Preference modification vs. Preference modification vs. incentive manipulation as incentive manipulation as

tools of terrorist tools of terrorist recruitment:recruitment: the role of the role of

culturecultureMichael Munger, Departments of Michael Munger, Departments of

Political Science and EconomicsPolitical Science and Economics

Duke UniversityDuke University

Friday, Sept 30, 2005Friday, Sept 30, 2005

Problem of Acting as SocietyProblem of Acting as SocietyCan a group of people who disagree come to a Can a group of people who disagree come to a

consensus? consensus?

I want…you want…what do I want…you want…what do wewe want? want? COLLECTIVE CHOICE PROBLEMCOLLECTIVE CHOICE PROBLEM

Even if they do agree, how could they coordinate Even if they do agree, how could they coordinate their actions? their actions? INFORMATION / INFORMATION / TRANSACTIONS COST PROBLEMTRANSACTIONS COST PROBLEM

Even if they all know what to do, why would they Even if they all know what to do, why would they do it? do it? FREE RIDER / FREE RIDER / COLLECTIVE ACTION PROBLEM COLLECTIVE ACTION PROBLEM

Information and CoordinationInformation and Coordination““The peculiar character of the problem of a rational economic The peculiar character of the problem of a rational economic

order is determined precisely by the fact that the order is determined precisely by the fact that the knowledge of the circumstances of which we must make knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources—if merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of rather a problem of how to secure the best use of resources known to any of the members of society, for resources known to any of the members of society, for ends whose relative importance only these individuals ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.” knowledge which is not given to anyone in its totality.” (F.A. Hayek, 1945, (F.A. Hayek, 1945, AERAER).).

Problem 2--Commitment: Without Problem 2--Commitment: Without Enforcement, Can We Cooperate?Enforcement, Can We Cooperate?Common Knowledge Basis of CooperationCommon Knowledge Basis of Cooperation—When I You Know That I Know that it is —When I You Know That I Know that it is in your interest to cooperate…in your interest to cooperate…Can we account for irrational acts? Can we account for irrational acts? Suicide bombings, sacrifice of a life? Are Suicide bombings, sacrifice of a life? Are the bombers duped, or confused?the bombers duped, or confused?We tend to think the state is the only We tend to think the state is the only answer….but…..answer….but…..

An Example of “Cultural” DifferenceAn Example of “Cultural” Difference

““shibboleth”--The word is often combined shibboleth”--The word is often combined with the word “cultural.”with the word “cultural.”

Its general meaning is meanIts general meaning is mean an unspoken an unspoken but shared understanding of something but shared understanding of something that identifies insiders, and distinguishes that identifies insiders, and distinguishes outsiders because they do not share this outsiders because they do not share this understanding.understanding.

ShibbolethShibbolethJudges 12, 5-7, Judges 12, 5-7, King James 21st Ed. BibleKing James 21st Ed. Bible

5   And the Gileadites seized the passages of the 5   And the Gileadites seized the passages of the Jordan before the Ephraimites; and it was so, that Jordan before the Ephraimites; and it was so, that when those Ephraimites who had escaped said, "Let when those Ephraimites who had escaped said, "Let me go over," that the men of Gilead said unto him, me go over," that the men of Gilead said unto him, "Art thou an Ephraimite?" If he said, "Nay,""Art thou an Ephraimite?" If he said, "Nay,"

6   then said they unto him, "Say now Shibboleth." 6   then said they unto him, "Say now Shibboleth." And he said "Sibboleth," for he could not frame to And he said "Sibboleth," for he could not frame to pronounce it right. Then they took him and slew him pronounce it right. Then they took him and slew him at the passages of the Jordan; and there fell at that at the passages of the Jordan; and there fell at that time of the Ephraimites forty and two thousand.time of the Ephraimites forty and two thousand.

My Definition of “Culture”My Definition of “Culture”

Culture:Culture: The set of “inherited” The set of “inherited” beliefs, attitudes, and moral beliefs, attitudes, and moral strictures that a people use to strictures that a people use to distinguish outsiders, to understand distinguish outsiders, to understand themselves and to communicate themselves and to communicate with each other.with each other.

Culture Is “Inherited”Culture Is “Inherited”

I have put quotations around the word inherited above, not I have put quotations around the word inherited above, not because I am quoting anyone, but because the sense of because I am quoting anyone, but because the sense of the word is strained. the word is strained.

Hair texture, eye color, general build…those sorts of things Hair texture, eye color, general build…those sorts of things are inherited. They are hard-wired into the genetic are inherited. They are hard-wired into the genetic structure of humans, and children are directly and structure of humans, and children are directly and entirely the product of their parents. entirely the product of their parents.

Culture is obviously not inherited like this. We teach it to Culture is obviously not inherited like this. We teach it to our children, or they learn it by tacit and perhaps our children, or they learn it by tacit and perhaps unconscious exposure over time. unconscious exposure over time.

But it makes sense to think of culture as an inheritance, or But it makes sense to think of culture as an inheritance, or legacy from the past.legacy from the past.

Origins: Two ConceptsOrigins: Two Concepts

Spontaneous OrderSpontaneous Order

Intelligent DesignIntelligent Design

Does order imply design? Strange disconnectDoes order imply design? Strange disconnect—Many people who believe fervently in —Many people who believe fervently in evolution in biology insist on the need for evolution in biology insist on the need for design and control in social and economic design and control in social and economic settings.settings.

The Questions that interest me…The Questions that interest me…Are preferences tastes, truly primitive Are preferences tastes, truly primitive (chocolate v. vanilla), or are they culturally (chocolate v. vanilla), or are they culturally conditioned or even instrumenal?conditioned or even instrumenal?Are moral beliefs important? Are such Are moral beliefs important? Are such beliefs best treated as preferences or beliefs best treated as preferences or constraints?constraints?Core values: relatively fixed, strongly held, Core values: relatively fixed, strongly held, primitives in terms of “preference.” Policy primitives in terms of “preference.” Policy beliefs not held instrumentally, but as ends in beliefs not held instrumentally, but as ends in themselves. Not irrational to sacrifice for themselves. Not irrational to sacrifice for beliefsbeliefs

The Questions that interest me…The Questions that interest me…Are ideologies, or shared belief systems Are ideologies, or shared belief systems about right and wrong, the key to about right and wrong, the key to understanding moral beliefs? In the U.S., lots understanding moral beliefs? In the U.S., lots of research to say no. But Islam, or Maoism, of research to say no. But Islam, or Maoism, may have implications for guerrilla may have implications for guerrilla movements… movements…

Are ideologies a kind of spontaneous order, Are ideologies a kind of spontaneous order, not explicitly designed but regular and not explicitly designed but regular and consistent across people and across time? consistent across people and across time? Ideas--like viruses? Reproduce, gain Ideas--like viruses? Reproduce, gain resources, but kill their host….resources, but kill their host….

Emergence of “Culture”: Emergence of “Culture”: David Hume has Lunch at Café Hayek David Hume has Lunch at Café Hayek

(where orders (where orders emergeemerge))Three claims about culture:Three claims about culture:1.1. ““Order” requires only regularity and consistency. Order” requires only regularity and consistency.

Human beings choose actions based on moral Human beings choose actions based on moral conceptions, but also incentives and calculated gains conceptions, but also incentives and calculated gains that accrue to one action rather than another. that accrue to one action rather than another.

2.2. Purposive Action: I am going to adopt the convention Purposive Action: I am going to adopt the convention that humans act purposively. (Didn’t say “rationally”) that humans act purposively. (Didn’t say “rationally”)

3.3. People choose actions that they People choose actions that they believebelieve (rightly or (rightly or wrongly) will lead to a goal that they wrongly) will lead to a goal that they consider consider (rightly or (rightly or wrongly) desirable. These conceptions of right and wrongly) desirable. These conceptions of right and wrong may be Humean conventions, not transcendent wrong may be Humean conventions, not transcendent principles.principles.

Emergence of “Culture”: Emergence of “Culture”: David Hume has Lunch at Café Hayek David Hume has Lunch at Café Hayek

(where orders (where orders emergeemerge))

1.1. Surprising thing is that order can Surprising thing is that order can emerge, even from disparate and emerge, even from disparate and uncoordinated application of social uncoordinated application of social convention.convention.

2.2. Survival value of practices, or fashion, Survival value of practices, or fashion, may be conscious reason for adoption. may be conscious reason for adoption. But it is a predictable, and measurable, But it is a predictable, and measurable, consequence.consequence.

Order vs. Design: Order vs. Design: Which is Culture?Which is Culture?

Coyote—Evolution Coyote—Evolution

Dachshund / Chihuahua—Survival Dachshund / Chihuahua—Survival

Dandelion—EvolutionDandelion—Evolution

Rose—Survival Rose—Survival

Wild Turkeys—EvolutionWild Turkeys—Evolution

Domesticated Turkeys—Survival Domesticated Turkeys—Survival

Choices Emerge….Choices Emerge….Do Preferences?Do Preferences?

Is there some evolutionary process that governs Is there some evolutionary process that governs preferences? preferences?

Are human political beliefs “getting better” over Are human political beliefs “getting better” over time? time?

The key difference is the absence of any The key difference is the absence of any feedback mechanism by which the merits of the feedback mechanism by which the merits of the emergent order might be judged, or subjected to emergent order might be judged, or subjected to modification. modification.

Douglass North makes this point quite forcefully:Douglass North makes this point quite forcefully: Necessary conditions for what economists think of as Necessary conditions for what economists think of as efficiency almost never exist in political realm…efficiency almost never exist in political realm…

……Efficient markets are created in the real world when Efficient markets are created in the real world when competition is strong enough via arbitrage and efficient competition is strong enough via arbitrage and efficient information feedback to approximate the Coase zero information feedback to approximate the Coase zero transaction cost conditions and the parties can realize the transaction cost conditions and the parties can realize the gains from trade inherent in the neo-classical argument.gains from trade inherent in the neo-classical argument.

But the informational and institutional requirements But the informational and institutional requirements necessary to achieve such efficient markets are stringent. necessary to achieve such efficient markets are stringent. Players must not only have objectives but know the correct Players must not only have objectives but know the correct way to achieve them. But how do the players know the correct way to achieve them. But how do the players know the correct way to achieve their objectives? The instrumental rationality way to achieve their objectives? The instrumental rationality answer is that even though the actors may initially have answer is that even though the actors may initially have diverse and erroneous models, the informational feedback diverse and erroneous models, the informational feedback process and arbitraging actors will correct initially incorrect process and arbitraging actors will correct initially incorrect models, punish deviant behavior and lead surviving players to models, punish deviant behavior and lead surviving players to correct models. correct models. (North, 1993).(North, 1993).

Will Culture Disappear?Will Culture Disappear?

Ronald Heiner (1983) argues that as human Ronald Heiner (1983) argues that as human interaction becomes more complex and uncertain, interaction becomes more complex and uncertain, successful social institutions must reduce the successful social institutions must reduce the information needed to achieve cooperation among information needed to achieve cooperation among individuals. individuals.

A person’s “overall behavior may actually be improved A person’s “overall behavior may actually be improved by restricting flexibility to use information or to chose by restricting flexibility to use information or to chose particular actions” (p. 564).particular actions” (p. 564).

Mom and Pop hardware store vs. WalmartMom and Pop hardware store vs. Walmart

Farmers’ Market vs. Piggly WigglyFarmers’ Market vs. Piggly Wiggly

The End of HistoryThe End of HistoryWhat is the cheapest way of achieving cooperation? Formal What is the cheapest way of achieving cooperation? Formal

rules and external enforcement, or culture and shame/guilt rules and external enforcement, or culture and shame/guilt “enforcement”? Heiner (1983):“enforcement”? Heiner (1983):

““In general, further evolution toward social interdependence will In general, further evolution toward social interdependence will require institutions that permit agents to know about require institutions that permit agents to know about successively smaller fractions of the larger social environment. successively smaller fractions of the larger social environment. That is, institutions must evolve which enable each agent in That is, institutions must evolve which enable each agent in the society to know less and less about the behavior of other the society to know less and less about the behavior of other agents and about the complex interdependencies generated agents and about the complex interdependencies generated by their interactionby their interaction”” (580; emphasis in original). (580; emphasis in original).

In In WalMart worldWalMart world, ideologies would , ideologies would disappeardisappear. . Western, market-based societies with weak parties Western, market-based societies with weak parties and decentralized democratic institutions—the end of and decentralized democratic institutions—the end of history?history?

Institutional Design: Institutional Design: Information….Information….andand Commitment Commitment

Institutions are the humanly devised rules of the Institutions are the humanly devised rules of the game that shape and direct human interactions.game that shape and direct human interactions.Institutions reduce uncertainty by shrinking the Institutions reduce uncertainty by shrinking the choice set of all of the “players.” If the rules are not choice set of all of the “players.” If the rules are not formalized, the players may spend too much time formalized, the players may spend too much time arguing over the rules, and less time competing in arguing over the rules, and less time competing in productive activities. The actual choice of productive activities. The actual choice of institutions, however, is hard, since there are institutions, however, is hard, since there are countless ways of restricting “bad” choices. What countless ways of restricting “bad” choices. What makes some institutions better than others?makes some institutions better than others?The Preference Store: MetapreferenceThe Preference Store: Metapreference

Step back for a moment….Step back for a moment….The Fundamental Human ProblemThe Fundamental Human Problem

(according to Munger)(according to Munger)

How can we construct or How can we construct or preserve preserve institutionsinstitutions that make that make individual individual self-interestself-interest not not inconsistentinconsistent with the common with the common goodgood??

Two ApproachesTwo Approaches

MadisonianMadisonian

““Ambition must be made to counteract Ambition must be made to counteract ambition…”ambition…”

RousseauvianRousseauvian

Transform the self, solve the problem of Transform the self, solve the problem of amour propreamour propre. Inscribe the law on the . Inscribe the law on the hearts of men. Some preferences are hearts of men. Some preferences are better than others.better than others.

The Problem….The Problem….

The nature of exchange: gains from trade. Both are The nature of exchange: gains from trade. Both are better off. better off.

But only if the exchange takes place: transactions costs But only if the exchange takes place: transactions costs are the ex ante costs of negotiating and measuring, and are the ex ante costs of negotiating and measuring, and the ex post costs of enforcing. Transactions costs can the ex post costs of enforcing. Transactions costs can easily overwhelm the potential gains from exchange. easily overwhelm the potential gains from exchange.

Institutions and cultural beliefs: closely related to Institutions and cultural beliefs: closely related to "common knowledge" problem in game theory."common knowledge" problem in game theory. Shared Shared meanings, iconography, language, symbols. Not just meanings, iconography, language, symbols. Not just knowledge in the Hayekian sense, but also commitmentknowledge in the Hayekian sense, but also commitment

But also may entirely block progress, lock in institutions But also may entirely block progress, lock in institutions that are not Pareto optimal.that are not Pareto optimal.

Origins of cultureOrigins of culture

The literature contains two strikingly different The literature contains two strikingly different accounts of the origins of culture, based on two accounts of the origins of culture, based on two very different conceptions of its function. very different conceptions of its function.

One account is based on transactions cost and One account is based on transactions cost and commitment, while the other rests on the commitment, while the other rests on the problem of excludability and “club” goods. problem of excludability and “club” goods.

The two accounts are not mutually exclusive, but The two accounts are not mutually exclusive, but they do have strikingly different implications for they do have strikingly different implications for our understanding of culture.our understanding of culture.

I. Commitment Device: Real PietyI. Commitment Device: Real Piety

Kreps (1990)Kreps (1990)

HierarchyHierarchy

UncertaintyUncertainty

Requires an organizing principle as a Requires an organizing principle as a commitment device.commitment device.

The Trust GameThe Trust Game

A +$20 B +$20

Honor Trust

Do Not Trust B

B

Trust B

Do Not Honor Trust A

Total:+$40

A $10 B +$30

Total:+$20

A +$0 B +$0

Total:+$0

Hierarchy and Strategic UncertaintyHierarchy and Strategic UncertaintyIt is B’s behavior that is in question; somehow B must persuade A

that there is at least a high probability that B will honor A’s trust if A offers it. And there are real gains to be made here, so there are significant pressures at work to overcome this commitment problem. There are two apparently different but mathematically indistinguishable ways of solving the problem:

(1) B could post a bond, or submit to some kind of binding third party enforcement that would punish him if he violates trust, or

(2) B could persuade A that cares so much for A, or that B cares so much for his own honor, that he will not violate the trust, because it would not be in his interest to do so, given B’s self interest properly understood.

Similar in terms of analytics, but a world of difference in terms of practical implications, and beliefs.

Hierarchy and Strategic UncertaintyHierarchy and Strategic UncertaintyOutside enforcement: Hobbes’ “covenants, without the sword, are

but words…”Beliefs: Rousseau: “inscribe the law on the hearts of men…”

It is common to dismiss this difference, but in fact the distinction may be the very heart of the matter for the society. Dead weight loss to society has two parts: (1) The size of the “transactions cost sector” of the society, and (2) Other exchanges precluded by an inability to reduce transactions costs to the point where those otherwise profitable transactions can take placeThis loss is a direct function of the society’s set of moral beliefs that condition interactions. It will surprise no one at this point that I want to call this whole set of moral beliefs and conditioning factors for economic and social exchange by the vague name I mentioned earlier: culture….

II. Club Goods: Good WorksII. Club Goods: Good Works

A standard set-up for the club goods approach is Berman’s A standard set-up for the club goods approach is Berman’s (2003):(2003):

Imagine a community for which neither government nor Imagine a community for which neither government nor markets function well. Local public goods usually markets function well. Local public goods usually provided by government such as public safety, law and provided by government such as public safety, law and order and welfare services are poorly provided or order and welfare services are poorly provided or absent, while neither public nor private sectors efficiently absent, while neither public nor private sectors efficiently deliver education, health services, or insurance. It would deliver education, health services, or insurance. It would not be surprising for individuals in such a place to band not be surprising for individuals in such a place to band together into communities which provide public safety, together into communities which provide public safety, education, welfare services, and other local public goods education, welfare services, and other local public goods through mutual insurance. (Berman, 2003, p. 2)through mutual insurance. (Berman, 2003, p. 2)

Game 1: Prisoner’s DilemmaGame 1: Prisoner’s Dilemma

Cooperate Defect

Cooperate (2,2) (4,1)

Defect (1,4) (3,3)

ORDINAL PREFERENCES: 1 is good, 4 is bad

Game 1Game 1: Prisoner’s Dilemma with : Prisoner’s Dilemma with External Enforcement: External Enforcement:

Defectors are Tortured & their Families KilledDefectors are Tortured & their Families Killed

Cooperate Defect

Cooperate (1,1) (2,4)

Defect (4,2) (3,3)

ORDINAL PREFERENCES: 1 is good, 4 is bad

Game 1Game 1 : Prisoner’s Dilemma : Prisoner’s Dilemma with External Enforcement: with External Enforcement: Defectors Feel Really BadDefectors Feel Really Bad

Cooperate Defect

Cooperate (1,1) (2,4)

Defect (4,2) (3,3)

ORDINAL PREFERENCES: 1 is good, 4 is bad

Game 2: Culture WarGame 2: Culture War

Cooperate Defect

Cooperate (3,3) (4,1)

Defect (1,4) (2,2)

ORDINAL PREFERENCES: 1 is good, 4 is bad

Game 3: U.S. in Iraq—1992Game 3: U.S. in Iraq—1992No Equilibrium….No Equilibrium….Anti-SaddamAnti-Saddam

InsurgencyInsurgencyU.S. U.S.

Cooperate Defect

Cooperate (2,1) (3,3)

Defect (1,4) (4,2)

ORDINAL PREFERENCES: 1 is good, 4 is bad

Game 3: U.S. in Iraq—2005Game 3: U.S. in Iraq—2005Side Payments….”Be Rational”Side Payments….”Be Rational”

Anti-U.S. (Sunni)Anti-U.S. (Sunni)

InsurgencyInsurgencyU.S. U.S.

Cooperate Defect

Cooperate (1,3) (2,1)

Defect (4,4) (3,2)

ORDINAL PREFERENCES: 1 is good, 4 is bad

If Club Goods….If Club Goods….

If participation in terrorist organizations is primarily an in-If participation in terrorist organizations is primarily an in-kind payment for access to club goods, then policies that kind payment for access to club goods, then policies that reduce the marginal value of such club goods will be reduce the marginal value of such club goods will be most effective. most effective.

A concerted effort to break up social networks, in cases A concerted effort to break up social networks, in cases where groups with terrorist ties (such as Hamas, or IRA) where groups with terrorist ties (such as Hamas, or IRA) also provide local public goods such as schools, police also provide local public goods such as schools, police services, etc., and replace those organizations with services, etc., and replace those organizations with publicly provided services, would have an immediate publicly provided services, would have an immediate impact out of all proportion to the cost. impact out of all proportion to the cost.

Though the dividing line between “police services” and Though the dividing line between “police services” and “protection racket” may be blurred, it is clearly true that “protection racket” may be blurred, it is clearly true that the IRA (in Northern Ireland) and Hamas (in the the IRA (in Northern Ireland) and Hamas (in the Palestinian territories or in other parts of the Middle East) Palestinian territories or in other parts of the Middle East) provided services valued by many local citizens.provided services valued by many local citizens.

If Club Goods….If Club Goods….

Furthermore, if the problem is an incentives-based Furthermore, if the problem is an incentives-based choice, it becomes clearer why medieval choice, it becomes clearer why medieval punishments have often been employed by punishments have often been employed by occupiers fighting resistance groups using terror occupiers fighting resistance groups using terror tactics. tactics.

The rack, drawing-and-quartering, or other public The rack, drawing-and-quartering, or other public displays of savage retribution reduce the value displays of savage retribution reduce the value of access to local public goods as a matter of of access to local public goods as a matter of simple cost-and-benefit calculations. simple cost-and-benefit calculations.

While this observation does not justify the use of While this observation does not justify the use of such tactics, it does explain why they have been such tactics, it does explain why they have been so commonly observed throughout history.so commonly observed throughout history.

If Preferences….If Preferences….If, on the other hand, a preference for cooperation can be If, on the other hand, a preference for cooperation can be

inculcated or selectively recruited, then such tactics are inculcated or selectively recruited, then such tactics are likely to backfire. likely to backfire.

If the primary good is psychological solidarity with an If the primary good is psychological solidarity with an identifiable group, then public abuse or torture may only identifiable group, then public abuse or torture may only harden the resolve of those committed to cooperation with harden the resolve of those committed to cooperation with terror groups. terror groups.

To the extent that abuse of some populations solidify in-group To the extent that abuse of some populations solidify in-group vs. out-group psychological identifications, attempts to use vs. out-group psychological identifications, attempts to use incentives can precipitate the “culture war” setting described incentives can precipitate the “culture war” setting described earlier in this paper. earlier in this paper.

In that setting, publicly uncooperative behavior becomes In that setting, publicly uncooperative behavior becomes valued as an end in itself, and even apparently Pareto-valued as an end in itself, and even apparently Pareto-superior compromises on territory may be ruled out. If the superior compromises on territory may be ruled out. If the preferences are primitives, not possible to compensate or preferences are primitives, not possible to compensate or buy out terrorists with alternative incentives.buy out terrorists with alternative incentives.

A movie: Positive Feedback….A movie: Positive Feedback….