A place of anarchy and disorder or of miraculous human cooperation?
Leaving the GMU Fairfax Campus yesterday after a Workshop in Politics, Philosophy and Economics last week, I got stuck in a traffic jam in the parking lot I was in. As terrible as it may have been in my position at the very back of the lot waiting as the 5:00 traffic leaving the campus as both the traffic in the main lane of the parking lot as well as traffic in the street it flowed into ground to a halt, this situation provided a natural experiment I only slowly came to realize was happening.
The basic set-up. There was one main artery within the parking lot by which all drivers wanting to leave had to drive through. Into this artery, there were smaller lanes parking spaces were attached to; veins cars flowed from into the main artery. All of the veins were attached to themselves through other routes. The situation resulted in a massive line of traffic within the main artery that stretched back far across the parking lot, twisting into the back portion of the lot, and lines of a couple of cars each within the smaller veins. Once traffic got moving again, a car would stop at each of the veins and so that vein, or at least a couple of cars within it, would empty. And here is where the natural experiment is happening.
Assume that every driver is a perfect specimen of homo economicus who desires nothing else but to maximize his well-being by minimizing his time within the parking lot. Would such a time-minimizing driver take the strategy of waiting within the main artery? No. There is a much better strategy out there for the driver simply desiring to minimize their time: leave the artery, take a spot at the vein closest to the exit, and wait for another driver to stop for the cars in that vein. There were dollar bills on the floor just waiting for people to grab them, but yet no one took the strategy to do so. Instead, everyone got into the artery from the veins they parked in and meekly waited as their time in the lot ticked on and on.
Does this mean that drivers, including myself, were acting irrationally? If drivers were really profit-maximizers would we not expect to see something like the veins being similarly crowded to ensure that no driver has an incentive to change their strategy for getting out of the lot as quickly as possible? Are there not then inefficiencies within the parking lot that put some doubt onto the theory that human beings are rational agents who are able to maximize their pay-offs?
Of course not. We cannot simultaneously assume that drivers are an ideal type aiming at maximizing their pay-offs by minimizing their time waiting and then decry that they are irrational when our chosen ideal does not completely square with reality. It's not the ideal type that shows the poverty of reality. It's reality that shows the poverty of our ideal types.
This is not a small lacuna in our analysis of the parking lot either. Rather, by not being able to address the other circumstances that form the environment of pay-offs, whether it be a natural human inclination towards fairness or accepted rules of conduct, we can completely miss how order emerges within society. And order does emerge. In the case of the parking lot, there was a line as well as rules of conduct for getting into that line that produced an environment in which there was an orderly line rather than a demolition derby. By taking those informal institutions for granted, we cannot know how the process of order emerging and thus cannot comprehend the social phenomena we investigate.
Even in the case of markets, there are informal institutions that underpin the entire process. Anybody can step in Target, handle their private property, take it half way around the store yet turn back and place the item back on its shelve, and ask an attendee what the price is for an item that does not have a price attached. A business model like target wouldn't work without those rules. However, try going into an acquaintance’s house, look at a lamp and then when it does not have a price-tag, ask him for how much he wants for it. The results would be much different than in Target.
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