Revealed Preferences and Deliberation: A Defense

Emmi Bevensee’s article “Social-Anarchism and Parallel Economic Computation” is an excellent and important introduction to the challenges that complexity poses for economic planning. I think Emmi’s conclusion—that we need to sketch what the limits of planning are and pursue alternative mechanisms beyond this point—is a good one, as is pointing out that problems arise when anyone (and in particular some authority figure) attempts to make society seem less complex than it really is. My response doesn’t seek to challenge this conclusion; instead, my response focuses more on the problems of “revealed preferences”, their relationship with deliberation, and the necessity of a market in facilitating their discovery.

As Emmi states in the article, the “revealed preference problem” is “the sense that what we say or think we want, and what we’re willing to put skin in the game to prioritize are generally not exactly the same things”; as a result, “deliberation without currency makes it difficult to signal demand with any fidelity” and “individuals, communes and federations are incentivized to drift in the direction of stockpiling resources simply because accurate evaluation is extremely difficult.” The resultant inefficiencies would not only make people worse off, but any incentive to hoard resources would likely undermine the egalitarian aims of anarchism:

In the most dystopian case it means unpopular individuals are unable to get basic necessities like medication, food or shelter from their commune. Just as corporations reward the most cutthroat and manipulative, collective resource allocation can become more tightly coupled with informal social capital as the popular charismatic comrade’s’ needs get more easily heard than the awkward and shy loner who has not mastered or otherwise opposes in-group social positioning […] All of this disastrously slow coordination and forced pleading happening at the scale of the world, is… well, terrifying and sad. It’s also a subtle recreation of the competition that is so awful in capitalism and markets. Competition then, whether in the commune or at the level of the individual, serves two masters: it serves greed/in-group preference and meta-level coordination of revealed preferences. Finding the balance of these trade-offs is the great problem of economics.

These are all important points to make, and as I said, I think Emmi’s observations are highly insightful. But I also think that the deliberative process isn’t quite as powerless against discovering accurate preferences as Emmi assumes. In fact, I would go so far as to say that some form of successful deliberation is necessary for market-transactions to be successful, and so the discovery process has less to do with “signalling demand” via currency than the evolving, communicative relationships that market participants naturally form. 

Now, there are a number of important questions to ask when talking about successful deliberation—such as, for instance, what should be deliberated on and what types of institutions should exist to facilitate deliberation. Probably the most common notion of deliberation—particularly, deliberative democracy—sees communication between people occurring in some sort of assembly, though the network approach of sociologists such as Fuyuki Kurasawa sees deliberation in a much more organic fashion.¹ Each individual question is worthy of an essay in of themselves, so I want to focus more on deliberation and revealed preferences; what I mean by “deliberation”, though, is communication between individuals in such a way that a comprehensive plan can be formed and executed by all participants, with some agnosticism on how many participants are too many. This disclaimer is me saying that I’m not trying to ignore those questions, only that I’m narrowing my focus for this particular response.

Consider how “markets” have traditionally been conceived. 

Standard economic theory has assumed that the market was an impersonal space since at least Max Weber: in defining markets as existing only at the point where a good or service is being exchanged—and for no longer than that—Weber argued that the “market community […] is the most impersonal relationship of practical life into which humans can enter with one another” due to its singular focus on commodities and nothing more (1978: 636). Similarly, Albert Hirschman argued that economists simplified society and frequently saw competitive markets as containing large numbers of “anonymous buyers […] without any prolonged human or social contact between the parties” (1982: 1473). And James Buchanan, in describing the typical psychology of a market participant, wrote that while markets are efficient at distributing resources

I do not know the fruit salesman personally; and I have no particular interest in his wellbeing. He reciprocates this attitude. I do not know, and I have no need to know whether he is in direst poverty, extremely wealthy, or somewhere in between (1975: 17). 

Taken together, markets are thought to (cribbing a term from Daniel Dennett) provide coordination without comprehension—“comprehension” in this case of the preferences of others—so long as certain general rules are followed (like, for instance, not stealing). That’s all that’s required, though; prices can do the heavy lifting on the coordination side of things.  

The key assumption here is that individual preferences don’t extend out past your own head: you worry about what you value, and as Buchanan outlined, don’t care much about what’s going on inside someone else’s head. And for a very long time, an additional assumption was that preferences are invariant over time: if you like ice cream, you’ll continue to like ice cream and will plan your consumption patterns around maximizing total ice cream enjoyment. The economics profession has slowly begun to turn away from the first assumption though, as ignoring social preferences and things like empathy leads to economic models that leave out a massive amount of human nature. Similarly—and Emmi points this out when sketching the limits of pure deliberation—not only are preferences not necessarily invariant, but individuals don’t necessarily have perfect knowledge of their own preferences either. A person might have to actually come into contact with ice cream in order for them to learn that they have a preference for it, and the exact details of their preference for ice cream (what flavours, at what time of day, at what quantity, etc.) would only become known through repeated interactions.  

Building from these points, but also from observations of actually existing markets, economists such as Samuel Bowles note that only some markets can be described as “impersonal” and actually fit the definition of a market that relies solely on prices chosen by anonymous buyers. Any market that suffers from asymmetric information or incomplete contracts, for instance, will rely on continual contact and trust between participants to function—Bowles identifies labour and credit markets as distinctly “personal” ones for those reasons (1998: 87, 77).²

Now, to an important extent, some of the problems associated with asymmetrical information are because of capitalism, but Bowles and his co-authors (2017) have argued elsewhere that, if we take Hayek’s insights on information distribution seriously, then this is an inherent feature of markets in general—whether they’re freed or not.³ Complete contracts are impossible so long as perfect information is impossible, regardless of whether an economy is seen as capitalistic or socialistic or something else entire: no agent can possibly establish contractual conditions that cover every possible action. But we can move beyond markets that suffer from extensive failures to impersonal settings, like a supermarket, that economics textbooks traditionally consider to be as close to perfectly functioning as possible (Bowles 1998: 77): we can think of friends, relatives, immediate family members, and so on feeding us information about prices, selection, problematic brands, and more in order to help us make better decisions as consumers—we might not interact with the staff of a supermarket in a personal way, but social relationships still underpin our decisions in these impersonal spaces. Indeed, this particular means of acquiring information has likely become all the more important during the SARS-CoV-2 pandemic, as hoarding, supply chain disruptions, and similar problems have distorted market prices.⁴ Contra what Buchanan argued, then, a potentially substantial amount of economic activity does involve, and in fact requires, someone to know the other party and be at least somewhat interested in their lot in life.

I think it’s impossible to deny that deliberation is a key ingredient in maintaining the continual contact that “personal” market interactions require. These people will have to communicate plans and solve conflicts with one another over a broad range of issues, involving a wide number of preferences. Back to some of the points that Bowles has made, incomplete contracts in particular invite increasing levels of Coasian Bargaining (2004: 221-222), and all bargaining centres on effective and extensive deliberation. While Bowles points out the problems with some of Coase’s assumptions (such as zero bargaining costs and unequal initial endowments), he notes the important insight that decentralized coordination through bargaining is an integral part of achieving efficient resource distributions beyond using market exchange (ibid: 229). Deliberation is an integral part of correcting the market and also steering it, which we shouldn’t expect to see if the process was incapable of overcoming preference-related problems. 

Consider what would be required for someone to know another person’s preferences, or learn about their own, and how deliberation doesn’t automatically preclude these requirements from being fulfilled. Repeated interaction and discussion would provide ample opportunity for learning and refining your understanding of both the other person’s preferences and your own, so long as the environment where this interaction is taking place allows this sort of relationship to form. It also gives people the opportunity to change their preferences in light of new information—again, so long as the social environment allows for this to happen, and in a free and non-coercive manner. In fact, if knowledge about your own preferences is limited, one could make the argument that deliberation is the best way to learn what these preferences actually are. If another person asks for reasons why you prefer X (in as non-invasive a way as possible, hopefully), or they simply ask you to clarify what you mean by X, you’ll likely begin to consider your own tastes and behaviour. This is true even if you intend to lie to another person, but in a situation where you’ve built up trust with another person and some form of mutual recognition (such as in markets that depend on these types of interactions), then providing a satisfactory answer will require quite a bit of introspection.⁵ We could contrast this with a person who has to discover their preferences through only market exchange: the possibility of you actually making this discovery depends on numerous external constraints, such as time and number of available choices, which in almost every circumstance are not unlimited. It’s not impossible to discover your true preferences through impersonal market exchange, but I think that it’s more likely when done through introspection, and deliberation has a lot of potential in facilitating good introspection. Importantly, deliberation also ensures that you have access to alternative points of view if you wish to change your preferences, to whatever extent that’s actually possible.  

There is, it should be said, a growing body of literature showing that experiments in deliberative democracy have resulted in better distributed information and more informed participants,⁶ and so providing a space for people to hear alternative perspectives and ask questions for clarification seems like it can be an effective learning mechanism (something that I think is doubly important if we consider how “exit”, even under ideal circumstances, isn’t always an option).⁷ My above comments aren’t so far-fetched. The gap between what your stated preferences are and what you actually prefer may not be that large when people are repeatedly interacting and discoursing with one another; you may not need to have “skin in the game” via some sort of currency to accurately state what your preferences are. 

So in the case of the types of markets described above, when coordination through prices and currency isn’t possible, then deliberation even in large-scale spaces can find a way to effectively handle preferences; indeed, deliberation may be the only thing ensuring that markets approach efficiency in these circumstances, even if perfect efficiency isn’t actually reached.⁸

It’s important to always be aware of the limits of any coordination mechanism that’s been proposed, and I think that Emmi Bevensee does an excellent job of exploring these limits. But I do think that a closer look at actually existing markets provides a larger role for deliberation in dealing with preferences, while traditional market mechanisms might actually be less successful at that, given certain conditions. I’ve only briefly argued for ways that deliberation, through things like repeated and personal interactions, might reveal and modify preferences, and so substantially more work is required to actually delineate deliberation’s potential in an anarchist economy. 

Similarly, while I did say just above that deliberation’s important role in market coordination could apply to large-scale spaces, and not just small communities or communes, how much deliberation can be scaled is an open question. Emmi is right to point out the problems of scaling for any sort of planning, and my arguments about deliberation and preferences have no impact on that important insight. My final comment, however, might be that if deliberation is not as powerless in the face of preferences as assumed, then cosmopolitan networks ala Kurasawa’s research might allow deliberation to scale without sacrificing too much information.⁹

But how we’d ensure effective communication across borders is, again, an essay all its own.   

Endnotes

1.  See his book The Work of Global Justice (2007) for example, and his article “An Alternative Transnational Public Sphere?” (2014) as examples. Some of Joshua Cohen and Charles Sabel’s work on deliberative democracy—in particular, their notion of a “directly deliberative-polyarchy” (1997)—also approach a more network-oriented view of deliberation, rather than traditional views of citizens gathering in a room somewhere for meetings. 
2. This means that you’re required to continue interacting with the other participants in this market, in a fairly close fashion, for as long as you want to be a participant in that market—assuming, of course, that exit is possible. We can likely assume that you have an incentive to be honest in your interactions and not be manipulative, only because if trust is required for this market to function then acting inherently untrustworthy will eventually lead to a catastrophic market failure. More optimistically, we could take Adam Smith’s line—and indeed some more modern research on empathy—and note that continual interaction even with people who are initially strangers makes it more likely for you to genuinely care about these people and take their considerations into account when making decisions, at least to a noticeable extent.
3. Note: I’m using a still fairly limited definition of markets here, in that I’m emphasizing the use of some kind of cash-nexus as being the defining feature of a market. If we define markets in a broad fashion—say, as simply a space in the public sphere where goods and services change hands, with any number of coordinating mechanisms or currency-alternatives besides money being allowed—then asymmetric information may be less of a structural problem. But that’s beyond the scope of this essay.
4. This point could be contested by those of a particular Austrian bent by saying that price gouging is impossible, as market transactions are voluntary and thus perfectly incorporate all parties’ subjective value. I think this assumption is generally ludicrous during a pandemic; moreover, it’s hard to square this assumption with some of the research that Amartya Sen has done on markets during disasters like a famine.
5.  See Endnote 2.
6. See, for instance, Luskin, Fishkin, and Jowell (2002) and Warren and Pearse (2008).
7. While the ability to “exit” is, I would argue, heavily restricted to the point of non-existence under capitalism (not only do you have to work to survive, but you have to be accepted at whatever job you apply for and have the resources necessary to uproot yourself and possibly others simply to have access to work), I think it’s also true that even in a perfect anarchist world, it would be impossible to guarantee the right to exit in every circumstance. This point too is beyond the scope of this essay, however.
8. Again, I’m not denying the importance of markets, but I think there are enough situations where deliberation works and the use of currency to signal preferences doesn’t mean that we can’t just assume “use markets unless a different mechanism shows itself to be superior.” Instead, we should be looking at instances where markets that already exist require deliberation to be successful. 
9. A working assumption of mine is that information is always sacrificed, simply because no system is perfect and the nature of things like tacit knowledge or complexity can’t be completely solved for. It’s sort of a case of looking for “the least inefficient” option, rather than searching for a perfectly efficient one. 

Bibliography

• Bowles, S. 1998. “Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions”, Journal of Economic Literature 36(1): 75-111. 
  •  2004. Microeconomics: Behavior, Institutions, and Evolution. Princeton: Princeton University Press. 
  • Kirman, A., and Rajiv Sethi. 2017. “Retrospectives: Friedrich Hayek and the Market Algorithm”, Journal of Economic Perspectives 31(3): 215-230.   
• Buchanan, J. 1975. The Limits of Liberty: Between Anarchy and Leviathan. Chicago: University of Chicago Press.  
• Cohen, J. and Charles Sabel. 1997. “Directly-Deliberative Polyarchy”, European Law Journal 3(4): 313-343.   
• Hirschman, A. 1982. “Rival Interpretations of Market Society: Civilizing, Destructive, or Feeble?”, Journal of Economic Literature 20(4): 1463-1484.  
• Kurasawa, F. 2007. The Work of Global Justice: Human Rights as Practices. Cambridge, UK: Cambridge University Press. 
  • 2014. “An Alternate Transnational Public Sphere? On Anarchist Cosmopolitanism in Post-Westphalian Times”, in Kat Nash (ed.) Transnationalizing the Public Sphere. Cambridge, UK: Polity Press, pg. 79-97.  
• Luskin, R.C., Fishkin, J.S., and Roger Jowell. 2002. “Considered Opinions: Deliberative Polling in Britain”, British Journal of Political Science 32(3): 455-487. 
• Warren, M. and Hilary Pearse. 2008. “Introduction: Democratic Renewal and Deliberative Democracy”, in M. Warren and H. Pearse (eds.) Designing Deliberative Democracy: The British Columbia Citizens Assembly. Cambridge UK: Cambridge University Press, pg. 1-19. 
• Weber, M. 1978 [1922]. Economy and Society: An Outline of Interpretive Sociology Vol. I and II (G. Roth and C. Wittich eds). Berkeley: University of California Press.  

Mutual Exchange is C4SS’s goal in two senses: We favor a society rooted in peaceful, voluntary cooperation, and we seek to foster understanding through ongoing dialogue. Mutual Exchange will provide opportunities for conversation about issues that matter to C4SS’s audience.

Online symposiums will include essays by a diverse range of writers presenting and debating their views on a variety of interrelated and overlapping topics, tied together by the overarching monthly theme. C4SS is extremely interested in feedback from our readers. Suggestions and comments are enthusiastically encouraged. If you’re interested in proposing topics and/or authors for our program to pursue, or if you’re interested in participating yourself, please email [email protected] or [email protected].

The Center for a Stateless Society (www.c4ss.org) is a media center working to build awareness of the market anarchist alternative