Chapter 3: Rules, Perception and the Intelligibility of Laboratory Experiments on Social Interaction in Economics

Laboratory studies of social interaction have revealed a wide range of phenomena that are difficult to explain using standard economic models. For example, people will often sacrifice their own earnings in order to be generous, cooperative, punitive, and retributive in interactions with anonymous strangers. “Behavioral” models that redefine agents’ preferences attempt to provide an account of these phenomena as reflecting a “taste for fairness” or altruism, aversion to inequality, concern about others’ beliefs, and so on. Such models either fail to account for the rich sensitivity of actions to context or in allowing for rich context-dependence, these models ultimately substitute description for explanation. Hayek’s work provides a foundation for thinking about how to explain these phenomena, by conceiving of people as both purpose-seeking (as in economic models) and rule-following. Decisions are shaped both by material interests and by a normative framework that is evoked by context and helps people decide what one ought to do in a particular situation. The implication of this approach is that rather than trying to understand heterogeneity across individuals in terms of preferences, experimenters should instead try to understand heterogeneity across contexts in terms of the rules and norms that operate in the background and guide or constrain people’s purpose-seeking tendencies. What economics needs, then, is a theory of how and why these rules and norms vary with context as they do.