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Two roles for economic agents

from Issue no. 70 of the real-world economics review 

I have already explained the difference between complex and uncertain worlds, and highlighted the importance of agents’ beliefs about how the world is and of the knowledge they can possibly have about it have for decision making. Now it is time to consider in more detail two different roles agents play in the economic process: decision-makers and lobbyists. 

Individuals or firms may take economic decisions (behaving as decision-makers), or may influence economic performance in a broader sense with the purpose of enforcing the success of their decisions. In this second role they behave as lobbyists. The category of lobbyists includes the government, media of communication, corporations, unions, political parties and any individual or groups of individuals that are strong enough to influence the course of economic events. They may try to influence the expectations of other agents or the relevant economic context (promoting changes into the legislation, new regulations and institutions, etc).

The distinction between decision-makers and lobbyists refers exclusively to two different roles that the very same agents can play. One way to visualize this difference is to base it on two stages of economic processes: the time before and after decision-making.t0 (PTF – contracts)     t1      (Lobbying)

…………………………   D …………………………….

Between t0 and t1, agents consider the available alternatives given the information they have, and finally take a decision D. Although decision-makers believe that the world is uncertain they manage to face the situation using PTF.[1] All agents behave in this way in ordinary circumstances. But look what happens then. Many have no choice but to sit down once they have made a decision and wait to find out what outcome the market will provide for them. But many agents have another option: they can actively intervene in the market after t1, trying to shape the course of economic processes in a way that favors their interests. Lobbyists have behaved as simple decision-makers prior to t1 (i.e., they have naively used PTF), but because they believe that the world is uncertain and have the ability to intervene and help to generate the consequences they want to see realized, they take an active participation on the market after t1. Lobbyists may be characterized by three main features:

  1. Knowledge (beliefs). They believe that the social world is uncertain, that agents decide on the basis of expectations that may be influenced in various ways, using a wide range of information that goes beyond purely economic factors, that institutions and regulations can be made and unmade, etc.
  2. Consistency. They have a consistent set of beliefs and behave consistently with respect to them.
  3. Lobbying capacity. Due to the size of their capital or their privileged access to positions of power, they have the ability to intervene effectively on the decisions of other agents, either directly (suggesting to them what to expect), or indirectly (modifying or helping to create the economically relevant context).

Like agents, lobbyists suffer uncertainty too. They are unsure about whether their extra-economic activities (as lobbyists) will allow them to get in the future the results expected in the present. They do not know whether their intervention will be successful given that there are also other lobbyists intervening in order to push the process along lines that are not beneficial for them. Nonetheless they do have some useful knowledge, which encourages them to keep trying to influence the process. For instance, they know what measures (bills, regulations, decision-makers’ reactions) will be beneficial for them and the sort of participation that will contribute to enforce those measures and reactions.

Keynes outlined a purely passive way to deal with uncertainty. Davidson’s suggestion that contracts may offer additional help to deal with uncertainty has a similar spirit: contracts enter in the picture as a preexisting factor in decision-making, helping to make it possible (providing more confidence in the expected result). Here I have suggested a strategy to deal with uncertainty that goes the other way around. Agents who are aware that their decisions (and their results) face genuine uncertainty try to influence the course of events so as to reach their preferred result. When they have the power they become lobbyists, and get involved in shaping the economic process because they are aware that their further actions, those which occur after the decision has been taken, are the ones that will be most decisive for the final results. If there is any rationality in economic action under conditions of radical uncertainty it should be found in the agents’ involvement in shaping economic processes.

[1] According to Keynes, such techniques allow us “to behave in a manner which saves our faces as rational, economic men” (Keynes, 2002, 114).

Gustavo Marqués

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