Applying game theory to social norms

In his new book, Law and Social Norms, Eric Posner, Professor in the Law School, explores how the law must take into account the informal but powerful, cooperative relationships among individuals. Posner, who is editor of the Journal of Legal Studies, teaches contract law and bankruptcy law among other subjects.

Eric Posner

What is the gap in legal thinking that you are trying to help fill?

“Law professors and legal academics often think of the law as merely the regulation of behavior: making sure that people keep their promises in contracts, that businesses run smoothly, that crime is deterred and so forth. They tend to view this in very simplified formulas. Their view is that people are atoms and do what they want to, and then there is the government to enact laws and prevent people from engaging in antisocial behavior. On the contrary, social order is, to a certain extent, self-maintaining and you don’t always need a government involved. I hope this book encourages legal scholarship to focus on the importance of social norms in the decisions of legislators, judges and others who enact and enforce the law.”

What is the connection between the law and what you call “social norms”?

“One way to look at it is that much of our ordinary, everyday behavior is cooperative, even though we don’t expect the law to get involved. Even where societies are very weak, order is still maintained. Sociologists, economists, philosophers and historians have thought about this, but in legal scholarship, people don’t discuss it very much. It’s in the realm of nonlegal, “social” regulation, so for some law professors, it just complicates matters unnecessarily.”

How do you suggest that legal scholars view social norms?

“If people don’t commit crimes, because the neighborhood is well-organized and people are watching each other’s doorsteps, then there’s not much crime, and you really don’t need the law. Therefore, the assumption by some legal scholars might be that you really don’t need to talk about it. My argument is that, in fact, law sometimes can undermine nonlegal forms of regulation and sometimes enhance it. So when you’re evaluating law, you have to have a theory in the back of your mind about how nonlegal regulation occurs. If you see something bad, like people breaking promises or committing crimes, and you propose a law that will prevent this from happening, that’s fine. At that point, some law professor would make a prediction about the effect of the law. The additional step, however, is that you have to worry whether the law will change nonlegal sanctions.”

Would you discuss marriage and the family, which you examine in detail in your book and use as an example of an essential social institution that reflects both legal and cooperative arrangements?

“The case of marriage and the family is interesting because families are considered in many ways to be paradigmatic, self-regulating institutions. The traditional view has been that government should stay out of families. Contracts between husbands and wives are not enforceable; the law will not step in. Until recently, if abuse occurred in the family or one member committed a tort against another, there was no legal redress. Wives and husbands and others in the family couldn’t sue one another. That’s the traditional approach. The intuitive argument is that the government doesn’t know the best way to regulate the family; the family is remote, complicated and intimate, and the government will only make things worse. (The family isn’t the only sovereign institution like this. For example, religious organizations in the United States sometimes operate outside the realm of government.) Yet government does regulate the family heavily, but only at its beginning and its end: in the marriage contract and in divorce. That particular significant regulation, where you need the government’s permission to get married, contrasts sharply with the government’s hands-off approach to commercial contracts. The law is set up so that usually anyone can contract with anyone else at any time. The government only steps in when a dispute arises to figure out who was right and who was wrong.”

Describe how a legislator might analyze a family issue using your approach.

“In the case of the family, the concern is that all sorts of bad things happen, like spousal abuse, and neglect and abuse of children. One view is that these are problems in which the government should intervene with police, injunctions and other tools of the law. But if the government intervenes too much, the family as an institution may fall apart because it needs autonomy to persist. Government over-regulation of the family will cause it to weaken and the institution may self-destruct.”

Could you explain how game theory informs your concept of social norms?

“Game theory provides a model for social organizations and cooperation between individuals. It assumes that people are rational actors. Game theory uses a theoretical construct that sets aside affection or altruism or a sense of solidarity as factors in cooperation. In the classic Prisoner’s Dilemma of game theory, people will rationally cheat each other and engage in opportunism unless something prevents them from doing so. In game theory, cheating and cooperation are rational choices. If I cheat you today, I won’t be able to cooperate with you tomorrow. The theory is intuitively correct for bilateral relationships, but obviously doesn’t explain why a thousand people might choose to cooperate. If it did, then we’d have lots of cooperation and very little government, because people would always fear that someone would see them acting badly (cheating) and tell others, so no one would rationally choose to cheat.

“How does the game-theory concept of discount rates fit into this?”

“In simple terms, people have low discount rates when they care about the future. People who are mature and patient will value future payoffs. People who cannot defer gratification want payoffs now: high discount rates. In my book, I call them “good types” and “bad types.” Another game-theory concept, “signaling,” refers to taking costly actions as a way of revealing private information. If you know what investments you must make to assure the cooperation of others, you will make those investments. My concept of social norms refers to those behaviors people take to signal that they are good types. Examples might include how you dress, owning a nice car and giving to charity. Cooperation is generally desirable, and signaling is part of that. Social norms refer to the patterns of behavior that emerge as people signal their time preferences and other kinds of private information.”

Explain how crime shows how signaling and social norms should be part of government decisions.

“The government historically used shame to deter crime. Criminals were publicly identified and humiliated, and even branded. But once marked with a brand as a criminal, an individual was shunned by society and had no choice but to join a criminal gang. That’s a case of government exploitation of social norms that has an unintended and negative result. The government is always faced with these choices of using laws or social norms. It can punish criminals to deter them or it can take advantage of social norms as signals, with unpredictable outcomes.

“So when the government sees a social problem, there are basically two strategies: traditional sanctions to punish bad behavior and reward good behavior, or enhancing the power of a group whose social norms might independently solve the problem. There’s a trade-off either way, but the choice is the first step in figuring out how to solve the problem.”