Where a Little Knowledge can be Misleading

Paul F. Hosman resides in Kalamazoo and writes for “Read & React” in the Kalamazoo Gazzete ("A blog to create conversation between the Kalamazoo Gazette and its readers) (HERE):

“Intelligence, beauty and skill favor select segments of society over the welfare of all people”

“Maybe we as a nation need to accept the proven fact that Adam Smith was wrong when he stated that the optimum in society occurs when everybody works in their own best interests, and accept John Nash’s Nobel prize winning dissertation in economics that states that society works best when we work in our own best interests and in the best interests of society as a whole.”

Comment
The trouble is for this argument, Adam Smith did not say everybody should work (with whom?) in ‘their own best interest’. That is a crude, narrow and incorrect representation of his philosophy (and economics).

Nor did John Nash state that “an economy works best when we work in our own best interests and in the interests of society as a whole”. That is a crude, partial, and misleading statement of his work.

Where did Paul F. Hosman, residing in Kalamazoo (I remember the song), get his ideas about Smith and Nash from? Could it be the Hollywood film, “A Beautiful Mind”?

From the rest of his post he seems to be hooked up on a crude DNA theory that some are rich and some are poor because of their inherited DNA profile giving them, or not, as the case may be, “Intelligence, beauty and skill”.

I take it from this “evidence” that Paul has read bits on Adam Smith and John Nash, though not enough to understand either author’s ideas - Moral Philosophy in the case of Smith; mathematical modeling (Prisoner’s Dilemma) in the case of Nash, plus, perhaps a magazine article or two on genetics, DNA and the inheritance of characteristics.

Arguments prefaced with a need to accept “the proven fact” about something, of which I am familiar (Smith and Nash) and which is also not a “fact” and certainly not “proven”, but manifestly wrong are reminiscent of “dinner party” debates and a few “bar room” arguments (the latter in days when I drank alcohol).

Since my younger days, I have learnt to pass over such “arguments” to save embarrassing the host and the speaker, and to calm my blood pressure.

Hollywood 'John Nash' Was Wrong

Hwee Ling writes a most interesting Blog, The Learning Economist (HERE):

“Is Economics a "Science"?

The scientific approach involves the 4 following steps:
1. Observation
2. Reasoning
3. Formulation of Theory
4. Testing
In the movie "A Beautiful Mind", you can see part of this scientific approach in use: The scene is set in a bar in which John Nash (played by Russell Crowe) rebutted Adam Smith's idea that, 'the best result comes from everyone in the group doing what's best for himself'. Adam Smith had said: "In competition, individual ambition serves the common good."

But John Nash took an opposing view.

In the movie, he observed what was going on in the bar, in which it was clear that all his friends had the same idea.. to go straight for a pretty blond girl who had just walked into the place with her other pretty (but not quite as pretty) friends. He related to his friends how they could all score if they all didn't go for the blonde but for her friends instead... He told them that, 'the best result will come where everyone in the group does what is best for himself ... and the group.' He envisioned a scenario -- a bargaining strategy -- in which nobody loses.. Watch how the idea (which was later developed into a theory) was conceived after he carefully observed the scene...

In case you missed the dialogue, here's the transcript:

Nash : Adam Smith needs revision.

Hansen : What are you talking about?

Nash : If we all go for the blonde...we block each other. Not a single one of us is gonna get her. So then we go for her friends, but they will all give us the cold shoulder because nobody likes to be second choice. Well, what if no one goes for the blonde?
We don't get in each other's way, and we don't insult the other girls.
That's the only way we win.
(Laughs)
Adam Smith said the best result comes from everyone in the group doing what's best for himself, right? That's what he said, right?

Others : Right.

Nash : Incomplete.
Incomplete, okay?
Because the best result will come...from everyone in the group doing what's best for himself...and the group.

Hansen : Nash, if this is some way for you to get the blonde on your own, you can go to hell.

Nash: Governing dynamics gentlemen. Governing dynamics. Adam Smith...was wrong.”

Nash leaves the bar.

Comment
I have commented several times on Lost Legacy on this scenario from the film, Beautiful Mind, and the above words written by Hollywood script writers, whose authority for attributing ideas to Adam Smith is an unknown variable, though it is unlikely to be accurate if influenced by the existing consensus of US academe with its, frankly, appalling record of misunderstanding, misattribution, and mistaken presentation in many matters relating to the philosophy and political economy of Adam Smith.

I have no objections whatsoever if the above scenario is presented as a strategic Prisoner’s Dilemma problem using a casual dating game as its subject, which, plausibly, is replicated in bars and clubs across the land. My objection is to the imagined scenario being associated with Adam Smith’s assertions about individual self-interest and group behaviour.

The lesson of the Prisoner’s Dilemma, either in its original form of a ‘red-black’ [NB. The convention later became a red-blue choice] 100-round game, or as the well-known choices of confessing or not confessing offered separately to two prisoner’s suspected of a major crime, is that acting for what is best for self (confess to go free – as long as the other prisoner does not confess) or acting for what is best for both of them (both of them not confessing), is that always acting for self, or always playing red, leads to long jail sentences or high negative scores, whereas doing what is best for both of them (both don’t confess; both play black), as long as they both choose leads to short sentences and high positive scores.

This was precisely what Adam Smith recommended through the venerable and ancient ‘propensity to ‘truck, barter, and exchange’, or bargaining: ‘give that which I want, and you shall have this which you want’.

To settle a bargain, the players should consider that which is best for both of them; competing in a bargain to get the best deal for self, generally means that they don’t get a deal; they deadlock, fail to agree, and go their separate ways in disappointment.

In the bar scene, all the boys have the same choice; pick separate ‘targets’ and go for their favoured girl. (Unsaid, of course, the girls had the same choice of picking one boy; the male script writers typicaly took a chauvinistic view of the scenario.) As everybody is a stranger, it doesn’t really matter which you pick; you’re not making a life-time choice!

The real lesson of Prisoner Dilemma games is quite interesting (I have used them thousands of times in Business School negotiating courses since the 1970s) is that in the overwhelming majority of cases (92 per cent, when I used to keep scores for analysis) the outcomes were sub-optimal, that is negative red-blue scores, translating in Prisoner’s Dilemma games to maximum long jail sentences. Only 8 per cent of pairs scored maximum blue points (48 each).

Other researchers (John Carlyle, for instance) reported slightly better results of 87 per cent and 17 per cent respectively, but while I can be sure that my pre-game briefings were the same each time, and no hints were given by me, it may be that John’s pre-briefing of the game was not devoid of ‘hints’, which would account for the slightly different outcomes.

In short, Adam Smith was correct. People who act without addressing the self-interests of the other party do much worse than those who do (See WN I.iii.2: p 26-7).

It may be that John Nash understood the better outcome of the co-operative choice as well as Adam Smith did - people bargaining are not competitors; they are co-operators; they do best for themselves by serving the interests of the other guy – or gal – too.

Bargaining exchanges that conclude successfully are co-operative outcomes; both do best by serving each other’s interests consistent with the best available outcome for themselves.

This propensity among humankind was of early vintage in the history and pre-history of humanity (see my Pre-History of Bargaining: a multi-disciplinary treatment, Part I’, downloadable from Lost Legacy’s Home Page). It’s in chapter 2 of Wealth Of Nations. The 'Beautiful Mind' scriptwriters are wrong about Adam Smith (John Nash may well have been innocent).

Incidentally, if only I had read Wealth Of Nations before I was 20:

when I was a teenager going to weekly dances (jiving, etc.,) I had a friend who demonstrated his dating technique, which was to dance with girls who were ‘wallflowers’, rather than ‘popular’ girls. He claimed he always got a ‘certain’ date that way, while most of us ended up walking home alone …

Congratulations to Hwee Ling for writing a most interesting Blog for students.