The Economics of War at Law & Society Blog

The Economics of War

Published by Hanno Kaiser December 17th, 2006 in Law and Economics

Economics starts with a simple premise about individual rationality, which David Friedman sums up as follows: People have reasonably simple objectives and tend to choose the correct way to achieve them. And even though that premise is quite obviously false (many people have complex objectives, and many more screw up spectacularly in trying to achieve their goals), it is extraordinarily useful for predicting group behavior and explaining social institutions. In fact, I know of no other theory in the realm of political philosophy and social sciences that comes close to the explanatory and predictive power of simple, neoclassical economics. Neoclassical economics is to social sciences what the theory of evolution is to biology, unsurprisingly, given the structural similarity of both theories, their unapologetic reductionism, and the resulting power to explain the emergence of a complex order from the interaction of a great number of rather simple and largely identical component parts. One of my favorite examples of individual and group rationality comes from David Friedman’s article “The Economics of War,” which is available for download here.

Consider a simple case. You are one of a line of men on foot with long spears; you are being charged by men on horses, also carrying spears (and swords and maces and…). You have a simple choice: you can stand and fight or you can run away. If everyone runs away, the line collapses and most of you get killed; if everyone stands, you have a good chance of stopping the charge and surviving the battle. Obviously you should stand. It is not so obvious. I have described the consequences if everyone runs or everyone stands, but you are not everyone; all you control is whether you run or fight. If you are in a large army, your decision to run will only very slightly weaken it. If you run and everyone else fights and wins, some of them will be killed and you will not. If you run and everyone else fights and loses, at least they will slow down the attack-giving you some chance of getting away. If everyone runs and you stand to fight, you will certainly be killed; if everyone runs and you run first, you at least have a chance of getting away. It follows that whatever everyone else is going to do, unless you believe that your running away will have a significant effect on who wins (unlikely with large armies), you are better off running. Everyone follows this argument, everyone runs, the line collapses, you lose the battle and most of you get killed. The conclusion seems paradoxical; I started by assuming that people want to live and correctly choose the means of doing so and ended by predicting that people will behave in a way that gets most of them killed. But rationality is an assumption about individuals, not about groups. Each individual, in my simple example of the economics of war, is making the correct decision about how he should act in order to keep himself alive. It so happens that the correct decision for me (running away) decreases the chance of being killed for me but increases it for everyone else on my side, and similarly for everyone else’s correct decision; individually, each of us is better off (given what everyone else is doing) than if he stood and fought, but we are all worse off than we would be if each of us had failed to reach the correct conclusion and we had all stood and fought.

If that’s the problem, what are the solutions? Disincentives for defection (e.g., burning bridges, shooting defectors, shaming cowards) and incentives for taking life-threatening risks (e.g., rewarding heroism, religious or political indoctrination, promises of an afterlife, etc.). Every well-run army (or business organization, for that matter) employs those strategies, because the underlying problem is universal.

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One Response to “The Economics of War”

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1 Ben Samuel Nelson Dec 17th, 2006 at 8:41 pm

I don’t dispute that rational choice theories are very powerful models of human behavior. Also, it makes good sense of certain phenomena that are well-known. I admire its analyticity, and I think it is a very successful and interesting beginning to the way we ought to approach social studies.

But I want to make two points.

I. The relation between evolution and biology, and the relation between rational choice theory and social science, is very different.

Evolution describes an end-result (adaptation), the way things got there (natural selection, reproduction, and mutation), and the situational tendencies which made the end-result probable among others (climate, food supply, etc). Present and past biological facts may be impressively explained by this theory, once the admitted relevant peripheral facts are plugged in. In a sense, evolutionary theory is like a skeleton, a truly grand design.

Meanwhile, RCT describes a model of behavior (rational choice), the kinds of consequences we can predict from rational behavior (i.e., the tragedy of the commons), and contextually sparse model situations (for instance, with RCT’s close allies, the game-theoretic ‘Prisoner’s Dilemma’, the ‘Monty Hall Problem’, etc). As models, they are fine enough; but whatever they explain, it isn’t any impressive bulk of the social sciences. It isn’t even a skeleton — it is, perhaps, a hip-bone, or a torso. Whether or not it succeeds as a “theory”, depends on how it defines the domain of phenomena it would like to explain. If it is social behavior with respect to goal-achievement, then it fails. If it is goal-achievement for a great part of the time, then it succeeds.

II. To make a few more philosophical remarks. (Two quick, one longer.)
a) What’s so rational about (let’s face it) dumb, selfish, short-sighted goal seeking?
b) Is the estimation of probabilities and possibilities — of possible worlds — really so rational? These “a prioristic” arguments smack of Pascal’s wager, along with all of its pitfalls.
c) As admitted, rational choice theory seems to fail to describe successful group behavior. And if true, this would be devastating in its own right: for if it were to fail to describe group behavior, then strictly speaking, it wouldn’t even enter the social sciences in the first place, except in a threadbare way as the study of other-influenced psychology, or the study of aggregate behavior.

But first we should double-check to see that it really is quite so embedded into the view of homo economicus, and quite so distant from the homo sociologicus. Take the following two major situations, which are in the neighborhood of RCT’s stomping grounds, require explanation (borrowed from Jared Diamond’s opus, ‘Collapse’):

i) Using the language of RCT, how do you explain the bottom-up collective behavior of small, enduring, and isolated societies which succeeded to thwart long-term disasters, seemingly with the gift of foresight?
ii) Using the language of RCT, how do you explain the top-down collective behavior of large societies which succeeded to thwart similar disasters?

The answer to i) lies in your analogy: through both rational choice and evolution (of a kind). On the one hand, the lives of individual members of a small, isolated society seem to be intertwined deeply to such an extent that the interests of a single member are identical with the interests of the rest. With enough nags around, and no place to escape to, the pressure is simply there to stay. On the other hand, their techniques were perfected through the trials and errors of passed generations, to such an extent that their technology is merely habitual, not resting on any genuine knowledge-base. Long-term goals are satisfied by induction, which falls to habit.

But the answer to ii), of course, is “we don’t”. Not unless we’re prepared to engage in a study of power relationships — but this is something that, in most cases, RCT isn’t cut out to do.

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