Introduction to Political Economy 2023 with complete solution

Rational Choice Choose between actions A, B, C by highest expected utility Rational Expectations Estimates of value of a random variable are normally distributed around the true value, most people make pretty good social science predictions most of the time Ex. Retaliating against terrorism Bounded Rationality Rational choice when decision making costs are high which leads to picking the minimally satisfactory outcome Ex. Buying a car: you aren't going to look at every single used car to make your choice Critiques of Using Rational Choice Theory in Social Science 1. People are not sufficiently rational for the rational choice theories to explain much of the real world 2. Rational choice theory is too simple to explain the complexity of the real world 3. Rational choice theory is too complicated to be an accurate description or predictor of the way people think or behave in the real world Genes and Social Behavior How rational behavior can emerge from natural selection favoring carriers of genes that lead to specific characteristics and possible explain social and political institutions Behavior (Genetic Explanation) Individuals of a species behave in a way that maximizes the number of genes that you send into the future, causing the species to maximize some combination of quantity and quality of offspring Gender Reproductive Strategies Genders differencing in production capacity and cost of mistakes as well as resource investment in offspring -Males: quantity maximizing -Females: quality maximizing Rational Choice Theory in Anthropology (Harris) He claims that choice might be a better explanation of rationality than just simply evolution 1. Natural selection may cause people to unintentionally create institutions that allocate resources efficiently and ensure survival (Tribal War) 2. People may deliberately create institutions that help group survive (Witch Trials) Harris: Social practices that look irrational might actually help allocate resources to maximize the gains to the group Hindu Cow Law (Harris) There is a ban on killing and eating cows in India, which might imply that there is a net loss to society given the fact that they are not able to eat the cows that are too weak, can't produce milk, yet still eat grain Explanation: If owning a cow is unprofitable in some years, poor owners might kill the cow even though it is profitable in the long run. Keeping cows at all times ensures this long term profitability, which is why society might have banned killing them Jewish Pork Prohibition (Harris) The Jews banned the eating of pork, which some might think doesn't make much sense due to the usefulness of being able to eat pork Explanation: Pigs and eating pork was a high luxury cost that would have placed extreme burden on a fragile economic and ecosystem (they can't be herded long distance, need shade and water), so banning them solved the issue and benefitted the group New Guinea War Cycle (Harris) 12 Year War Cycle: They raise max number of pigs, kill almost all of the pigs and feast for 1 year, go to war with enemies 1/3rd of males die, then plant sacred trees and pray to their ancestors Explanation: by placing a premium on maximizing the number of combat ready males, warfare obliges primitive societies to limit their nurturance of females and makes warfare and effective means of controlling population growth Witch Burning (Harris) Why were so many people tortured and executed? Rationality: Witch hunters could seize the property of a witch if they were to turn them in, people were also accusing the Church of exploiting the people Explanation: The practical significance of the witch mania was that it shifted responsibility for the crisis of late medieval society from both the Church and the state to the imaginary demons in human form. This was rational choice by the upper levels of the Church Summary of Rational Choice (Harris) 1. Social and political structures evolve so as to maximize (mainly economic) welfare of the group that those structures are designed to serve (=gene maximization) 2. Group does not necessarily translate to whole society (=whole society benefits) 3. Rational choice may be required as seen in the witch trials and the Maring warfare (=natural selection only) Criteria for Choosing Decision Methods 1. Prefer low transaction costs 2. Accurately reflect preferences 3. Not allow some to exploit others (Rogowski) 4. Avoid rules that can be manipulated What are transaction costs? -Acquiring information -Process of reaching decisions -Enforcing decisions Transaction costs rise with... -Complexity of decision rules -Amount of information used -Number of people -Diversity of preferences -Number of alternatives Unanimity in Decision Methods Agreement by all prevents exploitation because it leads to Pareto optimal and super fair decisions Problems: there may not be and Pareto Optimal/Super fair outcome, high transaction costs, and strategic behavior Pareto Optimality is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off Plurality in Decision Methods When the outcome is ranked first by largest number of people Problems: There are some exploitation costs since the decision making is only supported by the majority, there is a risk of a divided society Arrow's Impossibility Theorem The claim that no decision method can satisfy 5 conditions: 1. No Dictator: The social welfare function should account for the wishes of multiple voters. It cannot simply mimic the preferences of a single voter 2. Completeness: Every possible societal preference order should be achievable by some set of individual preference orders 3. Unanimity: If everyone chooses A over B than there is no restricting group choices 4. Independence of Irrelevant Alternatives: changes in individuals' rankings of irrelevant alternatives should have no impact on the societal ranking of the subset 5. Universal admissibility: For any set of individual voter preferences, the social welfare function should yield a unique and complete ranking of societal choices such that there is no restriction of individual preferences Why not use irrelevant alternatives? The use of irrelevant alternatives allows outcomes to be manipulated by the agenda setter Ex. If we compare Obama and Romney against Putin we'd get different results than if it were against Queen Victoria How to solve Arrow's Problem The only way real world decisions can be made is to violate 1 of Arrow's conditions -Restrict individual preferences -Allow intransitivity -Restrict group choice -Dictatorship Single Peaked Preferences With alternatives ranked on a continuum, each voter prefers points closer to most preferred point to points farther away Ex. If there was a bus stop on every block, a voter would choose the one with the shortest walking distance, and their second choice would be the next closest one, etc. Single Peaked Preference in the Real World For issues such as determining the Defense Budget it is pretty normal, but: 1. Opportunistic politics-SPP might be distorted if a politician can use their alternative for other political gains 2. Alternatives may not have a common dimension for ranking on a continuum (Ex. Invade Iran) 3. Issues may be lumped together in a way that destroys SPP (Ex. Military spending bundled with gay marriage) Black's Median Voter Theorem If voters have single peaked preferences, a majority rule voting system will select the outcome most preferred by the median voter Implication: The median voter theorem implies that voters have an incentive to vote for their true preferences, meaning that voters will always vote in a majority rule voting system Politicians Use of the Median Voter Theorem Harold Hotelling notes in passing that political candidates' platforms seem to converge during majoritarian elections. Hotelling compared political elections to businesses in the private sector. He postulated that just as there is often not much difference between the products of different competing companies, so, too, there is not a stark contrast between electoral platforms of different parties. This is because politicians, just like salesmen with consumers, seek to capture the majority of voters. Meaning that the MVT is a tool used by politicians to win elections Pluralism The recognition and affirmation of diversity within a political body, which permits the peaceful coexistence of different interests, convictions and lifestyles -Groups form out of naturally shared interests -The more people in a group, the stronger the group -Vs. Public good theory (more people, less influence) Public Goods A good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others (low excludability, low rivalry) Ex. Fresh Air, Fireworks, Parks Public Good Problems 1. Free Riders: People not paying for the good may continue to access it. Thus, the good may be under-produced, overused or degraded 2. Strategic Behavior 3. Suboptimal supply: never going to be socially optimal 4. Negative Externalities: excessive use of a public good that has negative and unintended side effects (pollution)