Shared Mental Models: Ideologies and Institutions (Denzau, North, 1994)

Shared Mental Models: Ideologies and Institutions (Denzau, North, 1994)

Arthur T. Denzau, Douglass C. North

http://128.118.178.162/eps/eh/papers/9309/9309003.pdf

"we have (for the most part implicitly) sometimes made the erroneous assumption that we can extend without explicit consideration the scope of the substantive rationality assumption to deal with the problems of ambiguity and uncertainty that characterize most of the interesting issues in our research agenda and in public policy."

JLJ - Denzau and North admit that economists have ignored the difficult problems, focusing instead on situations where "rationality" and "optimization" can be assumed. But the actual environment is complicated, and so are mental models. Perhaps it is time for Economics to grow up and attempt to tackle the difficult problems, but it needs a framework in order to do so. Denzau and North give their opinions on how it is to be done.

On a side note, North is a Marxist economist who can't help but push his ideology wherever/whenever he can. Check out his anti-capitalism rantings, especially 'all profits produced in the capitalist production process results from the extraction of "surplus value" from the workers by the capitalist employing them, as the workers are induced to work for lower wages than the value of their labor' on page 9.

(page numbers from internet source likely do not match original publication)

p.1 It is the argument of this essay that in order to understand decision making under such conditions of uncertainty we must understand the relationship between the mental models that individuals construct to make sense out of the world around them, the ideologies that evolve from such constructions, and the institutions that develop in a society to order interpersonal relationships.

p.1 Following Holland et al. (1986, p. 12), we start with the presumption that "...cognitive systems construct models of the problem space that are then mentally "run" or manipulated to produce expectations about the environment."

p.2 mental models are the internal representations that individual cognitive systems create to interpret the environment

p.2 We need to develop a framework that will enable us to understand and model the shared mental models that guide choices and shape the evolution of political-economic systems and societies. What follows is an outline of how to go about this task.

p.2 We believe that... we must seriously consider the development of alternatives to applying substantive rationality to situations where it performs poorly.

p.3-4 How complex are the mental models required in order to make sensible choices given one's preferences and resources? This can best be judged by the similarity of the most appropriate models (so far as we now know) to what the chooser already knows. Analysis does not reduce the complex to the simple. Rather, it's a process by which we substitute a familiar complexity for one that we have found novel. The invisible hand result is now obvious and intuitive not because it is simple, but because we are trained to see it when it may be present or useful. Thus, complexity and the frequency of similar choices may be related.

p.4 Having good information is essential to improving the mental models.

p.5 We have already developed an adequate framework for the easier problems in which the substantive rationality gives good results. But we have (for the most part implicitly) sometimes made the erroneous assumption that we can extend without explicit consideration the scope of the substantive rationality assumption to deal with the problems of ambiguity and uncertainty that characterize most of the interesting issues in our research agenda and in public policy. Problems in political economy, economic development, economic history for example, all require an understanding of the mental models and ideologies that have guided choices. It is now time to refocus on the wide range of problems that we have so far ignored that involve strong uncertainty.

p.6 how can people make choices when faced with complex problems in a situation of strong uncertainty? Holland et al., and Arthur (1992) argue that we must be employing some form of induction, enabling us to learn from the outcomes of our previous choices. To usefully learn by induction, an individual needs some sort of mental model with which to understand the implications of a chosen action, as well as needing some way to identify potentially useful actions and the possible outcomes of those actions. The very spaces for actions, outcomes and reasonable strategies, as well as the mappings between them may be objects of ignorance on the part of the individual.

p.6 If problem complexity is too great... such situations require one to model the decisionmaker as building internal mental models to represent the world and to learn from that world in order to improve the resulting choices.

p.6 Humans... construct explanations in the face of ambiguity and uncertainty and act upon them.

p.9 Let's see how to build a model of a chooser facing strong uncertainty, a chooser who learns both directly from the world and from a shared mental model (SMM).

p.10 But the problem is that we almost never know what the factors that result in a decision that we have made. Much of our understanding in a choice situation can be tacit knowledge, as Michael Polanyi discusses. We perceive things which we are not even consciously aware of, and this data can affect a decision. Attempts to determine the factors and their weights can be made, but the basic problem is that we are always uncertain as to the dimensions of the knowledge space that must be measured. As a result, the encoding is almost certainly to be imperfect, and not all the information used by L to make the decision can be placed in the communication channel.