Uncertainty and economic sociology: a preliminary discussion - Focus on Economic Sociology

American Journal of Economics and Sociology, The,  July, 2003  by David Dequech

• E-mail
• Print
• Link

Introduction

INTERDISCIPLINARY WORK INVOLVING ECONOMICS and other social sciences has significantly increased in the last two decades or so. Economists have invaded the territory usually occupied by other social scientists, and, either in reaction to this "economic imperialism" or not, some of these other social scientists have (again) devoted their attention to economic matters. As a result, the literature on economic sociology (among other interdisciplinary fields) is burgeoning, with the label "new economic sociology" being used to distinguish this recent literature from the classical tradition of Weber and others. (1) This new interdisciplinary interest is a potentially fruitful development for both economists and sociologists. Of particular importance is that the interest in institutions, which has been renewed in economics, has always been a mark of sociology. Indeed, Durkheim defined general sociology as the "science of institutions" (Velthuis 1999:634 and n.6).

The present paper discusses the role of uncertainty in economic sociology, aiming to clarify some controversial issues in the related literature, such as the different concepts of uncertainty, the different versions of the maximization hypothesis, and the relation between uncertainty, institutions, and individual behavior. Within economic sociology, as elsewhere, various objections have been raised against neoclassical economics and/or rational choice theory. Some of these objections have a cognitive character; others do not. Uncertainty pertains to the former category. In the latter category are, for example, objections that concern the motivational aspect of behavior.

Studying uncertainty and economic sociology may be understood as part of a "cognitive turn" within economics and sociology in recent decades (for a discussion concerning the new institutionalisms in these two disciplines, see Lindenberg 1998). As a result of this growing concern with cognitive matters, the issue of uncertainty itself has been the subject of interesting new developments in economics, some of which will inform the discussion below.

This "cognitive turn" provides the general motivation for the present paper. More specifically, economic sociology has been part of this process, as an increasing number of economic sociologists have criticized rational choice theory and/or neoclassical economics on cognitive grounds. This cognitive critique seem to be predominantly based on the argument that the complexity of social reality prevents decision makers from having the knowledge attributed to them by rational choice theory and neoclassical economics. For example, in a survey of criticisms of rational choice theory, Smelser (1992) discusses a line of attack on assumptions concerning the information available to decision makers and highlights the work of Herbert Simon, which emphasizes, along with the notion of bounded rationality, the contrast between the complexity of our environment and the limitations of people's mental capabilities. Dealing more specifically with the crisis in the neoclassical theory of the firm, Zukin and DiMaggio (1990:6) po int out "three prominent lines of attack by outside critics and dissidents within economics. One set of criticisms [the set related to cognition] concerns complexity." They then also refer to Simon and his colleagues of the Carnegie-Mellon school. This school's influence on economic sociology is noticeable, not only in discussions of the firm, but, more generally, in organization studies. To the best of my knowledge, one of the most developed discussions in economic sociology along these complexity-based cognitive lines is by Jens Beckert (1996), at least in the sense that he, possibly influenced by the previously-mentioned authors, proposes a concept of uncertainty related to complexity as the very basis for a sociological approach to economic decision making. Moreover, his proposal seems to have a general character, intended to apply to most or all areas of research in economic sociology.

The vast majority of the economics profession has adopted a notion of (what I define below as) weak uncertainty, neglecting--or rejecting the relevance of--the seminal work of Frank Knight, after whom weak uncertainty is sometimes called Knightian risk, and John Maynard Keynes. Both Knight and Keynes identified and emphasized stronger types of uncertainty than the one most commonly discussed in economics. The number of references to complexity and to bounded rationality, in particular, has been increasing, especially after Simon was awarded the Nobel Prize, but the incorporation of these ideas into economics has so far taken place in a rather limited way.

In addition, the discussion of uncertainty represents a telling example of the above-mentioned relevance of institutions for sociology in general and for economic sociology more specifically. In at least two subsets of the existing literature on economic sociology, complexity may be identified as the major cognitive problem considered in explicit relation to institutions. As already implied, one of these subsets is that of organization studies, which is especially related to institutions if the latter can be defined so as to include organizations. The second subset, which intersects with the first, consists of research in economic sociology originating from the influential paper by Granovetter (1985) and often presented in confrontation with the so-called New Institutional Economics, to which bounded rationality (arguably in milder forms than in the Carnegie-Mellon tradition) is a core behavioral assumption. Last but not least, Beckert's (1996) proposal should be mentioned again, for it locates the main contr ibution of economic sociology exactly in the study of institutions.