Knightian Elements in Stigler
David Levy
Sandra Peart
Group Goals are Endogenous
• It seems unfruitful, I am now persuaded, to conclude from
the studies of the effects of various policies that those
policies which did not achieve their announced goals, or had
perverse effects (as with a minimum wage law), are simply
mistakes of the society. A policy adopted and followed for
long time, or followed by many difference states, could not
usefully be described as a mistake: eventually its real effects
would become known to interested groups. To say that such
policies are mistaken is to say that one cannot explain them.
(1976 Citizen & the State, p. x)
The Diet Problem
• The dieticians take account of the palatability of goods, variety of
diet, prestige of various foods, and other cultural facets of
consumption. ... the particular judgments of the dieticians as to
minimum palatability, variety, and prestige are at present highly
personal and non-scientific, and should not be presented in the
guise of being parts of a scientifically-determined budget. The
second reason is that these cultural judgments, while they appear
modest enough to government employees and even to college
professors, can never be valid in such a general form. No one can
now say with any certainty what the cultural requirements of a
particular person may be ... If the dieticians persist in presenting
minimum diets, they should at least report separately the physical
and cultural components of these diets. (1945 J Farm Econ, p.
314)
Against Kaldor-Hicks
• Consider theft; our present policy toward this means of
livelihood probably has adverse effects on the national
income. Prevention of theft and punishment of thieves
involves substantial expenditures for policemen, courts,
jails, locks, insurance salesman, and the like. By
compensating successful thieves for the amounts they
would otherwise steal, we save these resources and
hence secure a net gain. (If this policy leads to an
undue increase in declarations of intent to steal, the
retired successful thieves – who, after all, have special
talents in this direction – may be persuaded to assume
the police functions.) (1943 AER, p. 356)
Why Don’t We Compensate Thieves?
• The familiar admonition not to argue over differences in tastes [de
gustibus non est disputandum] leads not only to dull conversations but to
bad sociology. It is one thing to recognize that we cannot prove, by the
usual tests of adequacy of proof, the superiority of honesty over deceit or
the desirability of a more equal income distribution. But it is quite another
thing to conclude that therefore ends of good policy are beyond the realm
of scientific discussion.
• For surely the primary requisite of a working social system is a consensus
on ends. The individual members of the society must agree upon the
major ends which that society is to seek. (1943 AER, p. 357)
Price Dispersion 1961
• Each individual in a market faces a distinct array of
prices for the same commodity
• Good reason to believe the arrays will differ
- Information known to I isn’t same as is known to J
Prelim Question ca 1965
• “Never a charge for credit” is equivalent to
• “Never a discount for cash.”
• How does economics explain the choices of those
who do not realize the equivalence?
• [GJS when asked said it was his question and he
didn’t have answer]
• Information known to I isn’t same as is known to J
Knightian Commonality?
• If goals predetermined the outside expert could
substitute the known goal into the action to
determine if agents’ action efficient.
– Knight’s football with 22 players on a side
– Stigler’s bribes / Stigler’s diet
• Information substitions questionable
– Knight’s “risk” extensional – same for all
– Knight’s “uncertainty” intensional – different
Thank you.