Striving for balance in economics: Towards a theory of the social determination of behavior

Hoff, Karla; Stiglitz, Joseph E.

This paper is an attempt to broaden economic discourse by importing insights into human behavior not just from psychology, but also from sociology and anthropology. Whereas in standard economics the concept of the decision-maker is the rational actor, and in early work in behavioral economics it is the quasi-rational actor influenced by the context of the moment of decision, in some recent work in behavioral economics, the decision-maker could be called the enculturated actor. This actor's preferences, perception, and cognition are subject to two deep social influences: (a) the social contexts to which he has become exposed and, especially, accustomed; and (b) the cultural mental models—including categories, identities, narratives, and worldviews—that he uses to process information. The paper traces how these factors shape behavior through the endogenous determination of preferences and the lenses through which individuals see the world—their perception and interpretation of situations. The paper offers a tentative taxonomy of the social determinants of behavior and describes the results of controlled and natural experiments that only a broader view of these determinants can plausibly explain. The perspective suggests more realistic models of human behavior for explaining outcomes and designing policies.


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Also Published In

Journal of Economic Behavior & Organization

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February 5, 2019


Also published as World Bank Policy Research Working Paper No. WPS 7537, January; and NBER Working Paper 21823, December 2015.