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Institutional naturalism: reflections on Masahiko Aoki’s contribution to institutional economics

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Abstract

I discuss Aoki’s fundamental model of institutions in its most recent version, building on a comment that Aoki contributed to a paper by Hindriks and Guala (J Inst Econ 11(3):459–480, 2015). These authors advance a ‘rules in equilibrium’ approach to institutions that claims to reduce a Searlian social ontology of institutions to mere linguistic conventions and theoretical terms. Against this view, I posit ‘institutional naturalism’ and reinstate the analytical need for recognizing the ontological autonomy of institutions, reflected in their causal powers. I show how this follows from a proper reconstruction of the Aoki model, building on advanced cognitive sciences which are also deployed by Aoki. In this view, notions such as collective intentionality reflect the material embodiments of distributed cognition and distributed agency. This approach has been dubbed ‘Neo-Hegelian’ by Aoki in his comment.

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Notes

  1. Naturalism, in the first sense, is today one of the principal strands of thought in the philosophy of mind which starts out from the principle of causal closure of the world in physical terms, thus eschewing any reference to dualistic ontologies in the Cartesian tradition, though allowing for variants of emergentism (for an overview, see Papineau 2009). Naturalism, in the second sense, has been defined seminally by Bhaskar (1989) and refers to the principled possibility of causal explanations in the social sciences, if one introduces a social ontology in which causal powers are assigned to social entities. So, naturalism does not necessarily imply the reduction of the social sciences to the natural sciences.

  2. The last time when I met Masahiko Aoki in person was in December 2014, when he had organized a workshop devoted to this book in Tokio. In our personal conversations, the topics discussed in this paper were always prominent, and his ideas have always been guideposts for my own work.

  3. I want to point out that in Skyrms‘ (2010) treatment of signals in evolutionary game theory, we indeed find models where signals initially have an important role in transmitting information that is necessary for achieving a particular equilibrium state, but once this is established, and incentives for deviation are missing, the signals lose their causal relevance, in spite of being still transmitted. This seems to correspond to the authors’ argument that eventually constitutive rules merely define an abstract redescription of the underlying regulative rules.

  4. Aoki cites Herrmann-Pillath and Boldyrev (2014; for a condensed version of the theoretical chapters, see Boldyrev and Herrmann-Pillath, 2013). This book about Hegel is a companion volume to Herrmann-Pillath (2013a), which mainly builds on Peirce. In both books, I elaborate on the Aoki model. In the latter work, my focus is on the naturalistic approach in the first sense of naturalism, as elucidated previously, whereas the book on Hegel concentrates on the second sense.

  5. I think that it is a veritable scandal in economics that the theory of money explains the emergence of money simply in terms of functions that money fulfils in modern economies, thus taking a purely theoretical reasoning (the standard story about triangular exchange) as a quasi-empirical account. The actual history of money is not taken as a source for theorizing about the institution of money. Unfortunately, this attitude remains prevalent, and references to the factual history of the institution are mostly made in the context of heterodox thinking, such as Ingham (2000) or Graeber (2011); however, see also Chavas and Bromley (2008). This is important in our debate, as economists such as Smit et al. (2011) who try to refute Searle’s analysis of money, exclusively rely on the standard economic account of money as a quasi-empirical reference.

  6. We refer to Simmel (1907) extensively in Herrmann-Pillath and Boldyrev (2014). The book was only translated into English several decades after its German publication, which blocked its reception in what then had already been established as Neoclassical economics. However, it received a very favorable review by leading monetarist thinkers, Laidler and Rowe (1980). Unfortunately, this did not change the lack of attention by economists.

  7. In modern economic psychology, these effects are validated empirically to a large degree, for example, in the context of ‘priming experiments’, in which test persons just perceive some sensory inputs involving money (such as wallpapers with money signs). Even those weak cues change behavior, for instance inducing less willingness to help others spontaneously (see Vohs et al. 2008). On the historical psychology of money, see e.g. Walsh and Lynch (2008).

  8. I cannot go into details here. For an overview on the extremely complex discussion of dispositions in analytical philosophy, see Choi and Fara (2016).

  9. Let me give an example. Dispositions are the subject of experimental economics: Test persons are put into the context of a clearly defined and exactly implemented experimental setting, and experimenters observe the actions. Typically, actions manifest a probabilistic distribution, so researchers need to employ econometric techniques to identify the underlying dispositions. There is an important experimental research on the impact of institutions on dispositions that are not directly related to the immediate purpose of the particular institutions, which reveal Simmelian causalities: For example, in a much-cited paper, Herrmann et al. (2008) show that anti-social punishments in public-good games occur more frequently in societies in which the rule of law and civil society norms are weak.

  10. I notice that this differs from economic sociology, where in the past two decades a ‘material turn’ happened that focused research on the importance of the materiality of economic interactions, such as the use of particular devices for coordinating interactions (in this view, a ‘price’ is a price tag or a number on the computer screen) or the spatial or technological arrangements that channel interactions, communication and perception (such as office spaces); for seminal collected volumes, see Callon et al. (2007) and Pinch and Swedberg (2008). My argument heavily draws on this literature.

  11. In cognitive sciences, these perspectives were introduced by seminal contributions such as Hutchins (1995), who is not only approvingly cited by Aoki, but also by North (2005: 33ff). In the philosophy of mind, the notion of ‘extended mind’ was introduced by Clark and Chalmers (1998). For a recent overview that discusses the specific material mechanisms, see Clark (2011).

  12. See Wilcox (2008). Ross (2011) points out that one trouble with Hayek’s approach is that he does not distinguish neatly between ‘descriptive individualism’ and ‘normative individualism’. Hayek’s theory is clearly ‘collectivistic’ in the descriptive sense (for example, assigning a crucial role to culture and groups in evolutionary processes), but at the same time staunchly individualistic in its political ideas. Ross shows that these two aspects can be neatly differentiated and co-exist.

  13. For an extensive treatment of these issues, see Herrmann-Pillath (2014) and (forthcoming).

  14. For a survey of the literature on collective intentionality, see Schweikard and Schmid (2013). A most extensive analytical and formal discussion of the relationship between collective intentionality and social ontology can be found in Tuomela’s (1995, 2007) work. This is also where Tuomela and Searle partly disagree (Tuomela 2011). Similar debates take place in cognitive sciences, see Wilson (2004). In my view, these efforts clearly converge on the opinion that we cannot posit the existence of superorganisms (such as societies that think), but that we can assume cognitive states that are distributed across many individuals and which establish collective intentionality as a property that individuals embody. In economics and economic philosophy, related approaches have been suggested by Hollis (1998) and Sugden (2000). Sugden uses the example of the soccer team to clarify the game-theoretic aspects and even claims that individual preferences are a special case of the more general team preferences. This perspective would match with the distributed cognition viewpoint, since this regards distributed minds as a human universal.

  15. On the two economic approaches to identity, see Akerlof and Kranton (2000) and Davis (2003, 2010); Davis (2007) compares the two views. Akerlof and Kranton extend the standard utility function approach in economics, by considering preferences for conformity, and the resulting externalities among different individuals, if they deviate from conformity. Davis criticizes this in arguing that there would be no anchor for personal identity anymore.

  16. A seminal statement on the irreducibility of agency to brain neurophysiology in theoretical terms is Edelman (1987) who argued that species-level communication is essential for scaffolding stable agency in highly dynamic and complex neuronal systems. Damasio (2010) is a theory of the brain that approaches the self as a narrative structure. In economics, this idea has also been developed by Ross (2005, 2007a, b) who starts out from game-theoretic considerations: The self as instance with an identity is a necessary condition for successful coordination, and therefore evolved out of the capacity of symbolic mediation.

  17. The role of ostracism in stabilizing group norms has been elaborated on by Bowles and Gintis (2001), Bowles et al. (2003) and Bowles (2004), who generalize these considerations to third-party enforcement.

  18. In his comment Aoki (2015: 487), he cites my modification of the model approvingly (in footnote 1), but there is a misspelling, ‘formativity’ for ‘performativity’.

  19. The notion of performativity has been introduced in the context of economic matters by economic sociologists, with special reference to the performativity of economic theories, see MacKenzie (2006). My use of the term is much broader, but follows the same principles.

  20. An excellent example related to Aoki’s work is the debate about the ‘legal origin’ theories of corporate governance, where the original theory was built on highly stylized facts which did not survive more detailed empirical scrutiny, see Siems and Deakin (2010). Interestingly, a central issue is the mutual embeddedness and complementarity between different constituent institutions of a corporate governance structure (see also Aoki 2010: 71ff).

  21. This has been recognized in the so-called ‘market design’ literature (see Roth 2008), which knows the phenomenon of ‘repugnant transactions’ (such as organ trade). On the social norms regulating the use of money in different domains of social interactions, see Zelizer (1997). In experimental economics, this is treated as framing effects of money which can even affect fundamental determinants of behavior such as the relative weight of individual vs. social preferences in decisions, see Bowles and Polonía-Reyes (2012).

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Authors and Affiliations

  1. Witten/Herdecke University, Witten, Germany

    Carsten Herrmann-Pillath

  2. Max Weber Centre for Advanced Social and Cultural Studies, Erfurt University, Erfurt, Germany

    Carsten Herrmann-Pillath

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  1. Carsten Herrmann-Pillath
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Correspondence to Carsten Herrmann-Pillath.

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Contribution to the session commemorating Masahiko Aoki at the Annual Meeting of the Japan Association for Evolutionary Economics, March 26–27, 2016, Tokio.

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Herrmann-Pillath, C. Institutional naturalism: reflections on Masahiko Aoki’s contribution to institutional economics. Evolut Inst Econ Rev 14, 501–522 (2017). https://doi.org/10.1007/s40844-016-0037-2

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