Dangers of monetary commensurability: a psychological game model of contagion.

• Author: Huang, Peter H.
• Position: Response to articles by Matthew Adler and Richard Craswell in this issue, p. 1371, 1419 - Symposium Comments: Law and Incommensurability

I traded fame for love

Without a second thought

It all became a silly game

Some things cannot be bought(1)

INTRODUCTION

Matthew Spitzer recently wrote: "One who is to write a comment on a well-done piece has two choices. The commentator can nit pick over details or use the well-done article as a starting place for further work. I choose to do the latter."(2) His comment applies to the task of commenting on Matthew Adler's(3) and Richard Craswell's(4) contributions to this Symposium. Adler found that incommensurability does not prevent using (the monetized version of) cost-benefit analysis (CBA), except possibly for a psychological claim related to commodification.(5) Craswell concluded that incommensurability as presently formulated does not prevent applying welfare economics to evaluate government decisions.(6) Craswell noted that his definition of incommensurability differs from the related concern of commodification, which he views as being about the cognitive and social psychological spillover effects of government decisions.(7) Craswell also pointed out that incommensurability theory does not provide guidance about how to justify public choices among incommensurable options because most of the philosophical literature on values and practical reason deals only with justifying an individual's choices among incommensurable options.(8)

Thus, both articles provide a natural departure point for the further work of evaluating the social psychological concerns raised by the issues of commodification and commensurability with money. While both articles view the possible psychologically undesirable consequences of government decisionmaking based on monetary commensurability as being empirical, the models below demonstrate that even in a sympathetic theoretical analytical framework, such psychological concerns are only a possibility and not a necessity. In other words, universal monetary commensurability or commodification is but one of several equilibrium outcomes even when there is a possible "domino effect." The cognitive psychological reasons to be skeptical of commodification are not considered below in order to provide the most favorable setting to evaluate commodification and because they already have been aptly discussed.(9)

The rest of this introductory section presents very brief summaries of the main contributions of both articles. Part I, in abiding by Roberta Romano's view that "the most useful role of a commentator [is] that of an irritating troublemaker,"'(10) presents the questions and comments raised by other Symposium participants and the responses by Adler and Craswell. Part II discusses implications for CBA and welfare economics of formulations of incommensurability other than those considered by Adler, Craswell, and the other Parts of this Comment. Part III considers whether the discourse of commensurability, and more generally of economics, can transform its speakers and listeners. Parts IV and V explain how the recent advent of psychological game theory allows the formulation of models of monetary commensurability and commodification that capture analytically the concern about cultural effects and expressive dimensions of legal rules and institutions. These psychological game-theoretic models draw on behavioral economics and social psychology to provide a language for addressing criticisms of CBA and welfare economics based on concerns about the possible contagion across people of monetary commensurability of a particular value and the closely related concern of the possible domino effect of commodification across values. Both monetary commensurability and commodification involve only a single aspect of markets, which also encompass other activities, such as brokerage, worker training, and advertising.(11)

Adler introduced a useful trichotomy of possible sources of incommensurability: (1) conventional ordering failures; (2) esoteric ordering failures; and (3) second-order considerations.(12) After considering the implications of each of these for CBA, Adler argued that none of them precludes the otherwise justified use of CBA, except for possibly the second-order consideration of "constitutive incommensurability," which rests upon an unproven empirical psychological claim.(13) This hypothesized psychological fact is that humans are unable to be appropriately affected and motivated by parenthood, friendship, and environmental awe unless they believe in monetary incommensurability regarding children, friends, and mountains, even when there appears to be monetary commensurability.(14)

Craswell provided the very useful public service of clarifying and unpacking various criticisms based on incommensurability of values from related but distinct non-incommensurability-based objections to welfare economics. Craswell introduced the useful dichotomy between government decisions that affect only a single individual and those that affect at least two individuals with at least one person being better off according to her utility function and one person being worse off according to his utility function.

1. SUMMARY OF PANEL DISCUSSION

   I now turn to a summary of the colloquy that followed Adler's and Craswell's presentations at the Symposium. Eric Posner asked whether undesirable psychological consequences of the government using CBA means that we cannot be agnostic over using CBA. Craswell responded that if using CBA actually produces bad consequences of any kind, including psychological ones, that would be a reason not to use CBA or welfare economics, even if such theories are otherwise normatively justifiable.(15) Adler's response was that, although it may be constitutive of parenthood that no finite monetary amount makes up for the loss of a child, such a claim amounts to a conventional ordering failure that CBA would track accurately.

   Richard Warner asked two clarifying questions about constitutive incommensurability, which he defined by two features: incomparability and what he called rigidity of rankings. First, Warner asked whether CBA is inconsistent with incommensurability because CBA ignores any such rigidities in rankings. Adler again responded that any such rigidities would constitute a conventional ordering failure that CBA would track accurately. Second, Warner asked whether purely ordinal rankings that abstract from such rigidities provide sufficient information to resolve interpersonal conflicts. Craswell replied that such a difficulty is the standard incommensurability difficulty, which welfare economists have claimed for many years, namely, the impossibility of making interpersonal comparison of utilities. Craswell added that, although he was not able to make a very strong defense for cardinal ranking procedures like the Kaldor-Hicks criterion, incomparability theorists have not yet proposed any viable alternative social decision procedures.

   Gillian Hadfield asked whether economists' assumptions that individual utilities are well-behaved in the sense of being not only continuous, but also twice differentiable functions over wealth, are not just simplifying assumptions, but instead are fundamental assumptions without which both the theory and the application of welfare economics become problematic. Adler agreed that individual utility functions over money and other things might be discontinuous and thus cause problems for CBA. Craswell agreed that the mathematical convenience of such technical assumptions certainly drives their adoption and very often leads economists to believe that those assumptions are descriptively accurate. At the same time, Craswell noted that the critics of welfare economics often conflate criticisms of such methodologically convenient assumptions with criticisms of the underlying formal theory.

   Such a distinction is analogous to one made by Polinsky in his famous introductory book on law and economics, namely, that between criticisms of economic analysts versus criticisms of economic analysis. Appropriately enough, Polinsky made this distinction in discussing the difficulties in placing monetary values on costs and benefits. He noted that critics' discussions of the bias of both ignoring hard to quantify costs and benefits, and of substituting personal estimates and subjective beliefs for such values, are criticisms of economic analysts, not criticisms of economic analysis, properly and carefully performed.(16) Of course, if CBA can be conducted properly only in theory, but not in practice--in the sense that people suffer from inevitable and uncorrectable cognitive biases when engaged in doing or interpreting CBA--this presents a problem for CBA. Such a claim is ultimately empirical and begs the question of why those biases persist and cannot be mitigated by learning. This claim is related to the criticism of risk regulation that, once the numbers are out there (in that case, dollar values for human lives), those numbers take on lives of their own and tend to be misapplied because of their apparent precision.(17)

   Lewis Kornhauser(18) pointed out that for the purpose of welfare economics, economists are not solely interested in people's choices for their own sake, but also want to attribute some significance to those choices, in the sense of thinking those choices are somehow good choices. An individual's choices might be valued because they are good indicators of that individual's well-being or simply because they are the choices that individual made. An individual's observed choices are of interest to economists because they provide data that may be helpful in predicting that individual's choices in some other situation. Craswell agreed, but pointed out that such an inference problem occurs even when the observed choice does not involve incomparables. Craswell added that observations of a person's choice in situation x do not necessarily provide any information about how that person would choose in another situation y, except for the idea of...