Money and Markets: Essays in Honor of Leland B. Yeager

A zeal for truth 15of “approval of happiness and disapproval of misery” (Yeager 2001b: 13, as cited inHolcombe’s contribution to this volume).David Hume’s view that it is not possible to derive an “ought” from an “is” hasproved to be an enduring, solid, and widely accepted principle. It seems quitepossible, therefore, that any ethical system now or in the future will have to build onat least one such undefended ethical principle. Even if we should identify some sortof universal ethics upon which, let us imagine, civilization depends, it remains for usto accept or reject them. In any event, Yeager’s system begins with the innocuousbut undefended postulate of beneficence.Yeager cites Hayek in making the case for rules-utilitarianism over actutilitarianism.We cannot reliably calculate the consequences of individual acts,but we can understand the consequences of following or not a given rule or set ofrules. Yeager taught me that we may often prefer to throw away information. Ithink this principle is important in both positive and normative economics. It mayeasily seem to be foolish or irrational to throw out information. Advocates of“rules” over “discretion,” however, want the central authorities to do preciselythat. A rule-following central bank ignores much of the information available to it.In general, rule-following agents throw out information. Yeager alerts us to thedangers of acting on “fragmentary and probably accidentally biased bits of concreteinformation that one may happen to possess” (2001b: 279, as cited in Holcombe).Recent developments in psychology point in the same direction. The “fast andfrugal algorithms” of Gigerenzer et al. (1999) throw out information. Similarly,Cosmides and Tooby (1994) have argued that our seemingly irrational adherenceto certain heuristics can produce results that are “better than rational.” In bothcases, the point is that the heuristic incorporates information about the environmentthat more seemingly rational decision algorithms lack. Long before these relativelyrecent developments in psychology, Herbert Simon defended heuristics onsomewhat similar grounds.Holcombe points out that Yeager goes beyond rules-utilitarianism “andadvocates indirect utilitarianism, which includes aspects relating to individuals’character and attitudes.” I should probably note a further distinction betweenrules-utilitarianism and indirect utilitarianism. Some rules-utilitarians imagine wecan judge rules one by one. Indirect utilitarians recognize that we cannot alwaysjudge individual rules reliably, but only systems of rules. We might compareindividual rules to individual genes. The behavior of the system depends on thetotal complex of rules or genes. These rules or genes may be characterized by arelatively large number of “epistatic interactions,” which means the effect of anyone depends sensitively upon what others may be present or absent. StuartKauffman (1993, 1994) has studied epistatic interactions among genes.Holcombe tells of his discussions with Yeager about contractarianism and utilitarianism.Contractarianism is an ethical doctrine that imagines what peoplewould choose from behind a veil of ignorance. It has therefore a similarity to Rawls’system. Contractarians espouse the constitutional rules they believe would beunanimously supported behind the veil of ignorance. They say the imagined terms