Paper: The Priority Heuristic: Making Choices Without Trade-Offs, by Eduard Brandstätter, Gerd Gigerenzer, and Ralph Hertwig

ABSTRACT: Bernoulli’s framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, we generalize the framework of fast and frugal heuristics from inferences to preferences. The priority heuristic predicts (i) Allais’ paradox, (ii) risk aversion for gains if probabilities are high, (iii) risk seeking for gains if probabilities are low (lottery tickets), (iv) risk aversion for losses if probabilities are low (buying insurance), (v) risk seeking for losses if probabilities are high, (vi) certainty effect, (vii) possibility effect, and (viii) intransitivities. We test how accurately the heuristic predicts people’s choices, compared to previously proposed heuristics and three modifications of expected utility theory: security-potential/aspiration theory, transfer-of-attention-exchange model, and cumulative prospect theory.

Read the full paper.

Excerpt: Joseph Vogl, The Specter of Capital

This brings us to one of the most important component of the new social law and the oikodicy, a defining feature of homo economicus and his milieu, the market. Economic beings are reliable on account of their very limitations, they are social due to their lack of sociality, and it is only through their self-interested participation in trade that they can be brought to serve a purpose extrinsic to themselves. Above all, they best exercise control over themselves and others if they are left uncontrolled. There is nothing — and this will be one of the leitmotifs of the liberalism to come — more harmful than a government that wants to do good. On the contrary, what is called for here is a Mephistophelian agenda, one that takes its cue from a power “which would do evil constantly and constantly does good,” inadvertently producing what is best for all. Civil society, which constitutes itself as the milieu of homo economicus, is governed by the principle of nontransparency or inscrutability; there is no benevolent political actor, possessed of an all-encompassing overview and piercing insight, who might be willing and able to do what is good for everyone.

Joseph Vogl, The Specter of Capital (Stanford: Stanford University Press, 2015), p.24.

Videos: Hip Hop Money

“I make my own money so I spend it how I like.”

“For those that doubted me, yeah this is payback.”

“The cash make us equal.”

“I’m probably just saying that because I don’t have to buy it.”

“Zama-Zam’uthath’ama chance cause in life I opportunity yok’fikela once.”

“I am serious bout my money.”

“401k.”

 

“All we know is that mula, benjis, franklins, & that guala, fetti.”

“What are those?”

“Nice cars, nice houses. So we’re going around …”

“I got the kind of money the bank can’t hold.”

“The bullshit, save it.”

“My seconds, minutes, hours, go to the almighty dollar.”

“I want art money.”

“I think y’all should give him his money.”

http://cache.vevo.com/assets/html/embed.html?video=QM5FT1590005&autoplay=0

“Don’t act like you forgot.”

Excerpt: Joseph Vogl, The Specter of Capital

The critical mass of events endlessly argued over by economists resembles a picture puzzle in which reason and unreason, order and chaos, a foreseeable course of world events and sheer unfettered contingency appear as indistinguishable. Questions, exegetical efforts, and controversies of this kind weigh all the more heavily since they bear on the validity of one of liberal economic theory’s oldest and most deep-seated convictions: the conviction that market activity is an exemplary locus of integration mechanisms, harmonization, appropriate allocation, and hence social rationality, and that it demands to be represented in a coherent, systematic way. That is why it seems justified to identify, at the very heart of these disputes in the explanatory attempts occasioned by financial crises, the reprise of a problematic that only older attempts to establish a theodicy had been compelled to address with comparable [p.16] systematic rigor. Given that the capitalist economy has become our fate, given too our propensity to look to profit and economic growth to satisfy some remnant of the old hope for an earthly Providence, modern financial theory also cannot avoid confronting the baffling question of how, if at all, apparent irregularities and anomalies can exist in a system supposedly based on reason. In Leibniz’s terms: Which events appear to be compatible (and hence “compossible”) with which other events? Are relations between these events law-governed and if so, by which laws? And how can the existing economic world be “the best of all possible worlds”?

In any case, the questions that Kant used to test whether attempts at a theodicy were at all tenable would have to be directed, by analogy, to justifications of the current financial system. Here too it would be necessary to demonstrate that what seem to be “counterpurposive” and dysfunctional conditions are in fact nothing of the sort; or that they should not be judged as brute facts but as the “unavoidable consequence of the nature of things,” as tolerable side effects of a generally satisfactory world order; or that they are to be ascribed, in the end, to the flawed nature of “beings in the world,” the limited foresight of unreliable human actors.

Joseph Vogl, The Specter of Capital (Stanford: Stanford University Press, 2015), pp.15-16.

Excerpt: Joseph Vogl, The Specter of Capital

Even if the concept of equilibrium has taken different theoretical and epistemological forms on its journey from classical economics, via the marginalists of the nineteenth century, to twentieth-century neoliberalism, these versions share a limited spectrum of basic assumptions. They assume that all market players are interested in maximizing profit or use-value, that a self-regulating relationship between different quantities, forces and other factors obtains, that exchange mechanisms operate most effectively when arbitrary intrusions and interventions are kept to a bare minimum, and hence that the market should be seen as an exemplary arena for the clarification of otherwise inscrutable and opaque forms of social interaction.

Joseph Vogl, The Specter of Capital (Stanford: Stanford University Press, 2015), p. 35.

The Neutrality of the Big Four

Atul K. Shah writes over at Tax Research UK on the cultural neutrality or lack thereof of the Big Four audit and financial services companies. The post summarizes a paper, ‘Systemic Regulatory Arbitrage – A Case Study of KPMG.’ The Big Four Accountants are Not Culturally Neutral.

As some extra related reading, this earlier series of posts by Lara Buckerton may also be of interest. Her topic is fairly niche (whether or not the assurance of Corporate Responsibility reporting, when the independent assuror is one of the Big Four, should really be thought of as ‘independent’), a bit dated now, and some of the writing is a bit dense. But there are some useful nuggets on the idea of independence / neutrality, and the tensions between audit / assurance services versus consultancy services.

From a humanistic perspective, of course, any assertion of neutrality is immediately suspect. Some might say, it’s categorically false. There are many ways of capturing this methodological hostility to the concept of neutrality. A more-or-less standard Foucauldian way of articulating it is, ‘neutrality’ is one of the products of power.

Then again, nobody is really arguing that the Big Four ought to accomplish some kind of transcendental ascension beyond material networks of power, or some kind of universal perspective on the universe. The word neutrality in the context of the Big Four can simply be identified with a sustainably low level of regulatory arbitrage and creative compliance. This is roughly the sense in which Shah uses the word. For Shah, the Big Four accountants are not culturally neutral insofar as they work in a partisan way on behalf of their clients, against many other much broader interests in society (including, of course, the interests of their clients in the long term).

Regulatory arbitrage and creative compliance should be stamped out. But as a side note, it’s also worth asking, even if this could be done, would it then be a good idea to keep calling the work that the Big Four do neutral or independent? Perhaps it would be better to jettison the idea of neutrality altogether, to be replaced by some more adversarial paradigm? And/or paradigms drawing from education, or from care work?

Why? If we recognize that neutrality is never absolute, but always relational, relative, and within a particular context of purposes, is there any harm in retaining the language of neutrality. Well, there is one potential glitch. Auditors sometimes talk about the “expectation gap” between what the public think they do, and what they are actually able to do and legally required to do. Auditors are thought of as the people responsible for uncovering financial fraud, whereas really they mostly just attest that financial statements have been prepared in accordance with accepted accountancy standards. Auditors are thought of as bloodhounds, whereas really they are only watchdogs. But perhaps there is another expectation gap, between how clients of the Big Four weigh the advice they receive, and how the Big Four believe it should be weighed.

The Big Four let their clients know what it is ethical to do. Their neutrality means that their ethical judgment is not clouded. But it is interesting that for the Big Four, the term ethics denotes almost exclusively legal compliance and legal risk-management. There are no ethical questions in this kind of ethics. There are only questions like: can Rourkie work on Project Blue, or does that give rise to a formal “conflict of interests” because Rourkie also worked on Project Mustang?

To the extent that ethics in its broader sense exists at all for the Big Four, it is hived off elsewhere: the relevant keywords would be values, mission statement, culture, corporate responsibility and to some extent governance. The risk with claiming, with some gusto, to be independent and neutral as well as well-connected, is that clients of the Big Four  maytend to understand the ethical guidance they receive in the broader sense.

A metaphor may also be useful to bring this out. Is there somebody in your life who will always tell you what you need to know, whether or not you want to hear it? Someone you can rely on to tell you when you’re out of line?

Likewise, if you were a corporation, who would you expect to tell you if something you are doing is catastrophic? Or even just a little bit wrong? Perhaps your customers will tell you. At the same time, you might not feel that you and your customers really have that kind of intimate BFF relationship where you can tell each other everything. Marketing probably does not feel this way: there is a smidge of fronting, isn’t there?

So perhaps the government will tell you, or others in your sector will tell you.

But what if they don’t or can’t? What if, for example, your entire sector is engaged in unethical but legal practices? Who will tell you then? Perhaps the Big Four will tell you? Yes! Perhaps the organizations that you pay to check up on you, the organizations that market themselves as expert jack-of-all-trades, the organizations that tell you they know what the government is doing, what the rest of the sector is doing, and even what the future is doing, will tell you that you’re doing something wrong. You can rely on them, right?

In this sense, the Big Four are one of the major ways in which corporations come to know themselves. They really have no other form of soul-searching. Through the Big Four’s audit and compliance-oriented services, corporations see themselves through the eyes of the state. Through the Big Four’s role in thought leadership, in sectoral research, in the spreading of best practice, in monitoring of competitive environments, in forecasting risk and opportunities, in restructuring and other consultancy work, and in facilitating the development of sector standards, corporations come to know themselves through the eyes of their peers.

So when the Big Four say to their clients, “you can do this, or you can do that, have you thought about doing such-and-such, the law says you should stop doing y but you can still do x, isn’t it interesting that your competitors are doing z,” perhaps they don’t realize the extent to which they are speaking in a moral register, not only a pragmatic one. The mixture of claims to independence and neutrality, together with broad and diverse vision and experience, can only strengthen this dangerous impression.

Excerpt: Joseph Vogl, The Specter of Capital

On the one hand, the rationality of economic transactions is renscribed here in a new code: the exchange “mechanism” becomes the “web” of competition. Competitive societies are understood as being defined less by reciprocal trade relations — as was still the case in the eighteenth century — than by competitive differences or inequalities. And whereas the market once fulfilled the (liberal) natural law of self-interest, it now follows the (neoliberal) idea or form (ēidos) of competition.

Joseph Vogl, The Specter of Capital (Stanford: Stanford University Press, 2015), p.38.