Remarks by Roger A. McCain on Charitable Giving Under Ambiguity

1. Remarks by Roger A. McCain on Charitable Giving Under Ambiguity By Emina I. Cardamone

2. Topic • Cardamone’s paper deals with a game-theoretic analysis of charitable donation with a nonstandard model of probabilities alleged to be a model of “ambiguity.” • For a more conventional model of charitable giving and nonprofit organizations, see the forthcoming second edition of my textbook. • As to ambiguity, fuzzy set models have long been available to deal with it. Again I can cite my own work published in the 1980’s.

3. Orientation • Jon Elster has recently written that, while neoclassical economics is positively harmful, behavioral economics is incoherent, consisting, as it does, of nothing more than a proliferating list of nonrational “quirks.” • Unfortunately, Cardamone’s paper provides another instance of this. • Moreover, and worse, her paper certainly cannot be thought of as a model of bounded rationality, since it requires the computation of the mathematical expectation in addition to a weighted deviation from it!

4. The Model 1 • Cardamone’s paper then develops a Nash equilibrium model in terms of perceived, weighted payoffs, with interior optima. • (Much of this complexity seems designed to produce interior optima, which often do not arise in game theory, for which there is no evidence in many applications, and which seems a regrettable vice of neoclassical economics.) • She considers a number of special cases in terms of optimistic, pessimistic, and intermediate attitudes.

5. The Model 2 • This is followed by some conventional exercises in comparative statics, in the neoclassical style. • (The evidence for neoclassical comparative statics, it may be noted, is uniformly negative.) • The paper also considers relative “waste,” where any resources diverted to the manager’s benefit are considered “waste.” (Presumably his marginal utility of income is not zero?) • An intriguing result is that in some cases, increased pessimism can lead to increased donations.

6. Evidence • The presumable justification of this is that it accords with longstanding evidence that people’s choices deviate from maximization of expected utility. But why is a new (and more complex) theory needed to account for this? • There are theories of behavior under ambiguity. Is there any reason to think this theory is better? • Is there any evidence that would favor this theory over others? • These questions are not confronted.

7. Conclusion • As Elster remarks, society should tolerate some waste of resources by scholars, provided they do not do positive harm. • This paper appears harmless. • However, Elster is not quite just in his strictures on behavioral economics. There is a general theory of bounded rationality – it is called “artificial intelligence” – and it can integrate many “quirks” as “rules of thumb” provided they are easy to compute. The complexity of this theory suggests that it should be left with Shackle’s “potential surprise” model of non-additive probabilities, 1949.