Economics Dictionary of ArgumentsHome
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| Decision-making process: A series of steps that people take to make decisions, such as identifying the decision, gathering information, and evaluating alternatives._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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James M. Buchanan on Decision-making Processes - Dictionary of Arguments
Boudreaux I 23 Decision-making process/taxation/Buchanan/Boudreaux/Holcombe: Influenced by Wicksell, and later by his immersion in the works of Italian public-finance scholars, Buchanan worked to craft a positive theory of fiscal decision-making. This positive theory aimed at explaining observed outcomes and would, in turn, underpin Buchanan’s formation of normative guidelines for government spending and taxation. As we saw in Chapter 1, Buchanan rejected the assumption that the state is a benevolent overlord of the individuals who comprise the governed. In his theory of fiscal choice, Buchanan sought to explain government spending and taxing decisions as arising from the same individualistic motives that economists assume guide spending and consumption decisions in private markets. The difference between the two settings, of course, is that governments make collective decisions—decisions that all members of the political community must live with. Boudreaux I 24 Buchanan showed, however, that the same analysis of the decision-making logic at work in private markets can be fruitfully used to analyze the way that citizens in democratic polities make collective choices. >Taxation/Wicksell, >Taxation/Buchanan. Boudreaux I 25 Decision-making process/Buchanan/Boudreaux/Holcombe: Because there is no such thing as the general will or social welfare beyond the welfare of each of the individuals in the group, the challenge is to design democratic institutions so that they reflect the preferences of the citizens as closely as possible. >Welfare economics/Buchanan. Simple majority-rule voting on all issues has the obvious shortcoming that it allows a majority to impose costs on the minority, thus requiring institutions to be designed to safeguard against this outcome. Majorities/Wicksell: Here again, Buchanan took inspiration from Wicksell, who noted that if unanimous approval is required for government to act, the approval of everyone means that everyone’s welfare is improved and the decision is in the public interest because it is in the interest of everyone who makes up that public. Taxation: (…) for taxes to be generally agreed to in an informed way, citizens must know beforehand how those tax revenues will be spent. Buchanan emphasized that the desirability of taxes cannot be evaluated independently of how that tax revenue is to be spent. The common sense behind this insight is that if individuals are asked if they want to pay a particular tax, they usually say no, because a tax imposes a cost on them. On the other hand, if they are asked whether they favour paying a tax on gasoline to finance road construction, they are more likely to agree to it, weighing the costs to them of the proposed tax against the benefits that they anticipate the road would provide. The merits of any particular tax cannot be evaluated independently of how the tax revenues will be spent. This seemingly straightforward insight is rarely recognized by public-finance economists even in the twenty-first century. Boudreaux I 32 Decision-making process/Buchanan/While all choices have costs, to insist on the reality and recognition of costs does not, of course, argue against actions that have costs. To do so would be also to argue against actions that have benefits. Inaction itself has costs - namely, the forgone benefits that would otherwise have been enjoyed by taking action. >Opportunity cost, >Cost/Buchanan. But the inescapable reality of scarcity means that if our well-being is to be enhanced rather than lessened, we should strive to act only in ways that yield benefits greater than costs. To the extent that we succeed in this endeavor, our well-being improves. Benefit: We benefit on net. We benefit on net not by avoiding costs, which is impossible, but by choosing actions that we anticipate will yield benefits greater than costs. Boudreaux I 32 Time/decision/Buchanan: „If you decided a few moments ago that your valuation of the alternative exceeded that expected from reading this Preface, you will have missed this economist’s pedestrian prose. But, having rejected it at the outset, you can never know what you will have missed. The benefits that you are now securing from reading the Preface are not comparable with the costs that you would have suffered on choosing the most attractive alternative. These benefits, if there are any, exist. They can be evaluated ex post. Costs that are influential for behavior do not exist; they are never realized; they cannot be measured after the fact.“ (Buchanan, 1969(1): vii) Boudreaux I 34 Individuals: Because only individuals make choices, only individuals experience costs, and then only those individuals who make the choices that yield the costs. Boudreaux I 35 Choices affect the course of events both for the chooser and for many others. Further, Buchanan explicitly acknowledged that individuals can, when making choices, attempt to take into account the consequences their choices are likely to have for other people. Buchanan recognized that in fact individuals make such attempts quite often. Yet the reality remains that no one can read another person’s mind or experience another person’s subjectively felt sensations. Boudreaux I 36 Costs of choices: The obvious impact that our choices have on others as well as on our future selves led Buchanan to distinguish between “choice-influencing costs” and “choice-influenced costs.” Choice-influencing costs operate at the moment of choice in each decision-maker’s mind, leading that decision-maker to choose one option over another. Choice-influenced costs are existing constraints that were created by choices made in the past. Boudreaux I 37 To the extent that a decision-maker accurately accounts for future consequences, the choice made now will lead to fewer “regrettable” choices having to be made later by him and by other individuals. Boudreaux I 38 The cost of a choice is the value of the highest-ranked forgone alternative. Yet precisely because that alternative is forgone, there is no way to know how much utility or how much profit it would have yielded had it been chosen. Individuals realize the utility they get from the options that they choose. But these same individuals can only conjecture about the utility they would have received had they chosen differently. Firms can tell whether they are profitable, but they cannot know whether they would have been more (or less) profitable had their managers made different decisions. >Profit maximation/Buchanan. Subjectivity: Because cost is subjective, different individuals might make different choices in the same situations, and both could be the best choices for those individuals. Taxation/Government policy: Similar implications apply to public-policy measures. The impossibility of observing and objectively measuring costs means that the kinds of corrective taxes that most economists recommend to deal with carbon emissions and other such externalities cannot be conclusively justified. >Government policy/Buchanan. 1.James M. Buchanan. (1969). Cost and Choice: An Inquiry In Economic Theory University of Chicago Press. - - - Parisi I 311 Decision-making Processes/Public choice/Buchanan/Tullock: The calculus of choice addresses assumptions about the way that people make decisions (Buchanan and Tullock, 1962)(1). In economic analysis it is generally assumed that people engage in a calculus of choice based on a rational and self-interested assessment of costs and benefits. While economists may suggest that multiple factors go into this calculus, they often end up using price as a proxy. Price functions as a useful proxy for economic analysis because it makes a mathematical calculus possible, and it permits a cost and benefit computation to determine an “optimal” course of action. The problem with using price as a proxy is that price is simply an incomplete interpretation of value and not value itself. Prices simply reflect value differences among competing options, and computations based on price inherently privilege options that are easily quantifiable. For example, the cost of buying and installing an air filter to reduce pollution is easier to quantify than the value of an additional unit of clean air. Requiring legal decisions to be based on a cost and benefit analysis, therefore, results in a bias toward the quantifiable. The larger problem with the calculus of choice is not that it favors the things that are readily quantifiable over those that are more abstract, but that it does this while implying that people make choices on the basis of a calculus rather than as a matter of interpretation. >Public Choice Theory, >Public Choice. Vs: This in turn can lead legal economists to focus on attributing too much force to the power of law to adjust the cost and benefit calculations of innumerable individuals. Behavioral analysis reveals that people often have difficulty making cost and benefit calculations (Schwartz, 2005(2); Sunstein, 2000(3), 2009(4)). 1. Buchanan, James M. and Gordon Tullock (1962). The Calculus of Consent: Logical Foundations of Constitutional Democracy. Ann Arbor, MI: Ann Arbor Paperbacks/Michigan. 2. Schwartz, Barry (2005). The Paradox of Choice: Why More is Less. New York: Harper Perennial. 3. Sunstein, Cass R. (2000). Behavioral Law and Economics. Cambridge: Cambridge University Press. 4. Sunstein, Cass and Richard Thaler (2009). Nudge: Improving Decisions About Health, Wealth, and Happiness. New York: Penguin. Driesen, David M. and Robin Paul Malloy. “Critics of Law and Economics”. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconBuchan I James M. Buchanan Politics as Public Choice Carmel, IN 2000 Boudreaux I Donald J. Boudreaux Randall G. Holcombe The Essential James Buchanan Vancouver: The Fraser Institute 2021 Boudreaux II Donald J. Boudreaux The Essential Hayek Vancouver: Fraser Institute 2014 Parisi I Francesco Parisi (Ed) The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017 |
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> Counter arguments against Buchanan
> Counter arguments in relation to Decision-making Processes
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