various sorts. I said elsewhere, in relation to the controversial "horny teenager" remark:


One of the purposes of the leading segments of the class is to restrain spontaneous action somewhat (the most extreme form being mere riots) and give the class as a whole some sort of educational perspective.

[gilhyle]

Fine, sounds good, but cant see that that sets you against behavioural economics. I suspext Ive misunderstood you.

[Die Neue Zeit]

I'd like to expand upon this further, after viewing a couple of videos of The Renegade Economist (by some Georgist, mind you). For all the talk about investor irrationality, and the talk in this thread about similar concerns with the working class, whatever happened to "rational capitalism" regarding rents, more and more of which end up in private hands?

[Demogorgon]

However, consider the right-wing worker who consistently votes for politicians who immiserate himself and his class. That certainly isn't "rational," "self-interested," or "utility maximizing." Thoughts?
I think something needs clearing up here. Voting in that manner plainly is not rational to somebody who has all the facts, but to somebody does not, it might be a rational action. To put it another way. If the right wing worker is only drawing on certain news sources he may genuinely believe his less than ideal situation really is the fault of immigrants or remaining business regulations or whatever. If those are one's starting premises then one can quite rationally conclude that right wing Government will be good for you.

After all nobody claims that people will always do what is best for themselves, only what they think will be best with the information they have to hand.

The real problem I think comes when the right wing Government comes along and enacts a combination of racism and deregulation and lo and behold the worker's situation gets worse, yet he still votes for right wing parties. Things get trickier to explain then. Of course it may be that the cognitive dissonance brought on by supporting a Government harming his interests causes the worker to rationalise his actions by saying the Government hasn't done enough to attack immigrants, regulators and so on and the further problems are as a result of that, but it could also be that some views simply get entrenched to the point it becomes a cherished notion that will be clung to like a lifebelt. Sometimes people seem to make a clear choice not to be rational concerning certain issues, but on a broader scale that might still be called rational in its way because it is an effective coping mechanism.

It is a lot like the religious fundamentalist confronted with irrefutable evidence that some particular belief of theirs is completely and utterly false but chooses to ignore the evidence rather than alter their beliefs. They aren't doing that just to be contrary, but rather because they genuinely depend on the belief that has just been challenged. Therefore it might be rational to be irrational! You see the same thing with the right wing worker.

What the solution to all this is, I don't know, but I think that is what is happening.

[cyu]

Voting in that manner plainly is not rational to somebody who has all the facts, but to somebody does not, it might be a rational action.

Exactly. It's like selling someone great looking paint that is filled with cancer causing chemicals. As long as they don't know about the cancer causing chemicals, they think they are doing themselves a favor by using the paint.


What the solution to all this is, I don't know

I'd say it's encouraging communities to assume democratic control of their local mass media outlets, bringing weapons for self-defense if necessary.

[Vladimir Innit Lenin]

The theory of the 'rational' individual is severely wide of the mark. It has such narrow considerations. You cannot lump every decision made by a person into a 'rational' or 'irrational' basis. Many decisions can appear 'irrational', despite the best intentions of the consumer.

Besides, the financial sector is proving the 'rational' theory wrong with each minute of it's continued existence.