A Potential for Understanding and the Interference of Power: Discourse as an Economic Mechanism of Coordination

By Kesting, Stefan | Journal of Economic Issues, December 1998 | Go to article overview

A Potential for Understanding and the Interference of Power: Discourse as an Economic Mechanism of Coordination


Kesting, Stefan, Journal of Economic Issues


Mainstream economic theory usually neglects the fact that economic actors communicate with each other using ordinary language. At least the microeconomic textbook version of the rational utility maximizing man is basically a speechless person. To coordinate market transactions, it is not necessary for him to talk to anyone. In mainstream economic theory, this economic man is conceptualized as a Robinson Crusoe for whom anything and anyone is merely a resource or constraint in his maximizing calculation. This conception alters slightly in contemporary neoclassical theory.

Experimental game theory has produced extremely convincing evidence for the importance of language in coordinating economic actions, and Donald McCloskey(1) has recently begun to move the explanatory power of rhetoric from economics to the economy itself.

Game theory can be regarded as the most advanced level of mainstream economic theory in the sense that economic man becomes social, at least using the definition of social action offered by Max Weber. The game theoretic actor considers the actions of his fellow economic men while planning strategically his own course of action. In the famous prisoner's dilemma game, Crusoe meets Friday, and both of them have to take the strategies of the other into account. However, and despite recent developments [Farrell 1995], game theory is still mostly built upon the assumption of speechless utility maximizing individuals.

What happens to economic action theory if speech is integrated? Can the theory remain unchanged, or does language bring some new dimensions? The hypothesis put forward in this paper is that a specific productivity is inherent in communication. This productivity may lead to the invention of new solutions for social and economic problems and to less costly ways to resolve social and economic conflicts. How does economic action theory develop to include these qualities of communication? How does it work in practice?

The hypothesis and related questions will be pursued as follows: It will be shown by use of the example of modern experimental game theory and recent texts of McCloskey that neoclassical theorists have discovered the importance of speech and its specific qualities but have not reformulated economic theory to integrate its inherent qualities. The barrier between a framework of economic man exchanging information and a new type of action model incorporating communication has been transcended by two socioeconomic institutionalist economists, Albert O. Hirschman and Kenneth E. Boulding. Nevertheless, it will be shown that their ideas can be developed further by drawing on Juergen Habermas's theory of communicative action.(2) This theory has been reformulated into more concrete rules and conditions of communicative action by German, Swiss, and American sociologists and economists. An advanced set of these rules is used to examine whether and how the theory of communicative action works in practice. This will be done by interpreting three case studies of economic and environmental conflicts.

Experimental Game Theory

Game-theoretic experiments highlight the significance of communication for the choice between cooperative and defective behavior. Robyn Dawes, Alphons van de Kragt, and John Orbell have conducted a series of experiments where they allowed small groups of randomly chosen people to talk for up to 10 minutes before entering a give-away dilemma. They then compared rates of cooperation to those of control groups who were not allowed to communicate. The results are striking [Dawes et al. 1990, 104]. Without discussion, between 30 percent and 45 percent of the subjects contributed a small amount of money for the benefit of all, risking loss of that contribution and the benefit if a certain number of the other players did not do the same. The subjects had the choice of keeping the money and leaving, and the majority in this setting did. …

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A Potential for Understanding and the Interference of Power: Discourse as an Economic Mechanism of Coordination
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