Knowledge And Decisions

Metaphors which suggest that “society” is a decision-making unit can be very misleading, by ignoring situations in which decisions are what they are precisely because the actual decision-making units face a particular kind of incentive structure. To ignore the specific nature of the decision-making units is to expect improvement by trying to substitute “the good guys” for “the bad guys,” or by waiting for the Messiah or for the general triumph of human reason, whichever seems less improbable or less remote in time. Sometimes the metaphor of “society” is used more tendentiously, to quietly shift the locus of decision making from smaller and more numerous units to a single nationwide decision-making unit. The merits or demerits of such a change in any specific case are simply bypassed by metaphors which proceed as if “society” is doing this now and ought to do that instead — when in fact one set of decision-making units is operating under one structure of incentives now and the advantages and disadvantages of an alternative decision-making unit and the alternative set of incentives is precisely what needs to be explicitly analyzed, not covered up by metaphors about “society.”

There is no one named “society” who decides anything. Even in the most democratic nations few issues are ever decided by a specific nationwide referendum. And even if they were, who could say that a bare majority as of a given instant constitutes the judgment of an organic society subsisting over the generations? Unless national laws are to vary literally from moment to moment, some decision-making units must make decisions which are binding on other units which either disagree or were not consulted. Posterity is of course never consulted.

One of the peculiarities of the American Revolution was that its leaders pinned their hopes on the organization of decision-making units, the structuring of their incentives, and the counterbalancing of the units against one another, rather than on the more usual (and more exciting) principle of substituting “the good guys” for “the bad guys” — i.e., substituting “the people” for “the oppressors,” the faithful for the heathens, the Jews for the gentiles, the gentiles for the Jews, and other such substitutions based on differences of history, physiognomy, or mannerisms.

The domain of decision-making units need not be discrete or mutually exclusive. Indeed they cannot be either, or there would be no such social phenomenon as would cause us to refer even metaphorically to “society.” Decision-making units seldom have complete control, even of a given segment of a society, and no decision-making unit controls the whole society, except very approximately under a totalitarian regime. Decision-making units overlap one another to some degree, and even where such units are subordinated to others in a hierarchy, the subordination is never perfect in practice. Even in the extreme case of slavery, the subordinate units took actions contrary to the general desires or specific orders of the higher units — ranging from passive or active sabotage to murdering overseers and slave owners.³ The practical limitations of sheer subordination were repeatedly demonstrated by the various economic incentives which had to be resorted to under slavery, especially for getting higher quality work performed.⁴

In general, the ability of subordinate decision-making units to act independently of, and contrary to, the policies and orders of the higher units is based on differences in knowledge. The powers of the higher units may encompass all the powers of the subordinate units, but they almost never encompass all the knowledge. Because the powers of the higher decision-making units include the power to require transmission of knowledge, the persistence of knowledge advantages by the subordinate units implies either an impossibility or a prohibitive cost to the higher unit of independently acquiring the same knowledge as a check against the accuracy of the knowledge transmitted by the subordinate unit. In short, there are differences in their respective costs of acquiring knowledge. More specifically, there are cost differences between higher and lower decision-making units which vary according to the kind of knowledge in question.