Knowledge And Decisions

While the crucial question for social decision-making processes is the impact of those processes on society as a whole, attempts to answer that question cannot automatically proceed as if society as a whole is the decision-making unit. Rather, what must be considered are the incentives and constraints facing the actual decision makers, in order to determine if their decisions are likely to produce socially optimal results. It is in large part a question of how effectively knowledge is transmitted — not simply how well-informed the initial decision was, but how effectively feedback controls subsequent modifications, regardless of whether or not the decision makers want to change. Effective social knowledge is knowledge of social impact that forces decision makers to adjust accordingly, both initially and subsequently, just as effective economic knowledge forces a business to adjust to consumer preferences under threat of bankruptcy. Insofar as institutions are insulated from this forcibly effective knowledge, it is purely optional on the part of the decision makers to what extent even to acquire information about social consequences, much less act upon it. Since such information has costs, and stifling one’s own predilections and self-interest, or admitting errors, involves perhaps even higher costs, there is every institutional incentive to resist the transmission of socially effective knowledge. The question of the effectiveness of institutions for their social purposes (as distinguished from the purposes of those who run them) is largely a question of the conductivity of the incentive structure with respect to external knowledge.

Money is obviously a sensitive conductor of knowledge where individual or institutional solvency is at stake. The fungibility of money facilitates incremental rather than categorical decisions and permits the incremental weighing of highly disparate effects in one medium of accounting. This is not creating an artificial equivalence but recognizing an inherent trade-off. The options weighed are not limited to simultaneous alternatives but extend across time as well as space, since they involve savings and investments of varying degrees of maturity, as well as current consumption and production decisions. Despite the common contrast between financial considerations and personal emotions, both share these characteristics as conductors of social knowledge to individual decision makers across space and time. A family decision on moving to a new home involves weighing such disparate emotional considerations as the future need of a growing infant for his own room, the disruption of the older children’s current neighborhood friendships, the effect of the new school on their future college (and therefore career) prospects, the emotional strains on the breadwinner(s) caused by the cost of the new home — and many more such concerns, all weighed in the emotional currency of the family’s well-being. Even if one individual makes the decision, the emotional ties between that individual and the other family members conduct their needs to him as incentives and constraints which typically force a decision quite different from what would be optimal from that individual’s own standpoint alone. A father may, for example, locate his family far out in the suburbs for the sake of the children, giving himself an exhausting daily commute to work, even though there are apartments available within walking distance of his office and closer to the entertainment centers that he and his wife enjoy. All these considerations are fungible and incrementally variable where high emotional conductivity transmits the present and future needs of others to the decision maker as personally felt incentives and constraints. In this way, there is created the social equivalent of the economic agent who is a residual claimant and therefore can function with social effectiveness as an “unmonitored monitor.” By contrast, the rules of an organization are often categorical, as when a municipal ordinance requires that all city employees live within the city limits or postal regulations require packages to be prepared to certain specifications.