Monday, December 24, 2007

Walking in other’s shoes

By Arsoni Buana

Economics has been for so long perceived as the science of human behavior. The decision coming out from an agent is a complex process involving so many things such as past knowledge, social environment and so on and so forth. Our society has been built from that complex process. Hence, analyzing a society never stands alone from the discussion of human behavior. That is why we see institutional economics nowadays as a branch of economics. The complex process of decision making is one of the institutional settings one can recognize in a society, in an economy. As we know, theory of regulation not only speaks economics in the boundary of market but it is more important than that: placing agent’s behavior in the very heart of economics (remind you on wage relation in the theory). Below is a story of human behavior when they take the perspective of others in their decision-taking process. The story is often called as “walking in other’s shoes” story in the literature.

Suppose that there is an impartial judge k who wants to share a certain amount of resources, let say c, to two members of society which are in conflict to a certain subject. In doing so, the judge identifies herself with those n group members (n>1) and then shares the sum c between them, maximizing an EU which is dependent of the state of the world:

subject to and
with for all i.

The social preference which results from a complete identification with others consists in making the final marginal utilities as equal as possible within the group. If the group members have highly different initial wealth but the same utility function, the transfers will first be allocated to the poorest, and will be highly unequal. This unique solution of the judge’s behaviour has two goods properties: it does not depend on the judge’s membership in a group and brings about Pareto-optimal allocations.

A caution should be considered as the judge should know exactly the preferences, the characteristics of the two conflicting parties in order to be able to “walk properly in the parties’ shoes”. If it does not hold the judge then tends to project in other way around: her own characteristics on those of the others. This principle of projecting his own characteristics on others has also underlined by Adam Smith and widely known as Principal of Smithian Sympathy. He stated:
“As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation. […] Every faculty in one man is the measure by which he judges of the like faculty in another. I judge of your sight by my sight, of your ear by my ear, of your reason by my reason, of your resentment by my resentment, of your love by my love. I neither have, nor can have, any other way of judging about them.” (Adam Smith 1982, pp. 9 et 19)


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