Elinor Ostrom as Behavioral Economist

Abstract

Similar to fellow Nobelists Vernon Smith and Richard Thaler, Elinor Ostrom has emphasized not just our cognitive limits, but also the institutions that people create to overcome them. But, while Vernon Smith or Thaler still focus primarily on private choices, and the institutions within which such choices happen, e.g. private financial or health choices, Elinor Ostrom has expanded the realm of inquiry by exploring how bounded rationality also enters the picture in collective action problems. The fact that Elinor Ostrom is primarily interested in collective action, rather than private individual action, has also led her to a different perspective on the limits of rational choice models. For Ostrom, the simplistic rational choice collective action model, as developed in Mancur Olson’s Logic of Collective Action, leads to wrong predictions about the conditions under which collective action happens (or doesn’t happen), and, furthermore, biases the analysis in favor of paternalistic solutions for solving collective action problem, as illustrated in Hardin’s analysis of the tragedy of the commons. The result of Ostrom’s analysis is a richer concept of rational choice, which simultaneously (a) accepts that individuals will act opportunistically, possibly undermining collective action, and (b) acknowledges the capacities of groups to take advantage of richer behavioral features, like altruistic punishment, fairness, group loyalty, and intrinsic preferences, in order to enable self-governing collective action. This richer concept of human behavior also raises additional concerns about the problems of hierarchical paternalistic proposals, showing that tyranny and oppression can be even more robust than accounted for by the simple rational choice model, particularly when we consider group loyalty.

Keywords: intrinsic preferences, game theory, fairness, bounded rationality

JEL Classification: B52, D02, D91, E14