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Who Puts the Self in Self-Interest?

Self-interest is at the heart of economic analysis. The primary assumption of economists is that people pursue their self-interest, or in the technical expression, that people seek to maximize utility defined by the utility function. The economist typically does not analyze the content of the preferences; rather, the preferences are taken as datum or as parameters to the economist’s problem. The business of economics is to understand how people with given preferences make choices under constraints.

But the question of how preferences are formed is important. Indeed, in many areas of our lives, the formation of preferences is of paramount importance. When we rear children, teach students, and participate in the political process, a large part of what we are doing is seeking to change people’s preferences, not to take them as given.

Moreover, preferences are the most basic parameters underlying the whole of a consumer-sovereignty economy. The demand side of every output market depends fundamentally on the content of consumer preferences; the supply side of every input market depends on the preferences of resource owners. Surely the formation of preferences has far-reaching ramifications.

The question is, can economic analysis be used to say anything sensible about this process? I maintain that it can. In particular, we may ask, “Does it make any difference who is responsible for the content of the self?” When we assume that preferences are given, we are assuming that the self is already formed in advance of our analysis, but we know from property rights theory and the theory of organizations that the assignment of responsibility and reward for various tasks may make an enormous difference to the outcome of the process.

The Problem of Collective Responsibility

One assignment of responsibility that can be rejected out of hand is collective responsibility. The collapse of the Soviet Union has shown that collective ownership and centralized control cannot work. Few economists needed that collapse as a demonstration; they have known for a long time that collective ownership tends to diffuse responsibility. People under-invest in maintaining a collectively owned resource because they correctly perceive that they will reap only a fraction of the rewards for their efforts. The resource thus will be over-utilized and under-maintained.

What is perhaps less obvious is that there exists a moral counterpart to purely economic collectivism. It could be argued that responsibility for the content of the self is somehow collective–that is, preferences are formed in some collective way, and some collection of people are responsible for the consequences of choices made based upon those preferences.

This claim is, in fact, made. We frequently hear the idea, advanced in various forms, that “society is to blame” for the anti-social behavior of some of its members, that society does form the person’s preferences, character, or belief system. This claim does have a strong element of plausibility about it. Indeed, this element of plausibility is probably the reason that this argument has gone as far as it has. Surely the environment in which people find themselves is outside of their control, especially during their formative years. The moral universe occupied by Beavis and Butthead will influence young people far differently from the influence they would experience in a society where people stop their chores at noon and at six to say their daily prayers.

Nonetheless, the claim that society forms people’s preferences is a problematic one for several reasons. First, observing the influence of the general ambiance in which one lives is a long way from a proof that these are the most important influences on an individual. Second, the moral atmosphere of a time and place are themselves the result of choices made by someone, somewhere. Claiming that responsibility for the formation of the self resides with society generally simply moves the analytical problem back a step.

Most important, the observation that the social milieu matters does not prove that we ought to assign the major responsibility for the creation of preferences to “society.” The standard problems of collective responsibility for creation of a good apply to the formation of preferences. The diffuse benefits from investing in the creation of preferences means that few people will do it. In the absence of private incentives, there generally will be under-investment in the production and maintenance of good morals, good character, or good preferences.

At the same time, public choice theory teaches us that government provision of collective goods is problematic. The political choice to invest in collective goods becomes dominated by the particular interest groups that are likely to reap private benefits from it. We might observe that professional educators, corrections officials, social workers, and other similar professionals have a private interest in the maintenance of collective provision of preference formation.

As Public Choice scholars are fond of pointing out, the interests of those professionals may not be the true interests of society. They may, in fact, prefer moral confusion to moral clarity if moral chaos increases the demand for their services. Even in the absence of perverse motives or incentives, surely it is far from obvious that the choices made by such professionals will be led by some automatic process to some definition of optimality.

Moreover, the collective choice problem can readily rear its head in this context, as it does in so many others. If the polity is responsible for forming preferences, then society must somehow make some collective decisions. How much to invest, which preferences shall be encouraged, how much and by what means, which individuals shall be employed by the collective to undertake its work–all of these questions must be decided, and if they are decided by some form of majority rule, all the problems of vote cycling and indeterminate outcomes emerge.

Briefly, these problems occur when there is no one outcome that can beat every other outcome in pairwise competition. So, a majority might vote for one set of preferences, but the losers in that initial vote can, by a judicious choice of alternative preferences, siphon off some of the original winning coalition to create a new majority favoring a somewhat different set of preferences. This process of cycling through rotating majorities often has no obvious end and produces instability as well as incoherence. This may be one reason why the modern public school system does not really have a well-defined mission and why it has such difficulty achieving even the most minimal objectives. The school system is like a patchwork quilt of programs, each supported by somewhat different political constituencies, some of which are mutually inconsistent.

Collectivizing the formation of character and values is a recipe for disaster. A more promising argument, then, is that the individual is responsible for the content of his preferences and the behavior that flows from them. Certainly, an economist would find nothing exceptional in the argument that the person ought to bear the costs and reap the benefits of the behavior based on his preferences. But much more remains to be said. One must confront directly the vexing question of how one creates his preferences.

Forming Preferences and the Problem of Self-Deception

The problem, simply stated, is this: Even if a person bears the costs of his actions, how can he change his preferences? Suppose his preferences are already formed in a way that he chooses anti-social behavior, that he is the sort of person who calculates the costs and benefits of his actions and decides that breaking the law, breaking promises, or otherwise engaging in anti-social behavior is optimal for him. What are we to do with him?

One approach would be to increase the cost of choosing anti-social behavior, but this turns out not to be a solution. One thing we know from contract theory is that it is impossible to write a contract that fully specifies every contingency. In other words, we cannot fully anticipate every interpretation of the rules that people might invent to further their own benefit or evade the plain intention of the rules or of the social order. If people are actually calculating the costs and benefits to themselves of keeping their promises and contracts, whether they be civil contracts or implicit social contracts, they eventually will calculate that it is in their interest to renege. Such people will, sooner or later, conclude that it is in their interest to behave in an anti-social fashion.

The key fact about such a person’s preferences is that he has decided to do such calculations in situations where most normally socialized people would not even consider engaging in such behavior. If we really want such a person to change his behavior in the deepest sense, we must change his preferences so that he stops his opportunistic behavior altogether. It can never be enough to so increase the penalties that the costs always outweigh the benefits.

So, we return to the original problem. How can the individual change his own preferences? There is a kind of circularity here, especially if we insist that the person is simply formed by responding to relative costs and benefits. The deeper and more crucial question is, what is considered a cost and a benefit? Is monetary reward the sole measure of benefit? Is the approbation of others significant? And if so, which others? What is the standard to which we hold ourselves and for which we reward ourselves? Such are the really important questions, and the development of the self and of its preferences is integral to the answers that an individual gives them.

If we took the most radical utilitarian position, we might argue that the only stimuli that matter are physical stimuli of pleasure and pain. If we want a more sophisticated view of preferences and of the choosing process, we will have to do better than this. We all know from experience that there is more to the process than the simple response to physical, animal sensation; there is reflection, thought, and genuine choice. The person has the capacity to make genuine choices that are not simply responses to external stimuli; rather, choices are made in response to an interior process of discernment and judgment.

Among the many problems that might be confronted in this area, I will focus on only one: the problem of self-deception. For if the individual creates himself in some meaningful sense, how does he take in information that would allow him to change for the better? Is there not the problem that the individual can create for himself a closed loop that continually reinforces his previous preferences and views?

Here is an example that illustrates this problem: When I was pursuing post-doctoral studies at the University of Chicago, I heard of a professor who took the position that traffic laws did not apply to him. His argument was that because his time was so valuable, he should not have to observe speed limits, stop signs, and the like. He had convinced himself that because he got his work published in major research journals, he was entitled to drive down the sidewalk. And heaven forbid if some low-i.q. traffic cop should stop him; his response was to tear up the traffic ticket.

I do not know if this particular professor is still driving down the sidewalks of Chicago, but the point is that an obviously intelligent person can convince himself that the most basic rules established for the obvious safety of all do not apply to him. Further, the problem of self-deception is an important one for the social order, for if we can deceive ourselves privately, we can institutionalize our self-deception in the public sphere, in the law, and in the culture generally. We might cite the popular belief that divorce is not harmful to children as an example of this process of institutionalized self-deception.

So the problem before us is this: If the individual is responsible for the content of his preferences, how can he avoid deceiving himself about which are good and which are not? The social mechanisms assigning rewards and penalties will be, at least some of the time, imperfect, especially considering that these mechanisms are driven by other self-interested, partially self-deceiving people. How can the individual form himself without kidding himself? How can the person form the self and avoid deceiving the self?

The Aristotelian and Christian Contributions

One very ancient answer comes to us from Aristotle: The way to become virtuous is to practice virtuous acts. How does one know what a virtuous act is? By observing the behavior of virtuous people. Even better is to apprentice oneself to such a person and to do what he instructs you to do. In this way, one can become practiced at virtue. What had been difficult or puzzling becomes easy and natural through practice.

In spite of its commonsensical approach, there is a circularity about Aristotle’s answer. How does one know who is virtuous? How does one choose a teacher? Does one hold him responsible for the content of one’s character?

Aristotle’s response is simply that the student of virtue must trust the teacher, for if he does not, then he cannot learn from him. This is true no matter who we believe to be our teacher. If we think we are the ultimate arbiters of the truth, then we have to trust ourselves. If we are responsible for the right choice of a teacher, we have to trust ourselves in making that choice. And once we have delegated that responsibility to someone, we must trust that person.

So this position amounts to the following: The individual is responsible for the content of his preferences or for the development of his virtue. He has the responsibility both to create his own virtue and to bear the costs of his choices. The suggestion of apprenticing oneself to one who is virtuous amounts to a partial opening of this circular loop, for although one is responsible for the choice of teacher, the presence of the teacher means that additional information and input will be received by the individual. The person, although responsible for himself, will not be entirely alone.

We turn now to the uniquely Christian contribution to this problem of self-deception. In Christian theology, it is surely true that the individual is responsible for the content of the self in both senses: The individual must create his own character, and the individual bears the costs and benefits of the result. Like Aristotle, the Christian tradition recognizes that the responsible individual need not be, and in fact cannot be, completely self-contained. The person needs continual input from others, both to avoid self-deception and to obtain information about the good.

At the core of Christian thought is the concept of grace. The old Baltimore Catechism defines grace as a supernatural gift from God. In other words, grace flows to the individual freely from a source outside of himself. We are to respond to the gift and allow ourselves to be changed for the better.

Although there are occasionally reports of someone being knocked off his horse by divine influence, the most typical way in which we receive such grace is through other people. People tell us things, correct us gently, and lead us by example. When we allow ourselves to respond to these invitations and allow ourselves to change for the better, we sometimes can see in retrospect that there was something almost miraculous about the experience. Why did this particular person appear in my life at this particular time with this particular message for me? It is fair to say that much of the Christian ethos involves a cultivation of openness to this divine influence through others. The individual, while responsible for himself, is not alone, and this important fact of his “not-aloneness” and, indeed, his need for others is continually reminded to him.

Christianity has also institutionalized the process of self-examination. The daily examination of conscience is a habit deeply impressed upon millions of Christian people. For Roman Catholics, for example, the sacrament of reconciliation, to use the post-Vatican II term, or confession, to use the old-fashioned term, creates an environment for routinely facing the reality of one’s own self-deception and error. The person voluntarily enters the confessional, volunteers information about his own sinfulness, listens to the counsel of the priest, and then follows his instructions. No one is coerced into the confessional; the priest does not go down a checklist of possible sins. The process is begun on the initiative of the individual but involves another person, and so opens the loop and allows the person to go beyond himself.

In addition to this ancient Christian practice, there is another form of confession that has recently come into common use in the wider culture. Alcoholics Anonymous uses a process known as the Twelve Steps, and self-examination and confession are integral parts. Step Four invites us to make “a searching and fearless moral inventory of ourselves,” and Step Five says we “admitted to God, to ourselves, and to another human being the exact nature of our wrongs.”

I cannot leave this section without quoting Thomas Merton, one of the most eloquent religious figures of the twentieth century, on the dangers of self-deception by the person in isolation. Merton was a Trappist monk. This particular religious community lives apart from the world and also observes a rule of silence. Merton had this to say: “The most dangerous man in the world is the contemplative who is guided by nobody. He trusts his own visions. He obeys the attractions of an interior voice but will not listen to other men. He identifies the will of God with anything that makes him feel, within his own heart, a big, warm, sweet interior glow. The sweeter and the warmer the feeling is, the more he is convinced of his own infallibility. And if the sheer force of his own self-confidence communicates itself to other people and gives them the impression that he is really a saint, such a man can wreck a whole city or a religious order or even a nation. The world is covered with scars that have been left in its flesh by visionaries like these.” Plainly, then, the self-responsible individual cannot be self-contained. Being responsible for oneself entails a responsibility to seek guidance and input from others.

Who Puts the Self into Self-Interest?

Economics normally takes preferences as given and the formation of preferences as something outside its area of professional expertise. What economists have done for analytical convenience and the inter-disciplinary division of labor, others are beginning to treat as accomplished facts. Throughout our society, people are unwilling to inquire into the content of preferences or into the methods of inculcating preferences. Indeed, even those who are charged with the rearing of children are often fleeing the field in fear.

Perhaps it is time for economists, as economists, to reopen the question of preferences. They have an analytical training that many disciplines lack. They have a willingness to look at the evidence of the senses, to remain grounded in reality, and to be sober-minded. Perhaps they can contribute something helpful by applying the three questions that Paul Samuelson used to organize his famous textbook: What shall be the content of the preferences? How are preferences formed? Finally, who has the responsibility for forming preferences? This essay has attempted to deal with this last question, in other words, “Who puts the self into self-interest?”