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Expectations, Historical Context, and Social Science

Summary:
Like everyone, recent events has my mind racing.  What is going on?  Are my kids safe?  Family? Friends?  What just happened to my retirement account? But also my thinking races back to my parents and grandparents. Take my grandparents. They had to live through WWI, the Great Depression, and WWII.  My grandfather came home from WWI, one of his brothers did not.  My grandparents -- both sets -- sent a son off to war in WWII but their son returned, their neighbors did not. In addition to WWI, Great Depression and WWII, they had to deal with the flu in 1918 and 1957, and of course polio in 1949. Why I bring all this up is I wonder about how these experiences (historical context) helps form expectations and mental models that human actors use in making their decisions concerning

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Like everyone, recent events has my mind racing.  What is going on?  Are my kids safe?  Family? Friends?  What just happened to my retirement account? But also my thinking races back to my parents and grandparents.

Take my grandparents. They had to live through WWI, the Great Depression, and WWII.  My grandfather came home from WWI, one of his brothers did not.  My grandparents -- both sets -- sent a son off to war in WWII but their son returned, their neighbors did not.

In addition to WWI, Great Depression and WWII, they had to deal with the flu in 1918 and 1957, and of course polio in 1949.

Why I bring all this up is I wonder about how these experiences (historical context) helps form expectations and mental models that human actors use in making their decisions concerning action in an uncertain and changing world.  How might this explain variation in historical experiences to exogenous shocks?  Rules of the game affect incentives and frame expectations, and those incentives and expectations of costs/benefits of alternative courses of action determine choices, and choices result in consequences.  Social interaction is directed and coordinated by the rules that participants know and follow.  Confusion over the rules, or poor enforcement of the rules, will create social dysfunctions and disruptions. But we also develop different risk tolerance for ambiguity in the rules depending on our historical experiences.

When we used to sneeze folks said "God Bless You" not just out of curtesy, but out of genuine concern. And when someone suffered a serious misfortunate, one might say "There but for the grace of God go I" to recognize the randomness of it all.  But for a people that have not experienced WWI, 1918 flu, Great Depression, WWII, 1949 polio, 1957 flu, Cuban missile crisis, Vietnam, the assassinations and unrest of the 1960s, Watergate and the stagflation of the 1970s, what sort of expectations would they have and risk tolerance they would possess as they went through their social interactions with others? How would that impact their assessment of trade-offs, and what would be considered within the reasonable set of tragic yet accepted outcomes?

I am drawn to thinking about expectations and social action along lines developed by Roman Frydman in his work on "imperfect knowledge" economics.  Of course, in my own way I read Frydman back into Mises/Knight/Hayek, and reading Mises/Knight/Hayek into Frydman's work. But I think the idea of "theory consistent expectations" is superior to the more traditional "rational expectations" and can account for what Lachmann often dubbed "creative expectations".  Conceptually, I believe we must begin our analysis with a clear conception that we are dealing with "imagined futures" and that all action is a voyage into an unknown yet not unimaginable future.  But how as an empirical matter, the past impinges on expectations and how those in turn shape those imagined futures is to me fascinating question to contemplate, though I am at a loss of how anyone would operationalize this idea without trivializing it with modern empirical tools. No, I can only imagine getting a glimpse of it through narrative empirical approaches -- private diaries, published memoirs, novels, first-person accounts in newspapers, and ethnographies.  This was the research program that Don Lavoie aspired to ignite with his "Interpretative Economics" program, and which we have in our small way continued within our work in comparative economic analysis of socialism, transition studies, post-war reconstructions, and post-disaster recovery. Someday the history of our present will be written, and the role of expectations in framing and guiding the actions and reactions will have to be fully accounted for.

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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