ABSTRACT
In 2002 the Nobel Prize committee awarded the economics medal to psychologist Daniel Kahneman because he offered important insights into the classical economics model of the rational actor. That model fails, according to Kahneman (and his colleagues, including, importantly, Amos Tversky), because certain cognitive tendencies warp judgment away from pure rationality. Reading economics through Kahneman’s psychological lens has modified micro-economic theory in fruitful directions and birthed the fast-growing field of Behavioral Economics. But questions arise: is judgment, whether rational or not, only a matter of how cognition works? Is it simply in the nature of the human animal to act in the ways that Kahneman describes only because of cognitive architecture? Are the determinants of action by Kahneman’s actors exclusively in-built and native to the individual regardless of social input? My purpose here is to examine some of the issues explored by Kahneman and his colleagues and to re-present these in social terms. Importantly, my intention is not to challenge Kahneman’s concepts or empirical findings. Rather it is to raise questions about his cognitively-based theoretical explanation of them. Fundamentally, it comes down to a face-off between a depiction rooted in mental functioning and an explanation in accord with social dynamics. This is somewhat a matter of disciplinary disposition, parallel to Kahneman’s own enterprise: he treats economics from the perspective of psychology and I treat his cognitive surmises from the perspective of the social. It is a crucial and revealing irony that when inviting lay readers to discover for themselves the concept of the “loss aversion ratio,” Kahneman (2011) writes, “Ignore any social considerations” (p. 284, emphasis added), as if that were in any sense possible! Paraphrasing Kahneman and Tversky (1979, p. 17) and Kahneman (2011, pp. 269-70, 286, 413), these instructions have the same relation to how people act in the real world as the flawed classical-economics model of the rational actor has to how people act in the real world. Kahneman’s fundamental error is to believe that we can ignore the social once it has formed us. As a prelude to my argument, I hold that Kahneman’s position on the cognitive foundations of choice behavior is essentially suppositional; no evidence supports the view that, despite social mediation, mental functioning tilts inevitably
to the outcomes for which he argues, e.g., that loss aversion is the default option of cognitive architecture. In fact, Kahneman (2011, pp. 297-8) forthrightly cites evidence that social processes such as education and job experience confute the assumed dominance of cognitive dispositions. On another tack, McDermott et al. (2008) and Benartzi (2010) speculate that Kahneman-type cognitions might have been fostered early in human evolution; but this remains conjecture, not likely, ever, to be supported empirically. Further, Quattrone and Tversky (1988, p. 471) acknowledge that a “motivational-emotional,” as opposed to a cognitive, approach might give different results in their application of the Kahneman perspective. It is instructive too that Kahneman interprets a certain type of decisionmaking flaw as analogous to the perceptual distortion induced by the Müller-Lyer effect, in which a horizontal line with two fins at each end pointing outward is perceived as longer than a horizontal line of equal length with its fins pointing inward (Tversky and Kahneman 1986, p. 214). But some have argued that the Müller-Lyer illusion is itself culturally variable (Segall et al. 1966), thus shifting the terms of the debate from the cognitive to the social. I raise these issues to forestall objections that a social construal, which challenges the cognitive, does not bear on Kahneman’s work. I acknowledge too that Kahneman and others in his tradition are not entirely oblivious of the social. For example, they acknowledge that: organizational memberships exert pressure (on decision-making), as does concern for maintaining one’s “reputation” (Kahneman and Lovallo 1993, p. 401; Samuelsen and Zeckhauser 1988, p. 42); some research participants failed to detect an “obvious social cue” (which means that the social matters) (Kahneman 2011, p. 44); there are social rewards for providing misleading information (Kahneman 2011, p. 262); you are more likely to believe an assertion if you generally trust the speaker (Kahneman 2011, p. 64); “defining risk is an exercise in power” (Slovic 2000, p. xxxvi); we need to justify our choices to others (Shafir et al. 1993, p. 618). But this clarity about the social is only ad hoc, leading to no systematic inclusion of the social, especially when it may conflict with the cognitive explanation. Relevant to the examination of the work of Kahneman and his colleagues I maintain that status-power and reference group theory applies even in research laboratories, where participants are assumed to be attending only to the interests of the investigators. The research setting is not simply what the researchers frame via their experimental manipulations, but, rather, understood in social terms, is construed by research participants via all the reference groups that get activated for them in the setting. In the case of a gamble, frequently used in experiments in the Kahneman tradition, all the lore, hopes and cautions previously transmitted by reference groups about the meaning of risk, luck and chance are brought to the table and are put into the mix along with the instructions provided by the experimenter, who is just another reference group for research participants. In the first part of what follows, I will examine from the socialrelational reference-group perspective some major concepts of the Kahneman tradition: Prospect Theory and its subparts, including loss aversion, the endowment effect, the status-quo bias, reference points, framing, risk aversion and risk
seeking. In the second part of this chapter, I will take up some additional work by Kahneman that reveals further the failure to take social determination into account. Before proceeding it is appropriate to mention work by Frank (1985) that partially overlaps status-power and reference group theory. Frank examines the penchant of actors to seek not only status but, more particularly, higher status than their comparison reference groups, so that they are, for example, the highest paid worker in the group, fastest runner on the team, owner of the biggest house on the block and so on-all of these generally bringing more attention, praise, deference and so forth-in a word, status. This is a useful elaboration of the domain of “own-status” as presented in this book. However, Frank’s effort at a general theory lacks in not including power as a general feature of interaction, although he gives the authority exercised by government its proper due.
