Why Knowledge and Incentives?
Why does RPE identify the key social problems as knowledge and incentives? My contention is that these two problems emerge from three key compelling, though inevitably contested (Lukes 1968; Hodgson 2007), assumptions, or constraints on our form of explanation: (1) methodological individualism, (2) subjectivism, and (3) analytical egalitarianism.
By methodological individualism, I mean the assumption that social activity is constituted, in the final analysis though not necessarily at all points in an explanation, by embodied human beings, rather than aggregated structures. By subjectivism, I mean the notion that individuals act on the basis of their own separate beliefs, experiences, and values (Hayek 1937; 1943, 5) that at best can only ever be partially articulated and shared with other agents. Our methods of communicating our thoughts and feelings are not given, and even when present, imperfect. By analytical egalitarianism, I mean a presumption of rough equality of power or capacity between individuals. This excludes the examination of inherent individual characteristics as an explanation of different social outcomes.
The problems of knowledge and incentives are two sources of disorder, or lack of coordination, that emerge from these assumptions. That is, they are present when humans have the characteristics of embodied individuals with their own mental lives and rough equality of power between them. There is no special agent that can naturally overpower the others and dictate the outcomes of the interaction. The knowledge problem is the result of these individuals encountering and interpreting a dynamic natural and social world through their limited senses and cognitive capacities. They face radical uncertainty as to the opportunities and threats they face, and bounded rationality when processing relevant information to guide their actions. The incentive problem emerges as a result of individuals or groups encountering others with subjective interests and objectives that are unreconciled with their own.
Although knowledge and incentive problems are distinct, their influence on each other means that considering them together allows us to better understand the challenge of human sociability (cf. Gamble 1989, 1). The knowledge problem extends to ignorance of the intentions and interests of others so that individuals are uncertain, for example, as to what might constitute an effective incentive for other individuals or groups. At the same time, lack of knowledge heavily influences the incentives that individuals face. In some contexts, this generates narrow, defensive attitudes that prevent potentially productive co-operation.