Methodological Empirical And Diagnostic Payoffs

Characterizing science and market as different implementations of adaptive classifying systems is one thing; showing how this might be a useful and fruitful conceptual base from which to increase our understanding of social systems generally is quite another. But, for the idea to be taken seriously, it obviously needs to be done. Although treating potential applications in anything like reasonable detail is beyond the scope of this paper (to say nothing about getting ahead of actual work done), it is certainly possible to point to specific areas of application that not only seem to be handled unsatisfactorily by extant social science paradigms in both economics and sociology and therefore are in need of analytical attention but also appear to involve just the sorts of phenomena that would be very suited to investigation and explanation in terms of adaptive classifying systems. For compactness of discussion, these can be grouped into the categories of methodological, empirical, and diagnostic issues.

5.1. Methodological Issues

The adoption of a systems viewpoint would seem, at first sight, to be an implicit rejection of methodological individualism and an espousal of a group-oriented holism. It may indeed lead one to reject a narrowly reduc-tionistic form of methodological individualism, but it is, most emphatically, not at all incompatible with a species of methodological individualism - one that is conditioned by the ontological and epistemological challenges thrown up by the complexity of the systems of interest. The order that one finds in this complexity suggests the usefulness of recognizing a series of 'levels of abstraction' (not just one) at each of which the relevant phenomena are most fruitfully described in terms of basic concepts appropriate to that level, while at the same time recognizing the causal and structural linkages between these levels.

Consider, for example, the brain. There is little doubt that the active components out of which the brain is composed are neurons. But the recognition that the brain is physically reducible to neurons is only one step in the work of understanding how the brain works. Certainly, the more that is known about the characteristics of individual neurons the better, but it is also relevant that these individual neurons operate in a context of an organized structure built from neurons and other cells - a structure which the neurons themselves have had a significant role in creating and modifying as a side-effect of their interactions. And so the characteristics of this structure need to be understood if one is to understand the contextual constraints on neuronal activity, an inquiry for which the introduction of basic concepts appropriate for describing organization and structure is a most useful move. These structural concepts, such as spatial relationships between axon bundles, are not directly reducible to the behavior of individual neurons although they can, at a separate level of analysis, be understood in terms of the activities of neurons operating over time in particular contexts. At yet another level of abstraction, there seem to be large organized groups of neurons that specialize in particular functions and interact with other neuronal groups, and these present the need for theoretical constructs pitched in terms of these interactions. Finally, there is the level of the experience of sensory phenomena in the context of the classification Hayek (1952) calls 'the sensory order', where the deployment of basic concepts such as thoughts and emotions is appropriate and necessary.37 Now, all of this could have been phrased in terms of markets or science instead of brains (with the appropriate terminological substitutions), given the position that markets and science are examples in the social domain of adaptive classifying systems. The recognition of causal efficacy in the intermediate levels of structure in these systems with respect to both higher and lower levels suggests the more nuanced form of methodological individualism in which current individual behavior can only be understood in the context of the emergent results of past individual behavior that has affected both the institutional context and the physical environment of current behavior.38

A second methodological payoff, and perhaps an even more far-reaching one, is that the systems approach focuses attention on the puzzle of how adaptive systems can arise and flourish. For example, rather than simply assuming that rational self-interest constrained by market rules will tend to ensure the production of societally beneficial outcomes, one can ask just how such rules could come to coalesce in the face of the real possibility of opportunistic defection and innovative avoidance of whatever constraints their less effective progenitors imposed. An answer, given long ago by Mandeville (1724)39 but immediately deprived of the emphasis on 'vice' by his Scottish successors, is that market and legal institutions emerged as a result of (as opposed to 'in spite of') these behavioral characteristics - a major impetus for change and development was precisely the personal need to protect oneself from and to compete with such behavior.40 And the methodological lesson is that one might do well to look for the same phenomenon in other social systems. Further, if one is enamored of designing (on a small scale, hopefully) institutional arrangements, one should take the Mandeville Criterion into account and understand that effective institutions cannot be created and established on a once-and-for-all basis, but must be mutable in the face of defection in a positive, adaptive way, not simply strengthening restrictive constraints but allowing for the incorporation of innovations inspired by competitive reactions to defection so that, over time, the evolved arrangements continue to produce (and perhaps exceed) their projected beneficial effects because of the sometimes shabby behavior of their constituents.

Finally, the adaptive systems approach provides the basis for a critique of Hayek's defense (1952, pp. 184-194) of methodological dualism - even of the mild and 'practical' form he describes. Hayek's argument is based on the very reasonable proposition that 'any apparatus of classification must possess a structure of higher degree of complexity than is possessed by the objects which it classifies'. Therefore the human brain cannot fully understand the detailed workings of the human brain (in the sense of fully classifying the specific phenomena associated with its structure and operation), and so 'the type of explanation at which we aim in the physical sciences is not applicable to mental events'. Hence, he concludes, 'we shall have permanently to be content with a practical dualism' between the explanations possible in the physical sciences and those in the sciences of human action. The weakness in this line of argument is the unstated assumption that the only classificatory system involved here is the human brain. But the classifications of science are not produced by a single human brain; they are the result of the interactions between many human brains in a system whose overall complexity exceeds that of a single brain - a system which, therefore, does not violate the condition set by Hayek's opening proposition. The classification produced in the mind of an individual scientist, even though it includes feedback influences from his observations of the classification produced by science, is not the same thing as the emergent classification we call 'scientific knowledge' and should not be conflated with it.

5.2. Empirical Issues

We proffer two examples each from the domains of market and science -examples of phenomena that, if discussed analytically at all, are treated as epiphenomena with which the connection to the basic theory being deployed is tenuous at best. The intent is to illustrate how these phenomena can be understood as natural and predictable reactions of adaptive classifying systems, given the environmental circumstances which induce them. First, a market example: consider the imposition of maximum price controls in the apartment rental market of a large city. The usual treatment of this scenario (rehearsed in any economics principles textbook) points to the emergence of a shortage as the quantity demanded at the controlled price exceeds the quantity supplied at that price. Although that is as much as the theory supports directly, the narrative is usually extended to suggest that, over the longer term, consistent with the basic concepts of competition and entre-preneurship, the trend will be toward reductions in quality and impositions of ancillary charges and costs. From the adaptive systems perspective, these conclusions are quite reasonable as far as they go, but they give no indication of the likely specifics of these general adjustments. The price control's effect, as an impediment to the normal workings of the market system, is to limit its ability to generate market goods and prices consistent with the kinds of interactions that would normally prevail. It is as if certain pathways in the market's map have become injured or disabled, and so the current model in the damaged map exerts pressure on the map to change. The change is most likely to involve the co-opting of existing 'nearby' transaction pathways (i.e., existing norms or institutions), and so, in predicting in more detail the type of reaction that might occur, the institutional surroundings should be of significant relevance. In the Hong Kong of the 1920s, for example, it was traditional for prospective tenants to pay a middleman 'shoe money' for help in negotiating a rental contract.41 With the advent of rent control, this institution was used by landlords themselves not only in transactions with prospective tenants but also in arrangements with existing tenants whose motive was to avoid eviction through the landlord's ability to remove the housing from the rent control scheme by 'reconstruction'. More generally, the phenomenon of the market's map adjusting to the shutting down of existing transactional paths has been recognized elsewhere as 'intervention breeding more intervention'.42 There will be a workaround subsequent to intervention (since classifying systems can do nothing else but classify) and, if (as often happens) the ensuing state of affairs is unsatisfactory to the intervening party and the response is further intervention, the result is simply further injury to the adaptive capability of the system.

For a second market example, consider the phenomenon of markets with 'big players',43 i.e., functionaries, such as central bankers or finance ministers with discretionary power to affect market conditions, who are outside the market system in that they are, in these roles, immune to the discipline of profit and loss. The presence of a big player introduces a prominent element into the environment of the market system, and so the resulting classification is an adaptation not only to the usual environmental conditions but also to the big player's actions. Especially in cases where the big player's activities affect the supply of money and credit (since money is a component in every transaction and many transactions, involving both capital and consumption goods, are dependent on credit) the market's adaptation is significantly affected by the actions of the big player. For a normal market participant, it is at least as important to predict the future behavior of the big player as it is to predict the 'underlying fundamentals'. If big players engage in discretionary policy, market participants are not likely to be able to adjust their transactional behavior quickly enough to the realities of the new (and ever-changing) environment and so the market classifications will be only poor representations of the actual circumstances. Since, in the big player market, the market classifications are much less useful for augmenting individual knowledge of the circumstances beyond those affected by the big player, the opportunities for market participants to adapt their individual knowledge to these circumstances is impaired. Their obvious incentive is to adapt their knowledge to the behavior of the big player, but this can be a difficult and error-prone process in a regime of discretionary policy. In looking for clues here, market participants are likely to form expectations heavily based on what others think the big player is going to do, thereby providing a rationale for 'herding' behaviors.

In the case of science, it is rather more difficult to play off possible advantages of the adaptive systems perspective against an established mainstream approach, since there is no established mainstream approach with significant empirical relevance. The sociological literature does contain many instances of empirical investigations of particular topics - for example, the work of Cole and Cole (1973) and Whitley (1984) in examining the phenomenon of prestige hierarchies in journals - but these are not in the context of an overarching theoretical framework. One thing we can do, however, is to show how a number of such apparently unrelated phenomena are direct consequences of the particular structure of the adaptive classifying system of science.44 The nature of the basic transaction type in the system is that it is a two-step process: the initiating signal is the act of publication which, if it is to be successful, has to be noticed by people likely to make use of it and therefore to cite it favorably. Many details of the structure of the publication process can be shown to be geared to enhancing the signaling effectiveness in relation to the characteristics of the audience. Most obviously, growth in the numbers of scientific publications being generated leads to a strong tendency toward journal specialization, as journals cannot continue to command the attention of the whole of an audience increasingly diverse with respect to their scientific interests. Similar factors impel journals to become increasingly selective with respect to the publication of articles received, and to provide an explicit certification function by virtue of such selectivity. A significant factor in determining signal effectiveness has been observed to be the prior reputation of the author,45 and the adaptive systems approach would predict a positive effect of prior reputation at the margin simply on the assumption that author reputation is one selection factor considered by potential users of published work. Considerations of signal effectiveness also provide one basis for an explanation of the frequently observed tendencies toward fragmentation of scientific disciplines. Within a scientific group - a number of otherwise separate researchers all grappling with a particular problem or working within a common framework - the signals from researchers are likely to be stronger or more germane to those within the group than those outside it. Those outside the group may lack the interest, specialized knowledge, or simply the time to maintain close interactions with members of the group. Citations of group members may be dominated by other members of the group. The formation of such 'research groups' provides important focus, expertise, and feedback effects that support high degrees of specialization and that form the structure that supports the anticipatory capabilities of the system. Incentives exist for groups, especially when they coalesce around a 'school of thought', to build their own instruments to increase the value of their contributions, institutionalize their commonality, and expand their influence (mainly through 'recruitment'). These activities may take on more formal characteristics - new journals and conferences, for instance - once the group reaches a large enough size or attains a distinctive identity.

For a second science example, consider the question of the adaptive response of science when its funding environment changes.46 When new funding is targeted to a specific area of research, it should be no surprise that scientists will be attracted to the area47 and transactional activity in the area will increase, that this activity will tend to be oriented toward those methods and conjectures consistent with the funding preconceptions and specifications, and that the resulting classification of phenomena will change accordingly. This does not imply that quality of scientific research is necessarily degraded by any particular funding source - provided the procedures, practices, and conventions that define science as we have characterized it remain operative, the funded scientists can still interact to produce 'good science', although the particular content of that emergent classification is certain to reflect salient features of the system's environment, of which any pressures inherent in the funding arrangement are a part. The general phenomenon will be the same whether the directed funding sources are private or public, but there is an important difference between these two: private funding comes from many different sources (businesses, foundations, private university endowments, philanthropic individuals) while government funding is administered from relatively few science funding bureaucracies (such as, in the U.S., the National Science Foundation or the National Institutes of Health). Given that, especially since 1940, government funding of basic science in most developed countries has increased dramatically and dominates private funding,48 these bureaucracies are big players in science, and their presence introduces into science all of the perverse big player effects we noted above for the case of markets. In science, however, such big player funding has an added effect - it provides another means involving new transactional paths through which scientists can pursue reputation, especially since the selection mechanism through which funds are distributed is very public and involves peer review.

5.3. Diagnostic Issues

While the thrust of the adaptive systems approach is to understand and explain the phenomena observed in the social domain, it is certainly possible for any such understanding gained to be employed in a diagnostic sense. The general criteria for an adaptive system to be able to react adaptively can be useful in pointing out (from a positive perspective) how some particular existing institution (such as government funding of science) might hinder the system's ability to adapt to changes in its normal environment, in analyzing from a theoretical perspective the likely success of arrangements that might be proposed by a social theorist (or by a political demagogue), and, most importantly, in examining the structure of existing social systems for features that may tend to be detrimental to their long-term survival prospects.49 The following list is a first cut at a catalog of such criteria:

1. To adapt to an environment that can change in unanticipated ways, a system must obviously be open to that environment. And further, adaptation requires that the system have the ability not only to sense significant aspects of that environment but also to process those sensations so that it is able to respond in ways that are conducive to its continuing integrity and survival. The fact that we are dealing with open systems should alert us to the very limited use of equilibrium theorizing in such contexts - equilibrium is a characteristic of closed systems, not of open ones. The valid use of the equilibrium concept in an open system would necessitate dealing with a subset of the system for which (at least temporarily) outside influences could be ignored.

2. If the system is to adapt via the continual building up and updating of a classification of the phenomena in its environment, it is necessary that the processes through which that classification is maintained and updated must be free to proceed. While the deliberate shutting off of normal pathways may be well tolerated by the system in that it can co-opt other pathways and even create new ones, there is a limit to how much manipulation can be tolerated before the adaptability of the system is noticeably degraded.50

3. A corollary of the two criteria above is that, in social systems, power to influence the actions of others must be widely distributed within the system - not necessarily uniformly, but sufficiently to avoid the emergence of small groups or single individuals whose preferences and actions dominate the responses of the system as a whole. The problem here (from the systemic point of view) is a severe degradation of adaptability51 - the sensory and classificatory ability of the system as a whole (geared to the adaptability of the system) is bypassed and replaced by the sensory and classificatory ability of an individual or a small group (geared to the adaptability of the individual or group). This is, in effect, another way of stating the 'knowledge problem' facing a central planning authority as described by Hayek (1945).

4. The system's operation must be compatible with the characteristics and (in social systems) the motivations of its components. The components must benefit from participation in the system. Further, since the components are changed by their participation in the system (individuals in social systems, for example, learn from their experiences of system transactions), the operation of the system must be such as to be compatible with (and perhaps even depend on) such changes. The recognition that individuals learn from their participation in social systems suggests the likelihood that market participants reassess their reservation prices for goods based on their experience of prevailing market prices. If so, the potential for changes in preferences may require more attention than it receives in standard economic treatments.

5. The classification produced by the system must be relatively stable for it to provide a base for the adaptive and anticipatory responses of the system. Dynamic stabilization is achieved by negative feedback or resistance within the system to deviations from the current configuration.

6. On the other hand, the classification cannot be too stable, since adaptation implies change and reclassification in the face of unexpected environmental events. The system must be capable of internal change driven by the effects of its sensing of stimuli from unexpected events.

7. For the system to have the ability to maintain itself and even grow, it must provide an environment that not only is supportive of and beneficial to current components but also is capable of attracting new components.

It is interesting to observe how well science and markets (in the absence of big player effects emanating from other systems) perform with respect to these criteria.52 Both are open systems in continual contact with their environments through a system-wide sensory capability. Both are decentralized systems with no controlling authority. Both explicitly cater to the self-interest of all of the participants - whether an individual scientist's motivation is truth-seeking or the building of a reputation or a secure career, and whether an individual buyer or seller is motivated by profit or personal needs or the challenge of creating goods or making deals, his pursuit of that end is enhanced by participation in the system. Both result in observable side-effects stabilized by negative feedback - scientists who deviate from accepted presumptions face considerable risk to their reputations; sellers asking a price higher than the market price tend to lose business and buyers insisting on a price lower than the market price tend to not get what they want. In both cases this stabilization is not such as to preclude variation of the side-effects in response to environmental changes - in science, the need for contributions to be useful to other scientists imposes (more in some fields than others) a requirement of adaptability to real circumstances driven by the premium put on conformation with observation; in markets, the interaction between desirability and scarcity means that changes in either are transmitted, usually very quickly, to market price. Finally, again in both cases, these relatively stable side-effects provide general and nondiscrimi-natory benefits which have a positive feedback effect on participation in the system - scientific knowledge serves as a base of information from which prospective scientists can bootstrap their individual knowledge; market prices reduce the uncertainties of engaging in exchange by making evident profit (or happiness-enhancing) opportunities that would have otherwise been much more difficult to discern. The fact that these criteria seem to be readily applicable to two important systems, each of which could reasonably be judged to have contributed a great deal to the enhancement of human welfare, suggests that the deployment of these and similar criteria could open up a whole new domain of comparative systems analysis which might be deployed to better understand the problems and possibilities of other social systems - current political, legal, and monetary systems, to cite pointed examples of systems that probably do not match the criteria for long-term adaptability so easily.

Conceptualizing markets, science, and other social arrangements as examples of adaptive classifying systems also leads one to be highly skeptical of the common diagnoses of actually existing markets, and especially actually existing science, in terms of 'market failure' to be mitigated by government intervention. First, if science is not a market, then it can hardly be subject to market failure, for market efficiency, even if it were a valid criterion by which to assess the performance of a market outside of the classroom, would not apply to the different institutional arrangements found in science. Second, there is no guarantee that interventions from government allegedly intended to make science work actually have that effect, and in fact the preponderance of evidence - see Kealey (1996, chapter 10) - would seem to suggest that they tend to be counterproductive. Third, there is something odd on the face of it about invoking the operations of a system such as government that performs less well on the criteria above (one reason being that it exhibits substantial concentration of power) than does science itself.53 This skepticism as to the merits of'market failure' analysis, it should be emphasized, has the merit of being based on theoretical and empirical considerations, not on ideological ones.

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