Striving for Balance in Economics: Towards a Theory of the Social Determination of Behavior

Abstract

This paper is an attempt to broaden economic discourse by importing insights into human behavior not just from psychology, but also from sociology and anthropology. Whereas in standard economics the concept of the decision-maker is the rational actor, and in early work in behavioral economics it is the quasi-rational actor influenced by the context of the moment of decision, in some recent work in behavioral economics, the decision-maker could be called the enculturated actor. This actor's preferences, perception, and cognition are subject to two deep social influences: (a) the social contexts to which he has become exposed and, especially, accustomed; and (b) the cultural mental models—including categories, identities, narratives, and worldviews—that he uses to process information. The paper traces how these factors shape behavior through the endogenous determination of preferences and the lenses through which individuals see the world—their perception and interpretation of situations. The paper offers a tentative taxonomy of the social determinants of behavior and describes the results of controlled and natural experiments that only a broader view of these determinants can plausibly explain. The perspective suggests more realistic models of human behavior for explaining outcomes and designing policies.

Full text

Journal
of
Economic
Behavior
&
Organization
126
(2016)
25–57
Contents
lists
available
at
ScienceDirect
Journal
of
Economic
Behavior
&
Organization
j
ourna
l
h
om
epa
ge:
w
ww.elsevier.com/locate/jebo
Striving
for
balance
in
economics:
Towards
a
theory
of
the
social
determination
of
behavior夽
Karla
Hoffa,∗,
Joseph
E.
Stiglitzb
aWorld
Bank,
United
States
bColumbia
University,
United
States
a
r
t
i
c
l
e
i
n
f
o
Article
history:
Received
16
December
2015
Accepted
19
January
2016
Available
online
3
March
2016
JEL
classification:
A12
D00
D01
D02
D03
D50
D64
Z13
Keywords:
Behavioral
economics
Culture
Framing
Gender
Role
model
Sociology
a
b
s
t
r
a
c
t
This
paper
is
an
attempt
to
broaden
economic
discourse
by
importing
insights
into
human
behavior
not
just
from
psychology,
but
also
from
sociology
and
anthropology.
Whereas
in
standard
economics
the
concept
of
the
decision-maker
is
the
rational
actor,
and
in
early
work
in
behavioral
economics
it
is
the
quasi-rational
actor
influenced
by
the
context
of
the
moment
of
decision,
in
some
recent
work
in
behavioral
economics,
the
decision-maker
could
be
called
the
enculturated
actor.
This
actor’s
preferences,
perception,
and
cognition
are
subject
to
two
deep
social
influences:
(a)
the
social
contexts
to
which
he
has
become
exposed
and,
especially,
accustomed;
and
(b)
the
cultural
mental
models—including
cat-
egories,
identities,
narratives,
and
worldviews—that
he
uses
to
process
information.
The
paper
traces
how
these
factors
shape
behavior
through
the
endogenous
determination
of
preferences
and
the
lenses
through
which
individuals
see
the
world—their
perception
and
interpretation
of
situations.
The
paper
offers
a
tentative
taxonomy
of
the
social
determi-
nants
of
behavior
and
describes
the
results
of
controlled
and
natural
experiments
that
only
a
broader
view
of
these
determinants
can
plausibly
explain.
The
perspective
suggests
more
realistic
models
of
human
behavior
for
explaining
outcomes
and
designing
policies.
©
2016
Published
by
Elsevier
B.V.
This
is
an
open
access
article
under
the
CC
BY
license
(http://creativecommons.org/licenses/by/4.0/).
1.
Introduction
Arrow
(1994)
reminded
us
that
the
standard
economic
theory
of
individual
and
firm
behavior
was
actually
a
theory
in
which
social
determinants—factors
not
attached
to
particular
individuals
but
instead
to
social
groups—were
crucial.
But
standard
economics
considers
only
the
social
determinants
of
choice
sets:
prices
and
the
rules
of
the
game.
The
social
determinants
of
decision-making
are
left
out,
since
the
core
theory
of
standard
economics
assumes
rational
actors
with
stable,
coherent,
and
autonomous
preferences,
which
are
certainly
not
affected
by
social
context.
夽Paper
prepared
for
the
2015
meetings
of
the
American
Economic
Association,
Boston,
January
3.
Hoff
is
a
Lead
Economist
in
the
World
Bank
and
was
co-director
of
the
World
Development
Report
2015:
Mind,
Society
and
Behavior.
Stiglitz
is
a
University
Professor
at
Columbia
University.
We
draw
heavily
upon
the
World
Development
Report
2015.
We
are
indebted
to
James
Walsh
for
excellent
research
assistance
and
to
Allison
Demeritt,
Paul
DiMaggio,
and
Nan
Zhou
for
fruitful
discussions
and
advice.
Financial
support
from
INET
and
the
Roosevelt
Institute
Project
on
Inequality,
supported
by
the
Ford
Foundation,
the
Bernard
and
Irene
Schwartz
Foundation,
and
the
John
D.
and
Catherine
T.
MacArthur
Foundation,
is
gratefully
acknowledged.
∗Corresponding
author.
Tel.:
+1
2404132758;
fax:
+1
2025223518.
E-mail
address:
khoff@worldbank.org
(K.
Hoff).
http://dx.doi.org/10.1016/j.jebo.2016.01.005
0167-2681/©
2016
Published
by
Elsevier
B.V.
This
is
an
open
access
article
under
the
CC
BY
license
(http://creativecommons.org/licenses/by/4.0/).

26
K.
Hoff,
J.E.
Stiglitz
/
Journal
of
Economic
Behavior
&
Organization
126
(2016)
25–57
Recent
research
in
behavioral
economics
has
broadened
our
understanding
of
how
individuals
make
choices.
Exploring
the
psychological
influences
on
behavior,
this
research
has
shown
that
the
context
of
the
moment
of
decision
influences
choices
even
when
the
context
should
be
transparently
irrelevant
to
the
decision.1For
example,
the
context
can
make
prescriptive
norms
against
theft
focal
in
attention
and
thereby
reduce
theft,
or
make
a
descriptive
norm
of
frequent
stealing
focal
and
thereby
increase
it
(Cialdini
et
al.,
2006).
Peers
in
a
college
(among
men,
a
randomly
assigned
roommate)
and
peers
in
a
workplace
can
lead
an
individual
to
change
his
behavior
to
match
theirs
more
closely
(Kremer
and
Levy,
2008;
Herbst
and
Mas,
2015).
The
social
factors
in
these
particular
examples—the
cues
or
role
models
that
make
a
norm
or
behavior
salient—would
not
affect
behavior
under
standard
economic
theory.
Insight
into
these
social
determinants
of
behavior
can
be
used
to
shape
it:
individuals
can
be
nudged
to
take
one
action
or
another
(Thaler
and
Sunstein,
2008).
The
Obama
administration
has
actually
used
these
ideas
as
instruments
of
policy
(Executive
Office
of
the
President,
2015).
This
paper
discusses
another
strand
of
behavioral
economics.
This
strand
recognizes
durable
social
influences
on
pre-
ferences
and
cognition.
Past
social
experiences
and
past
social
structures
can
result
in
sustained
ways
of
conceptualizing
a
situation
and,
hence,
sustained
beliefs
and
social
outcomes—for
example,
mistrust,
a
sharp
gender
division
of
labor,
or
a
pattern
of
aggressive
responses
to
disputes
or
slights
that
seem
trivial
in
origin.2Sociology
and
psychology
have
introduced
mental
models
(or
schemas)
into
their
analyses
as
the
tools
that
individuals
use
to
process
information
and
conceptualize.
Cultural
mental
models
include
concepts,
categories,
social
identities,
narratives,
and
worldviews.3They
“shape
the
way
we
attend
to,
interpret,
remember,
and
respond
emotionally
to
the
information
we
encounter
and
possess”
(DiMaggio,
1997,
p.
274).
An
individual
may
have
in
his
mind
multiple
mental
models
that
he
can
draw
upon
to
interpret
the
situation
he
is
in,
and
they
may
be
inconsistent
in
content
and
in
implications
for
behavior
(D’Andrade,
1995;
Swidler,
2001).
What
determines
which
one
is
selected?
As
DiMaggio
(1997,
p.
275)
notes,
“selection
is
guided
by
cultural
cues
available
in
the
environment.”
Thus
the
social
variables
that
behavioral
economics
introduces
into
decision-making—the
social
context
of
the
moment
of
decision
and
mental
models—interact.
The
analysis
described
so
far
is
simply
an
elaboration
of
the
standard
behavioral
economics
model,
explaining
in
greater
depth,
for
instance,
how
certain
“nudges”
might
work.
This
paper
argues
that
the
social
context
not
only
primes
individuals,
eliciting
one
kind
of
behavior
or
another,
but
that
in
a
fundamental
sense
it
shapes
them—how
they
think
and
what
they
want.
Social
context
creates
the
set
of
mental
models
upon
which
individuals
can
draw,
and
affects
the
circumstances
that
prime
alternative
mental
models.
This
durable
shaping
of
individuals
is
the
distinction
between
the
work
on
which
this
paper
focuses
and
earlier
work
in
behavioral
economics
whose
central
interest
was
reasoning
biases
that
were
typically
thought
of
as
universal
and
hard-wired.
It
is
not
just
that
the
social
context
of
the
moment
of
decision
influences
behavior
by
making
certain
norms,
role
models,
or
reference
points,
or
other
associations
focal
in
attention.
In
a
sense,
prolonged
(and
sometimes
even
brief)
exposure
to
a
given
social
context
shapes
who
people
are.
Parents
know
this:
they
worry
about
who
their
children
associate
with.
Parents
send
them
to
schools
where
they
will
be
inculcated
with
the
values
that
the
parents
respect.
But
while
the
influence
of
social
context
on
preferences
and,
thus,
the
endogeneity
of
preferences,
seem
patently
obvious,
the
implications
for
economic
behavior
have,
for
the
most
part,
been
ignored.
The
following
story
illustrates
the
issue.
We
can
imagine
that
people
are
born
with
many
different
kinds
of
actors
inside
them.
Consider
an
individual,
Fred,
and
call
two
of
the
potential
actors
inside
him
A
and
B.
Let
A
be
a
scrupulously
honest
person
and
B
be
a
less
scrupulously
honest
person.
An
insight
of
behavioral
economics
is
that
Fred
can
be
induced
to
act
more
or
less
scrupulously
by
changing
the
cues
to
which
he
is
exposed.
We
say
that
Fred
is
primed
to
be
A
or
B.
At
any
given
moment,
it
may
be
easier
to
prime
Fred
to
be
A
than
B.
But
now
having
gone
to
work
for
an
international
bank
in
a
period
when
social
norms
against
dishonesty
towards
clients
are
lax,
the
set
of
stimuli
that
elicit
Fred
to
behave
dishonestly
expands.
This
changes
who
Fred
is.
After
being
embedded
in
a
new
context
for
a
long
time,
an
individual
can
become
more
B
than
A.
Racism
is
an
example
of
a
behavior
that
no
one
is
born
with
but
that
is
learned
(Kinzler
and
Spelke,
2011).
A
society
can
create
a
mental
model
of
racial
hierarchy
and
represent
it
as
describing
the
world
objectively.
Children
growing
up
in
that
world
are
exposed
to
that
mental
model,
and
it
almost
surely
becomes
one
of
their
mental
models
as
an
adult.4
It
is
a
culturally
created
mental
model.
A
segregated
and
unequal
society
will
constantly
prime
it.
An
individual
brought
up
in
a
racist
society
will
make
certain
decisions
and
certain
choices.
This
culturally
created
mental
model
changes
the
1See
Tversky
and
Kahneman
(1974),
Moscovici
(1985),
and
Ariely
et
al.
(2003).
2These
examples
are
discussed
in
Nunn
and
Wantchekon
(2011),
Alesina
et
al.
(2013)Cohen
et
al.
(1996)
and
Brooks
et
al.
(2015).
Early
work
that
emphasizes
the
biased
processing
of
information
using
cultural
beliefs
(cultural
mental
models)
includes
Akerlof
(1989),
North
(1990),
and
Denzau
and
North
(1994).
3Not
all
mental
models
are
cultural.
Some
are
idiosyncratic
representations
that
a
single
individual
created;
for
example,
the
mnemonic
for
a
lock
combination.
Other
mental
models,
such
as
basic
object
categorization,
are
innate.
Humans
may
also
be
innately
attuned
to
the
category
of
“dangerous
animal”
(Bregman,
1934).
But
the
mental
models
of
interest
in
the
social
sciences
are
cultural.
4The
set
of
possible
mental
models
is
infinite.
There
are
an
infinite
number
of
ways
to
think
and
in
the
case
of
a
given
individual,
most
have
zero
weight.
The
set
of
possible
mental
models
is
not
well-defined.

K.
Hoff,
J.E.
Stiglitz
/
Journal
of
Economic
Behavior
&
Organization
126
(2016)
25–57
27
individual’s
preferences,
cognition,
and
behavior
from
what
they
would
have
been
had
the
individual
never
been
exposed
to
the
segregated
and
unequal
society.
As
we
discuss
in
this
paper,
culture
is
the
focus
of
a
rapidly
growing
strand
of
work
in
economics.5Since
individual
preferences/behavior
(say,
in
confronting
a
particular
choice
set)
are
influenced
by
the
social
context,
including
the
actions
and
beliefs
of
those
around
the
person,
culture
itself
is
endogenous.
In
some
cases,
economists
can
“solve”
for
equilibrium
cultures,
that
is,
cultures
that
give
rise
to
behaviors
that
are
self-sustaining—or
would
be
in
the
absence
of
any
exogenous
events.
Because
the
environment
shapes
human
cognition
and
behavior
so
deeply,
habits
of
thought
and
behavior
can
be
culturally
transmitted
across
generations
(e.g.
Algan
and
Cahuc,
2010;
Alesina
et
al.,
2013).
The
result
is
that
there
can
be
societal
rigidities;
it
may
be
difficult
to
change
culture.
At
the
same
time,
we
will
see
that
historical
situations
and
events
can
also
have
path-dependent
effects
(Herlihy
and
Cohn,
1997;
Nunn
and
Wantchekon,
2011).
But
there
is
no
teleology.
As
Darwin
pointed
out,
there
are
evolutionary
dead
ends.
Even
taking
account
of
history,
there
may
be
multiple
(social)
equilibria,
and
one
of
them
may
Pareto-dominate
others.6
Social
identities
and
norms
are
an
essential
part
of
what
it
means
to
be
human.
However,
some
social
identities
and
norms
can
emerge
that
marginalize
certain
groups
or
are
good
for
almost
nobody—for
example,
the
norm
in
traditional
India
of
sati
(widow-burning),
female
genital
mutilation,
and
child
marriage.
In
cases
in
which
norms
lead
to
obviously
perverse
outcomes,
interventions
that
shift
the
mental
models
and
norms
can
be
empowering,
at
least
for
certain
groups.
At
one
time,
economists
could
relegate
the
issues
we
are
discussing
here
to
sociologists—concepts
like
social
identity
might
be
important
for
explaining
social
interactions,
and
perhaps
even
political
choices,
but
not
for
economic
behavior.
Just
as
economists
have
had
to
come
to
terms
with
the
fact
that
individuals
act
in
ways
that
are
markedly
different
from
those
predicted
by
the
rational
actor
model,
economists
will
have
to
come
to
terms
with
the
fact
that
preferences
and
cognition
are
shaped
by
those
surrounding
us,
and
that
these
social
interactions
may
be
as
important
determinants
of
economic
outcomes
as
the
variables
upon
which
economists
have
traditionally
focused.
The
social
influences
on
the
nature
of
the
individual
are
no
longer
beyond
the
boundaries
of
economics.
Instead,
social
determinants
of
preferences
and
cognition
are
increasingly
demonstrated
in
empirical
work
on
individual
choice
and
societal
change.
The
broader
perspective
expands
the
explanatory
power
of
economics
and
the
accuracy
of
economic
predictions.
Most
importantly,
this
perspective
identifies
sources
of
societal
rigidity
that
the
standard
model
takes
no
account
of,
and
identifies
new
instruments
that
can
influence
behavior
and
long-run
social
change.
1.1.
Going
beyond
the
Robinson
Crusoe
economy
One
of
the
paradigms
within
standard
economics
has
been
the
Robinson
Crusoe
economy.
Understanding
the
limitations
of
that
paradigm
enhances
understanding
of
the
difference
between
the
line
of
research
described
here
and
other
strands
of
work
in
conventional
and
behavioral
economics.
A
central
feature
of
the
Robinson
Crusoe
economy
is
the
absence
of
social
interaction.
Therefore
none
of
the
issues
that
we
have
discussed
here
can
arise
in
a
Crusoe
economy,
but
many
of
the
insights
of
behavioral
economics
do
apply.
Work
in
behavioral
economics
demonstrates
that
much
of
our
behavior
is
not
consistent
with
rationality:
Robinson
Crusoe,
living
alone
on
his
island,
may
suffer
from
framing
effects,
confirmatory
bias,
anchoring,
and
the
multitude
of
other
reasoning
errors
that
behavioral
economics
has
identified
(Kahneman,
2003,
2011).
Interestingly,
the
standard
economic
narrative
of
Robinson
Crusoe
ignores
an
important
part
of
Daniel
Defoe’s
parable.
Even
on
this
isolated
island,
there
is
a
society;
Crusoe
is
accompanied
by
his
man
Friday.
Defoe’s
story
tells
us
much
about
their
social
interactions.
Although
Friday’s
capabilities
are
better
suited
than
Crusoe’s
to
the
economic
challenges
in
the
island
environment
on
which
the
men
have
landed,
their
hierarchical
relationship
persists.
Standard
economic
theory
could
not
easily
account
for
this.
But
models
of
sociology
and
anthropology
would
find
no
puzzle:
Friday
and
Crusoe
have
naturalized
the
status
they
each
held
before
arriving
on
the
island.
It
has
become
part
of
their
identities.
Friday
would
perhaps
feel
as
uncomfortable
giving
orders
as
Crusoe
would
feel
receiving
them.
The
society
they
came
from
has
shaped
their
preferences.
1.2.
A
schematic
representation
The
three
columns
in
Table
1
set
out
three
types
of
economic
literature:
(1)
standard
economics
with
rational
actors,who
have
stable,
exogenous
preferences;
(2)
behavioral
economics
with
quasi-rational
actors,who
make
seemingly
inconsistent
5Research
on
culture
has
also
created
new
subfields
outside
of
economics—cultural
psychology
(e.g.,
Bruner,
1990;
Fiske
et
al.,
1998;
Heine,
2012)
and
cognitive
sociology
(e.g.,
DiMaggio,
1997;
Zerubavel,
1997).
The
new
field
of
cultural
neuroscience
examines
the
impact
of
experience
and
culture
on
brain
development
(see
Section
5.9
below).
A
definition
of
culture
in
these
subfields
emphasizes
that
individuals
rely
on
cultural
mental
models
to
process
information.
Culture
is
defined
as
the
interaction
between
(i)
mental
models
(schemas),
which
make
some
ideas
more
accessible
than
others,
and
(ii)
cues
in
the
environment
that
activate
particular
mental
models:
“In
schematic
cognition
we
find
the
mechanisms
by
which
culture
shapes
and
biases
thought”
(DiMaggio,
1997,
p.
269).
But
much
work
in
economics
on
culture
does
not
emphasize
the
human
dependence
on
cultural
mental
models
to
process
information;
a
recent
review
is
Alesina
and
Giuliano
(2015).
6This
is
a
general
property
of
evolutionary
models;
see,
e.g.
Hoff
and
Stiglitz
(2001).
But
as
the
analysis
below
shows,
standard
welfare
analyses
may
be
of
limited
relevance
when
preferences
are
endogenous.
What
is
clear
is
that
there
are
significant
distributive
consequences
of
alternative
equilibria.

28
K.
Hoff,
J.E.
Stiglitz
/
Journal
of
Economic
Behavior
&
Organization
126
(2016)
25–57
Table
1
Standard
economics
and
two
strands
of
behavioral
economics.
Standard
economics
Behavioral
economics
Strand
one
Behavioral
economics
Strand
two
The
conception
of
agents
Rational
actors
•
Stable,
autonomous
(exogenous)
preferences
Quasi-rational
actors
•
Consistent
choices
under
“slow
thinking”
•
Sometimes
seemingly
inconsistent
choices
under
“fast
thinking”
Enculturated
actors
•
Endogenous
preferences,
perception,
and
cognition,
including
“fast”
and
“slow”
thinking,
shaped
by
social
constructs
(cultural
mental
models)
Disciplinary
foundations
•
Rational
choice
axioms
•
Psychology
(cognitive
and
social)
•
Empirical
observations
of
individual
choices
•
Psychology
(including
cultural),
sociology,
and
anthropology
•
Empirical
observations
of
individual
choices
The
drivers
of
behavior
•
Prices
•
Rules
of
the
game
•
Incentives,
as
in
column
1
•
Context
in
the
moment
of
decision,
e.g.,
the
way
in
which
choices
are
presented
•
Incentives
and
context,
as
in
column
2
•
Experience
and
exposure,
which
•
Create
mental
models,
e.g.,
Categories

•
Concepts

•
Social
identities

•
Worldviews

•
Narratives
•
And
affect
what
primes
certain
behaviors
choices;
and
(3)
behavioral
economics
with
enculturated
actors7who
have
endogenous
preferences,
perception,
and
cognition.
Note
that
columns
(1)
and
(2)
have
in
common
the
assumption
of
consistent
choices
under
“slow
thinking,”
but
column
(2)
introduces
the
idea
of
“fast
thinking,”
which
can
lead
to
seemingly
inconsistent
choices.
Individuals
in
making
most
of
their
decisions
use
an
automatic,
intuitive,
and
associative
mode
of
thinking
(fast
thinking),
rather
than
a
deliberate,
reflective,
and
effortful
mode
(slow
thinking).
Fast
thinking
generally
draws
on
only
a
small
part
of
the
relevant
information.
By
affecting
the
salience
and
accessibility
of
information,
the
context
of
the
moment
of
decision
affects
behavior.
Columns
(2)
and
(3)
have
in
common
that
people
may
be
irrational,
but
column
(3)
introduces
the
idea
that
people
process
information
using
cultural
mental
models.
Experience
and
exposure
create
those
mental
models.
In
making
a
particular
decision,
an
individual
may
be
able
to
draw
on
one
of
several
mental
models
that
differ
in
their
implications
for
action.
Hence,
even
deliberate
thinking
can
lead
to
irrational
behavior,
at
least
as
conventionally
defined.8
Table
2
gives
a
2-by-2
taxonomy
of
influences
in
behavioral
economics.
The
two
columns
distinguish
momentary
from
durable
effects.
On
the
basis
of
this
distinction,
we
define
two
strands
of
behavioral
economics.
The
two
rows
of
the
table
distinguish
non-social
from
social
influences.
Amos
Tversky
in
discussion
with
one
of
the
authors
40
years
ago,
said
that
his
work
was
motivated
by
his
discovery
of
a
durable,
non-social
influence
on
perception
(see
Axelrod
1973,
p.
226-227).
People
use
the
haze
through
which
they
see
an
object
as
a
cue
to
its
distance.
This
is
practical,
since
a
distant
object
is
seen
through
more
haze
than
a
close
object.
Individuals
in
temperate
climates
learn
how
to
judge
distance
from
their
experience
in
their
environment.
But
in
a
hot
desert,
haze
evaporates
quickly,
and
the
cue
will
be
misleading.
The
heuristic
that
these
individual
use
is
wrong.
The
heuristic
(the
mental
model)
can,
of
course,
be
changed,
but
it
takes
time,
particularly
since
people
may
not
be
aware
of
the
techniques
they
use
to
judge
distance.
Since
there
are
non-social
influences
on
preferences,
perception,
and
cognition,
behavioral
economics
would
be
relevant
to
an
individual
in
isolation
on
an
island.
Depending
on
the
situation
he
faced,
Robinson
Crusoe
might
think
fast
or
slow.
He
would
be
susceptible
to
both
momentary
and
durable
influences
on
what
he
wants
and
how
he
thinks.
The
four
cells
of
Table
2
have
fuzzy
boundaries.
One
can
create
new
mental
models
quite
easily
in
some
cases,
and
the
effects
can
sometimes
be
surprisingly
enduring.
However,But
as
the
psychologists
Markus
and
Kitayama
(2010)
emphasize,
sustained
change
requires
that
changes
in
individual
psychological
tendencies
be
reflected
in
interactions,
institutions,
and
ideas.
Unless
the
mental
models
are
also
reflected
in
everyday
social
interactions
and
in
the
policies
and
practices
of
institutions,
the
new
mental
models
are
unlikely
to
be
long-lasting
for
most
people.
Change
can
begin
at
the
individual
level,
but
to
bring
about
change
in
society,
simultaneously
changes
in
norms
and
institutions
are
important.
Change
can
7A
thoughtful
cross-disciplinary
review
of
the
process
of
enculturation
is
Fiske
et
al.
(1998).
The
psychologist
Jerome
Bruner
(1990,
p.
21)
emphasizes
that
culture
gives
individuals
a
tool
kit
with
many
mental
tools:
“The
tool
kit
of
any
culture
can
be
described
as
a
set
of
prosthetic
devices
by
which
human
beings
can
exceed
or
even
redefine
the
‘natural
limits’
of
human
functioning.”
8The
sociologist
Schutz
(2013[1953],
p.
22–23)
writes
that
“‘rational
action’
on
the
common-sense
level
is
always
action
within
an
unquestioned...frame
of
[social]
constructs.
.
.Thus
we
may
say
that
on
this
level
actions
are
at
best
partially
rational.
.
.”
(emphasis
added).
The
sociologist
Mary
Douglas
argues
that
“individual
minds
are
furnished
with
culturally
given
attitudes”
(1986,
p.
122),
which
individuals
cannot
easily
recognize
(see
also
pp.
76,
83,
126).
Economists
use
the
term
“rational
actor”
not
to
suggest
a
high
level
of
thinking,
but
only
to
mean
a
certain
kind
of
consistency
in
behavior.
The
fact
that
experience
and
exposure
can
change
the
mental
models
(schemas)
that
an
individual
uses
and,
thus,
his
framing
of
a
given
situation
and
the
decisions
he
makes
will
lead
to
behavior
that
violates
consistency.

K.
Hoff,
J.E.
Stiglitz
/
Journal
of
Economic
Behavior
&
Organization
126
(2016)
25–57
29
Table
2
Taxonomy
of
influences
in
behavioral
economics,
with
examples
from
this
paper.
Influences
in
the
moment
of
decision
(Strand
one
of
behavioral
economics)
Durable
influences
(Strand
two
of
behavioral
economics)
Non-social
influences
Priming
•
Images
of
money
increased
self-reliance
but
decreased
helpfulness
to
strangers
•
Having
a
lockable
box
and
passbook
increased
savings
Experience
•
People
who
live
in
the
temperate
zone
adopt
heuristics
for
judging
distance
that
distort
their
perception
of
distance
in
a
desert
Social
influences
Priming
•
Priming
bankers’
professional
identity
made
them
less
honest
•
A
sign
with
an
injunctive
norm
(don’t
steal)
decreased
stealing
•
A
sign
with
a
descriptive
norm
(stealing
is
common)
increased
stealing.
Framing
•
Fines
for
late
pick-ups
of
children
at
a
day-care
center
increased
late
pick-ups
Experience
•
A
sense
of
collective
identity
enhances
altruism
towards
group
members
•
The
culture
of
honor
may
cause
men
to
perceive
a
loss
from
coordination
failure
as
an
insult,
triggering
retaliation
that
impedes
the
emergence
of
mutually
beneficial
conventions
•
A
stigmatized
social
identity
may
diminish
group
solidarity
and
impair
individuals’
cognitive
performance
•
Experiencing
a
low-trust
society
tends
to
reduce
intrinsic
honesty
•
The
color
distinctions
in
one’s
language
increase
how
quickly
one
recognizes
color
differences
•
Rice
culture
in
China
increases
holistic
cognition
(focus
on
context)
Exposure
•
Exposure
in
school
to
the
ideology
of
economics
increases
selfishness
and
preferences
for
efficiency
at
the
cost
of
equality
•
Exposure
to
women
in
respected
roles
in
the
workforce
and
in
soap
operas
gave
villagers
in
India
a
new
sense
of
the
value
and
dignity
of
women
•
Exposure
to
soap
operas
in
which
women
had
few
children
reduced
fertility
rates
in
Brazil
alternatively
begin
at
the
institutional
level,
but
will
matter
little
if
there
is
no
change
in
individuals’
mental
models. 9That
is,
mental
models
have
to
be
in
people’s
heads
and
also
in
their
worlds.
People
and
their
worlds
make
each
other
up
(Markus
and
Kitayama,
p.
421).
This
gives
a
useful
perspective
on
societal
rigidity
and
change.
1.3.
Outline
of
the
paper
The
objective
of
this
paper
is
to
develop
this
tentative
taxonomy
of
the
social
determinants
of
individual
behavior,
going
beyond
Arrow’s
analysis
of
the
social
determinants
of
choice
sets
to
the
social
determinants
of
the
process
of
making
decisions.10 We
contrast
that
taxonomy
with
the
social
determinants
of
behavior
in
standard
economics
(Section
2)
and
in
behavioral
economics
with
quasi-rational
agents
(Section
3).
In
standard
economics,
the
social
determinants
of
behavior
are
prices
and
the
rules
of
the
game.
Standard
economics
can
take
into
account
social
preferences.
For
example,
it
can
easily
allow
that
individuals
may
be
fair,
altruistic,
or
spiteful.
They
may
enjoy
interacting
with
others.
In
this
expanded
standard
model,
the
social
determinants
of
behavior
include
the
welfare
of
others
and
some
elements
of
their
consumption.
This
is
the
subject
of
Section
2.
Early
work
in
behavioral
economics
relaxed
the
central
assumption
of
standard
economics—full
rationality.
This
early
work
allowed
that
primes
and
context
in
the
moment
of
decision
could
shape
how
an
individual
construed
himself
and
his
choices.
For
example,
what
social
identity,
role
models,
reference
points,
or
norms
were
salient
to
him
at
the
moment
of
decision?
A
seemingly
irrelevant
change
in
context
could
lead
to
preference
reversals.
Rabin
(1998)
and
DellaVigna
(2007)
review
this
work.
Section
3
reviews,
very
selectively,
socially
determined
behavior
in
this
framework.
In
the
strand
of
behavioral
economics
on
which
this
paper
focuses,
experience
and
exposure
may
have
durable
effects.
They
create
mental
models,
which
in
turn
affect
how
an
individual
experiences
what
he
experiences.
Both
preferences
(Section
4)
and
perception
and
cognition
(Section
5)
have
social
determinants.
Cognitive
processes
that
psychologists
once
believed
to
be
universal
are
now
understood
to
be
shaped
by
experience
and
exposure.
Social
context
is
just
“other
people.”
It
is
thus
natural
that
Section
6
addresses
issues
of
equilibrium
and
dynamics.
Because
individuals’
beliefs
and
preferences
are
dependent
on
others’,
society
can
exhibit
rigidities.
To
overcome
the
rigidities,
the
beliefs
and
preferences
of
large
numbers
of
individuals
have
to
change
more
or
less
simultaneously.
But
this
sometimes
9An
example
from
Iyer
at
al.
(2012)
is
the
long
period
in
which
laws
in
India
against
violence
to
women
were
poorly
enforced.
A
large
increase
in
the
fraction
of
such
crimes
that
the
victims
reported
to
the
police,
and
that
the
police
officially
recorded,
occurred
as
a
result
of
the
change
in
attitudes
towards
women
after
political
reservations
gave
women
seats
on
village
and
district
councils.
Basu
(2015)
argues
that
changes
in
law,
if
they
are
contrary
to
what
could
have
been
an
equilibrium
in
the
absence
of
the
law,
will
have
little
power.
10 Bowles
and
Polania-Reyes
(2012)
provide
a
somewhat
different
taxonomy.

30
K.
Hoff,
J.E.
Stiglitz
/
Journal
of
Economic
Behavior
&
Organization
126
(2016)
25–57
happens.
We
give
examples
in
which
an
exogenous
change
in
context
caused
more-or-less
simultaneous
mental
model
switches
by
many
interdependent
actors
and,
thus,
led
to
substantial
behavioral
changes
that
may
help
sustain
the
initial
exogenous
change
in
context.
The
examples
include
(a)
political
reservations
for
women
as
village
leaders
in
randomly
selected
villages
in
India,
(b)
the
mobilization
of
poor
women
in
self-help
groups
in
India,
and
(c)
the
exposure
of
different
areas
of
Brazil
to
soap
operas
in
which
all
the
female
characters
had
few
or
no
children.11
The
paper
describes
laboratory,
field,
and
natural
experiments
that
we
believe
provide
convincing
evidence
of
observed
behavioral
changes
that
are
markedly
different
from
what
standard
economics
would
predict.
There
are
social
impacts
on
behavior
that
cannot
be
accounted
for
only
by
changes
in
choice
sets
and
information,
but
that
are
best
understood
as
changes
in
preferences
and
socially-determined
cognition.
Section
7
discusses
the
normative
considerations
raised
by
policies
that
try
to
affect
individuals’
mental
models,
and
Section
8
concludes.
2.
Interpersonal
effects
in
standard
models:
interdependent
utility
This
section
summarizes
the
way
that
standard
economics
has
been
extended
to
incorporate
social
determinants
of
choices.
The
extensions
do
this
by
allowing
others’
consumption
to
directly
affect
one’s
own
welfare.
They
retain
the
assump-
tion
of
standard
economics
that
the
individual’s
preferences
and
ways
of
processing
information
are
fixed,
unaffected
by
social
elements.
Behavior
is
described
as
if
the
individual
maximizes
a
utility
function
defined
over
his
own
and
possibly
others’
consumption
(actions).
For
many
decades,
economists
worked
on
enriching
the
standard
models
while
retaining
the
core
assumption
of
fixed
preferences
and
a
fixed
way
of
processing
information.
It
is
straightforward
to
extend
the
standard
framework
to
include
the
consumption
of
others:
Max
xi
Ui(xi,
x−i).(2.1)
The
individual’s
utility
in
(2.1)
depends
on
the
vector
of
his
own
consumption,
xi,
and
that
of
others,
x−i;
there
are
external-
ities.
With
utility
functions
of
this
form,
preferences—how
an
individual
ranks
alternative
consumption
bundles—depend
in
general
on
others’
consumption,
i.e.
there
is
not
separability,
as
in:
Max
xi
Ui(xi,
x−i)
=
u(xi)
+
˚(x−i).(2.2)
Only
in
that
case
would
the
choices
that
the
individual
makes
be
independent
of
the
choices
made
by
others.
Eq.
(2.1)
shows
the
general
way
that
the
standard
theory
might
treat
interdependent
utility.
By
imposing
more
structure
on
preferences
(on
utility
functions),
we
can
go
beyond
this
to
make
more
precise
predictions
of
behavior.
We
focus
on
two
cases—where
the
individual’s
utility
depends
on
relative
consumption,
and
where
his
utility
depends
on
coordinated
consumption.
A
striking
result
in
both
cases
is
the
effect
on
choices
over
leisure.
2.1.
Relative
consumption
Under
the
relative
consumption
hypothesis,
the
individual
obtains
pleasure
from
how
well
he
is
doing
relative
to
others.
Positional
goods
are
valued
because
others
cannot
consume
them.
As
Veblen
once
claimed,
[I]n
any
community
where
goods
are
held
in
severalty
it
is
necessary,
in
order
to
his
own
peace
of
mind,
that
an
individual
should
possess
as
large
a
portion
of
goods
as
others
with
whom
he
is
accustomed
to
class
himself;
and
it
is
extremely
gratifying
to
possess
something
more
than
others.
(Veblen,
1899
[2007],
25)
An
extensive
literature
explores
the
behavioral
implications
of
this
hypothesis.12 Behavior
can
be
markedly
different
from
that
predicted
in
standard
models.
For
instance,
in
a
model
in
which
utility
depends
on
the
relative
consumption
of
goods
but
the
absolute
level
of
leisure,
the
equilibrium
level
of
leisure
does
not
change
when
the
wage
rate
changes.13
Under
some
assumptions,
an
increase
in
wage
inequality
decreases
aggregate
leisure.
In
intertemporal
extensions
of
this
framework,
Arrow
and
Dasgupta
(2009)
show
that
the