The Community of Advantage: A Behavioural Economist's Defence of the Market

The Community of Advantage asks how economists should do normative analysis. The growing consensus in favour of paternalism and 'nudging' has urged normative analysis towards the satisfaction of individual's preferences. Its conclusions have supported a long-standing liberal tradition of economics that values economic freedom and views markets favourably. However, behavioural research shows that individuals' preferences, as revealed in choices, are often unstable, and vary according to contextual factors that seem irrelevant for welfare. Robert Sugden proposes a reformulation of normative economics that is compatible with what is now known about the psychology of choice. Reformulations that assume that people have well-defined 'latent' preferences which, because of psychologically-induced errors, are not always revealed in actual choices. According to these reformulations, the economist's job is to reconstruct latent preferences and to design policies to satisfy them. Challenging the controversial idea of using behavioural insights to guide public policy The Community of Advantage argues that latent preference and error are psychologically ungrounded concepts, and that economics needs to be more radical in giving up rationality assumptions. Sugden advocates a kind of normative economics that does not use the concept of preference. Its recommendations are addressed, not to an imagined 'social planner', but to citizens, viewed as potential parties to mutually beneficial agreements. Its normative criterion is the provision of opportunities for individuals to participate in voluntary transactions. Using this approach, Sugden reconstructs many of the normative conclusions of the liberal tradition. He argues that a well-functioning market economy is an institution that individuals have reason to value, whether or not their preferences satisfy conventional axioms of rationality, and that individuals' motivations in such an economy can be cooperative rather than self-interested.

About the Author :
Robert Sugden, Professor of Economics, University of East Anglia Robert Sugden is Professor of Economics at the University of East Anglia, Norwich. He has been a prominent behavioural and experimental economist since the pioneering era of the 1980s. He is also well known for his work in economic theory, methodology of economics, and philosophy of economics. He is the author of The Economics of Rights, Cooperation and Welfare, Experimental Economics: Re-thinking the Rules, and many papers in leading journals of economics and philosophy. Recently his work has focused on reformulating normative economics so that it avoids unrealistic assumptions about individual rationality without becoming paternalistic.

Review :
"Robert Sugden is one of the world's most brilliant and deepest thinkers. A philosopher and an economist, he gets to the very core of the liberal tradition - and he offers bold new perspectives on freedom, the role of the state, and the limits of paternalism. This is, I think, his best work, and one of the very few most important explorations of liberty in the last half-century." - Cass R. Sunstein, Robert Walmsley University Professor, Harvard University, and author of The Ethics of Influence "In this book, behavioural economics insider Robert Sugden levels a powerful and erudite argument against the use of behavioural economics to justify paternalism. Adopting the �contractarian� perspective proposed by James Buchanan, Sugden draws on philosophy, historic and contemporary economics and political science to burnish the age-old idea that people should be given the freedom to chart their own course, and engage in free exchange with others who wish to do so. Even to readers who neither embrace Sugden's arguments nor accept his conclusions - a group among which I classify myself - this book is critical reading for those wishing to gain an understanding of the vigorous and vibrant debate taking place over the ethical and policy implication of behavioural economics." - George Loewenstein, Carnegie Mellon University "Robert Sugden's The Community of Advantage is a daring response to the findings of behavioural economics that show that preferences that people reveal in their choices cannot serve as a foundation for normative economics. Instead of conjuring up rational preferences that supposedly hide beneath the flawed ones we observe, Sugden proposes a radical transformation of normative economics which assesses policies by the freedom they offer interacting individuals. Sugden's arguments are a serious challenge to normative economics as we know it, and his proposals offer a fascinating unexplored path toward a replacement." - Daniel M. Hausman, Herbert A. Simon and Hilldale Professor, Department of Philosophy, University of Winconsin-Madison, US "For many years Robert Sugden has opened new pathways in economics and philosophy. This highly original monograph finally weaves together his views on rational decision, paternalism, freedom, and markets. Sugden's contractarian approach provides a much-needed alternative to libertarian paternalism, demonstrating that classic liberalism can be brought up-to-date with the latest research in behavioural economics. The Community of Advantage will become a compulsory reading for all philosophers and social scientists interested in the moral and political implications of economic science." - Francesco Guala, University of Milan "In this book, Sugden brings together his work over twenty years in experimental economics and economic/political philosophy to develop a defence of the liberal market order in terms of 'advantage', understood not in terms of preference satisfaction nor in objective metrics of well-being (such as Rawls' primary goods) but rather in terms of expanded opportunity sets. Sugden is one of the most interesting and creative minds working at the interface between economics and ethics these days; and his engagement with this ambitious project is a contribution of major significance." - Geoffrey Brennan, Professor of Political Science and Moral and Political Philosophy, Australian National University "In this magisterial book, Robert Sugden provides a sophisticated defence of the market from a contractarian perspective and in doing so mounts a serious challenge to the argument that behavioural economics provides a justification for government paternalism. A must-read for all those interested in the respective roles of the market and government in making the world a better place." - Julian Le Grand, Richard Titmuss Professor of Social Policy, London School of Economics