When ‘culture’ is the best explanation

culture- cute kids

A recent blog post about ‘culture’ making a lousy explanation of social and economic phenomena sheds even more light on the bizarre culture that is economics.

The core criticism is that “since “culture” is compatible with any conceivable set of facts, it is not falsifiable.”  Which is surprising for a member of the economics club that subscribes to the unfalsifiable belief that some utility function drives all human behaviour.

In a stroke of irony their argument boils down to “our culture is to not accept culture as an explanation of behaviour”.

So why am I so defensive about culture as a useful principle in economic theory?

I guess I should first offer an economic definition of culture.  Culture is the total learnt cooperative behaviours of a society, which includes the way members of that society draw meaning from the behaviour of others.  Society simply means the relevant group – such as country, State, club, school, workplace, or family.

To be more clear, culture is the way we understand the meaning of signals.  Think how meaning attaches to secret club handshakes or greetings, or even the behaviours surrounding social activities like eating, drinking, sports events and so forth.  In Australia it can be impolite to stand at the football so people behind can’t see.  In England it is impolite for a true fan to sit.

Sociologists are not so limited in their thinking.  They widely adopt models that allow for learnt behaviours of individuals through interaction with others.  Philip Bonacich’s fantastic introductory text covers many models that offer tantalising explanations for social phenomena that arise in aggregate from the interactions of individuals – from epidemics, to racial segregation, to power in exchange networks, to evolving strategies in the prisoner’s dilemma.

Paul Ormerod, a fellow fan of Alan Kirman’s ants model, has written multiple books offering tools that rely on social interaction and learnt behaviour to explain economic phenomena.  He explains how Watt’s model of cascading network failure can reveal how and why fashion fads arise, why investors tend to go with the herd, and why some industries produce superstars even though no one can objectively tell the difference in the quality of their skills. The methodological individualism so fondly embraced by the econ crowd embraces the concept of utility, but stops short of answering the far more important question – where does our utility function come from if not our environment and our interactions with others?

Diego Gambetta has extensively studies how criminals interact and coordinate.  The classic problem of criminal activity is how criminals cooperate with each other when they need to simultaneously follows the rules of the criminal world, yet break the rules of the rest of the world.  Under these conditions, how can one criminal possibly trust another?  What sort of culture, or learnt cooperative behaviours, allow criminals to navigate this problem? Gambetta examines how the culture of the mafia has evolved to overcome such coordination problems.

In my most recent paper I argue that social networks are the key to understanding the purpose and function of political donations.  In the stylised model each agent’s utility relies on interactions with others over time. The model describes the process of signalling alliances given existing social networks, and a learnt cultural interpretation of the available signals.

In fact a whole field of agent-based modelling has arisen that allows aggregation of individual choices during repeated interactions.  Much of the field studies social networks and the dissemination of cultures that allow for ongoing cooperation.

Finally, most economists ignore what are known as the folk theorems of repeated games; that it is possible to sustain any cooperative outcome when a game is expected to be repeated indefinitely.  So while the textbooks are filled with explanations of the Nash equilibrium of the prisoner’s dilemma being to defect, in real life where interactions with others repeat indefinitely, cooperation is easily sustained with very basic strategies.

Where there are multiple possible cooperative strategies in a game, we might call the one that the players evolve to cooperate with the ‘culture’ of the game.  And what is most interesting is that if a player in one game moves to another game they must learn the culture of the new game to ensure cooperation.

Say in game 1 the culture is for all players to play strategy A.  If players cooperate by choosing the same letter as other players they increase each others’ payoffs.  In game 2, players are all cooperating on B.   We have two cultures that overcome the coordination problem within the same game rules.  In game 1, choose A. In game 2, choose B.

Now if we take a player out of game 1 and put them in game 2, they are likely to continue their strategy of choosing A.  But since all other players are choosing B, they will never be able to cooperate with another player.  They must adapt to the local culture and choose B if they wish to increase their payoffs, and the payoff of those with whom they interact.

It is genuinely unfortunate that to be taken seriously by the economics ‘in crowd’ you have to start with a theory that ignores time, has a unique equilibrium, and aggregates all agents into one.  There are so many avenues of research being pursued at the fringe of the profession, and within other disciplines, such as sociology anthropology, and psychology, that have so much to offer in terms of explaining and predicting social and economic phenomena by happily embracing cultural explanations.

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  1. This blog just keeps getting better and better, well done Rumples. I think the aim to make economics “institutionally antiseptic” is one of the most idiotic things I’ve ever read. Thank you Paul Samuelson (not that he said it, but he paved the way).

    Economics as it is makes it ripe for criticism from all sides but particularly the left, which is not surprising when you get institutionally antiseptic PhDs going into public policy and other institutions, like the IMF, and trying to do good.

    My mate is doing economics honours at the moment, and he sent me his homework problem set. It was pure maths, replete with simplified assumptions, no concept of actual human behaviour, nor the environment in which people act. It taught him nothing about the world.

    Its a worry when people, who may have postgrad degrees, go into an organisation and try to implement what they know. Very, very dangerous. Hayek and Buchanan should be required reading for any public servant. But that would be too sensible.

  2. Well said Jake

    “no concept of actual human behaviour, nor the environment in which people act. It taught him nothing about the world.”

    Perhaps academic economists should do a stint of hard agrarian work, for nil return, far away from capital cities and very much subject to, and dependent on, the environment and their local fellows. But I guess this is old Left not part of modern bourgeois Left.

    • Haha well I agree they should get out of the office a bit more and have a look around.

      Btw, Roger Montgomery’s article in The Australian on the weekend sounded like it was right out of your playbook. And it was quite scatheing

  3. Yes an interesting post thanks – so many links will have to get to them later. I do think you are on the right track, some of the purely math driven economic analysis is little more than (a) self justification/aggrandisement, and (b) disciplinary goobledygook modelling a perfect closed world yet apparently applicable to the open imperfect and very culture driven real world.

  4. “The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

    ― John Maynard Keynes

    Johnny boy was onto something there.

    Something along the lines of “Many economists are merely poor philosophers”, but articles like this help to give the profession a little more respectability…

    • I think Peter Boettke makes some sense:

      “F.A. Hayek once argued that: “But nobody can be a great economist who is only an economist – and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.” When discussing Hayek’s quotation, I have also added the following caveat – ‘Nobody is as dangerous as an economist who knows only economics except a moral philosopher who knows no economics at all.’ It is the interaction between technical economics (rational choice, institutional analysis, and invisible hand explanations) and social philosophy where we find the best works in political economy.”


      • By gum…. BRILLIANT assessment:

        “….‘Nobody is as dangerous as an economist who knows only economics except a moral philosopher who knows no economics at all.’….”

  5. Wonderful post,Rumplestatskin, which shows again that when intelligent people go to academia and start asking questions, there is always hope that something good can be made of and some genuine changes can be expected from such bright men. Keep doing the good job and asking inconvenient questions. If you stop doing it, your intelligence would be useless.

  6. Frances Woolley

    Thanks for the link.

    As I argue in the original post, methodological individualism does not imply that culture is unimportant. Rather to explain a phenomenon by saying “it’s culture” and then stopping (as people often do in the context of son preference) is uninteresting – a lousy explanation.

    You define culture as “the total learnt cooperative behaviours of a society, which includes the way members of that society draw meaning from the behaviour of others” – which you then go on to explain as the outcome of agents’ choices.

    Stigler and Becker would approve enthusiastically – this is precisely what they mean by methodological individualism. Explaining culture, not black boxing it. This is a good explanation.

    I took a look at your paper, the one that you say has s”no utility functions. Around p. 10, you write “In the single political decision maker scenario, we simply equate the marginal cost of the signal to its marginal benefi t in terms of rents”

    The utility function is simply the integral of the marginal benefit function. If there’s a marginal benefit there is, implicitly, a utility function.

    • Rumplestatskin

      I appreciate your response. As I was writing this post I got the feeling we would probably agree on most things.

      However, I can’t for the life of me see how stopping an explanation at culture is any different from using utility as an explanation and stopping there. In very shorthand, culture as an explanation says that people behave a certain way because others do. While utility says I behave this way because I want to.

      Interactions and learning are the interesting part of the micro-economics, and utility functions seem just as unfalsifiable as the next explanation (a choice was made, therefore preferences can be derived etc).

      You are of course correct that in my paper I allowed each agent to optimise their own utility at each point in time. I did this for a couple of reasons. First, I thought it was an easier sell to the economics crowd. Second, I haven’t got a simple enough purely network model where agents behave according to simple rules about interactions with their neighbours. But again, whatever simply rules I implement will be translatable into a utility function of sorts.

      I guess the scientific endeavour is just a formalised method of enquiry that I see in young children. Just keep asking “but why” and you get there. It would say we agree that an explanation of behaviour should go beyond “because of culture”, or “because people trade-off one thing of another”. It should ask “but why” a few more times – Why does this culture exist? Why do people keep adhering to it? Why didn’t someone prefer a different trade-off?

      As far as Stigler and Becker’s argument goes, my view is that they seem to be missing the point. If stable tastes are a useful mode of analysis, where did they come from if not our environment? And if they come from our environment, then they are not stable. Again, tastes and preferences, or utility functions, are not really falsifiable either. We consume more bell-bottom pants – our tastes must be stable, but we are choosing an alternative method of maximising “social distinction”. Mmm… Doesn’t say much about why bell-bottoms and not denim jackets. Not does the conclusion about incomes and fashion seem right from my experience.

      I guess I am really trying to say that there are other tools for the job of understanding aggregation and interaction that economists will ignore because they don’t comply with their acceptable toolkit for analysis. I’d like to see this change.

      • On utility functions, I think we can get something from Buchanan:

        “…economists would say that if the designer could somehow know the utility functions of all participants, along with the constraints, such a mind could, by fiat, duplicate precisely the results that would emerge from the process of market adjustment. By implication, individuals are presumed to carry around with them fully determined utility functions, and, in the market, they act always to maximize utilities subject to the constraints they confront.”

        “Individuals do not act so as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of “as if” functions that are maximized. But these “as if” functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will.”


    • Rumplestatskin

      To be clear, I would argue that not all aggregate behaviour can be derive from individual actions. If you require both individuals AND the existing social relationships and institutions to explain behaviour, you are already at “methodological localism”

      “the position of “methodological localism” identifies socially constituted and socially situated individuals as the foundation of social explanation; but this position explicitly denies the idea that all social facts are reducible to bare psychological facts about individuals. Rather, individuals are themselves constituted and constrained by previously established social conditions.”

      This approach allows agents to only have predictable behaviour within certain social constructs. In isolation you can say nothing at all about the behaviour of a single individual.

  7. More recently, I have become aware that quite a lot of academic research is going on, regarding the effect of “culture” and religion, on economic growth. It seems that the World Bank’s economists have been disappointed that their economic reforms alone, haven’t had the desired effect in many third world countries.

    But the kind of research I have been unearthing is quite different from what Rumplestatskin has been.

    I haven’t had time to actually read much of any of it, but:

    An often-quoted early work is Edward C. BANFIELD’s book; “The Moral Basis of a Backward Society”, published in 1958.

    David S. LANDES 1999 book, “The Wealth and Poverty of Nations; Why Some Are So Rich and Some Are So Poor” is apparently also a famous commentary on this subject.

    Specifically giving credit to Protestantism, the book; “The Protestant Ethic and the Spirit of Capitalism” was written by the famous German economist Max Weber in 1905; it was translated into English in 1930.

    The American economist Everett HAGEN had a book published in 1964, “On the Theory of Social Change: How Economic Growth Begins”. Fascinatingly, when investigating the backgrounds of the many industrial and technological innovators of the Industrial Revolution in Britain, he found that an unexpectedly high proportion of them were Protestants from OUTSIDE the “established” Church of England.

    The academic authors GUISO, SAPIENZA, and ZINGALES, have authored several papers including “Does Culture Affect Economic Outcomes?” (2006) and “Civic Capital as the Missing Link” (2010).

    These authors continue their research.

    One interesting point that is discussed in many such papers, is that even within Italy itself, a few “enclaves” in the North show up to be much more prosperous than the rest of the nation, due to much higher levels of interpersonal “trust”.

    There are repeated references in these papers, to the work of others in this field, such as Stephen KNACK, Paul ZAK, Philip KIEFER, and Lee IANNACCONE. One could spend a lot of time following up references. Evidently this is a topic in which research interest is blooming.

    Another significant current author team, is Robert BARRO and Rachel McCLEARY (who also continue their research in this field):

    “Religion and Economic Growth” (2003)

    “Religion and Economy” (2006)

    Rachel McCLEARY is the author of a very readable overview paper in 2008, in “Policy Review” Magazine, entitled “Religion and Economic Development”.

    Again, there are many references in these papers. L.R. IANNOCONE seems to have been a significant author involved in multiple past research papers.

    In IANNACCONE and BERMAN, “Religious Extremism, the Good, the Bad, and the Deadly”, and IANNACCONE, “Why Strict Churches Are Strong”, one finds some interesting arguments in the context of the sort of utilitarianism that secularists frequently claim to be important.

    STARKE, IANNACCONE and FINKE; “Religion, Science, and Rationality”, is an interesting rebuttal of the oft-repeated claim that modern science is exclusive of Christian faith.

    M. Stanton EVANS: “The Theme is Freedom” provides comprehensive evidence that the western liberal free market democracy evolved from Reformation christianity, in contrast to which “the secular enlightenment” tended to run in the very opposite direction, eg to Jacobinism, Fascism, and Marxism.

    The IMF actually published a paper in 2010 that analysed the correlation between the proportion of Evangelical Christians in the population, and the size of the housing bubble experienced, in cities around the USA. A higher proportion of Evangelical Christians correlated to less of a housing bubble. The paper is called “Irrational Exuberance in Housing Markets: Were Evangelicals Left Behind”? The authors hypothesize that evangelical Christians “speculate” less, however Albert Saiz of Harvard has argued convincingly that the causation is via the evangelical Christians antagonism for urban growth containment policies.

  8. Hernando de Soto, when working for the World bank did a lot of research on what characterises economically successful societies. I’ve lost the reference but I guess it could be found.
    He found the major difference was ‘Private property rights’ By this I mean not the ‘corporate ownership’ type model but the rights of individuals to own and control their own private property.