You will select a single significant passage from Hayek, Schelling, Smith, and Axelrod (from those supplied by instructor), and carry out a careful "line by line" explication of it and supply a commentary that evidences your understanding of the theorist's ideas in the context of this course, the mechanism by which he suggests markets can solve problems of coordination and cooperation, how the text illustrates, exemplifies, leads to, follows from, etc. the main take away of this author's theory of markets as a solution to the problem of order. Your commentary should/may reference other text passages and examples.
IMPORTANT: the point is to use a quote and your explication and commentary to show what you know, not just to go through the motions of interpreting a line of text.
You will then finish the essay with a paragraph that contrasts the mechanisms the authors suggest for how market interactions can produce order.
Maximum 1250 words. Due in class 26 November. Identify yourself on the exam with your Mills ID number, not your name.
Q208. Explicate and comment:
One of our main contentions will be that very complex orders, comprising more particular facts than any brain could ascertain or manipulate, can be brought about only through forces inducing the formation of spontaneous orders (Hayek 1976: 143.5).
Q210. Explicate and comment:
This means that, though the use of spontaneous ordering forces enables us to induce the formation of an order of such a degree of complexity (namely comprising elements of such numbers, diversity and variety of conditions) as we could never master intellectually, or deliberately arrange, we will have less power over the details of such an order than we would of one which we produce by arrangement. In the case of spontaneous orders we may, by determining some of the factors which shape them, determine their abstract features, but we will have to leave the particulars to circumstances which we do not know. Thus, by relying on the spontaneously ordering forces, we can extend the scope or range of the order which we may induce to form, precisely because its particular manifestation will depend on many more circumstances than can be known to us-and in the case of a social order, because such an order will utilize the separate knowledge of all its several members, without this knowledge ever being concentrated in a single mind, or being subject to those processes of deliberate coordination and adaptation which a mind performs (Hayek 1976: 145.5-7).
Q213. Explicate and comment:
What the general argument against 'interference' thus amounts to is that, although we can endeavor to improve a spontaneous order by revising the general rules on which it rests, and can supplement its results by the efforts of various organizations, we cannot improve the results by specific commands that deprive its members of the possibility of using their knowledge for their purposes (Hayek 1976:153.1).
Q214. Explicate and comment:
Akerlof generalized this model to a number of markets in which there is unequal information on the two sides - insurance companies know less than you do, usually, about whether you are accident prone, or susceptible to hereditary diseases, or are contemplating suicide. Life insurance rates for sixty-five-year-olds must allow for a large fraction who are not long for this world. And those who know they are healthy and have a family history of longevity and are exposed to few risks have to pay the same premium as the poorer risks; life insurance being unattractive [to them] at that price, few of them buys it. The average life expectancy of the customers goes down, the rates go up further, and the bargain now looks poor even to those of normal life expectancy. And so forth.
…. It is akin to, and sometimes coincides with, those situations in which the below average, or the above average, withdraw or won't join, causing some potential market or institution to unravel. Because people vary and because averages matter, there may be no sustainable critical mass; and the unraveling behavior, or initial failure to get the activity going at all, has much the appearance of a critical mass that is almost but not quite achieved (Schelling 1978: 159.5-7).
Q215. Explicate and comment:
The division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another (Smith 1776: 171.8).
Q216. Explicate and comment:
But man has almost constant occasion for the help of his brethern, and it is in vain for him to expect it from their benevolence only. He will be more likley to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages (Smith 1776: 172.5).
Q217. Sociologists and anthropologists gripe endlessly about rational actor models, failing, over and over again, to understand that they are MODELS, not descriptions. Explicate and comment on this passage to show that you understand what the value of a model like prisoner's dilemma is for social theory.
The Cooperation Theory that is presented…is based upon an investigation of individuals who pursue their own self-interest without the aid of a central authority to force them to cooperate with each other. The reason for assuming self-interest is that it allows an examination of the difficult case in which cooperation is not completely based upon a concern for others or upon the welfare of the group as a whole. It must, however, be stressed that this assumption is actually much less restrictive than it appears. … So the assumption of self interest is really just an assumption that concern for others does not completely solve the problem of when to cooperate with them and when not to (Axelrod 1984: 177.2).
Q218. Explicate and comment:
The result was another victory for TIT FOR TAT! The analysis of the data from these tournaments reveals four properties which tend to make a decision rule successful: avoidance of unnecessary conflict by cooperating as long as the other player does, provocability in the face of an uncalled for defection by the other, forgiveness after responding to a provocation, and clarity of behavior so that the other player can adapt to your pattern of action.
These results from the tournaments demonstrate that under suitable conditions, cooperation can indeed emerge in a world of egoists without central authority (Axelrod 1984: 184.5).