Two different worlds

“We live simultaneously in two different worlds, one where social norms prevail, and the other where market norms make the rules.” (Predictably Irrational, Dan Ariley)

It is a sentence extracted from the work of Margaret Clark, Judson Mills and Alan Fiske and, furthermore, it is a good model which explains relationship dynamics.

First of all a brief definition. What is a culture in an organization? They are the set of knowledge, beliefs and behavior patterns of a social group, including means (material or not) members use in order to communicate with each other and to solve all kind of needs.

The culture of an organization can be sustained by market norms and/or social norms. Organizations balance equilibrium towards one or another side ignoring the consequences. It seems the more intuitive position to manage business is to develop a culture with low uncertainty regarding on productivity. It means, everybody is clear that they obtain money and productivity is expected for that money. But everything is wrong whenever productivity is not the expected.

Some experiments have shown how social rewards and not material ones, sometimes create higher productivities. In one experiment it was asked to draw circles on a screen for 5 minutes. It was created three groups, and the best group was the group rewarder with no material rewards and simply they completed the task because it was what they should do.

To mix market norms with social norms violates the basic mechanisms of relationships. Therefore, when creating an organizational culture, organizations have to take into account the kind of incentive they offer and the objective. Giving bonuses or incentives in order to collaborate more, for example, is very likely not to be useful. Providing health insurance to all employees of a company is a clever way to take advantage of constructive social norms without their commercialization.

The concept of utility

Utilitarianism founder (Jeremy Bentham) described utility as the sum of all pleasure that results from an action, minus the suffering of anyone involved in the action. From a more earthly point of view (the economy one), utility is a measure of person’s satisfaction with a good, service. If we carry out the concept to the artificial intelligence field, we talk about actions and states.

If we define a s state, it can be defined an utility function U(s) which details the utility of a s state for a person or agent.

In accordance with this definition, the most commonly used principle associated with making decisions or actions is the principle of maximization of expected utility. Which tells us that the action we must take is one that maximizes the expected utility of the agent:

action = argmax EU (a|e) being e the evidences we have.

The expected utility is defined as:

EU (a|e) =sum (P (Result(a)=s’ |a,e) U(s’))

So far we have exposed some of the basic principles of utility, but reality is much more complex and human agents too. These are some of the questions we should to take into account in order to improve the model:

• The behavior called risk-neutral, is not normal, the most natural thing is that there is, depending on the economic context, an aversion to risk or a search for it. This means that sometimes the action that maximizes the expected utility will not be the one chosen.
• There is a huge number of cognitive biases that distort the objective evaluation of the previous formulas.
• Utility is actually a multidimensional aspect. We must not only assess satisfaction around the economic, but also other factors that produce utility.
• And, of course, social norms establish parameters that go beyond the classic concept of utility.

Social norms an utility

At first we have established two parallel worlds, the world of social norms and the world of market norms. Later we introduced the concept of utility with its constraints and the multidimensional aspect. And lastly, in this part of the article, we will try to clarify how social norms and utility interact.

Think of an organization, big enough to group numerous small sub-organizations. A person 1 form A sub-organization needs to ask a favor to person 2 of B sub-organization. Let us analyze the dichotomy between social norms and utility according to three scenarios:

Scenario 1

• Person 1 asks a favor to person 2. Inside of organizational culture is established that this kind of favor is well regarded and rejecting it is very punishable in terms of reputation.
• Person 2 will do the favor to person 1 and it will fit within “the social norm”, something that must be done in a context of altruistic reciprocity, so in the future, person 1 could need a similar favor. Rejecting option would affect Person 1 reputation, so it would no be the right choice.
• There will not be a direct debt between person 1 an 2, nevertheless the reputation of person 2 will increase.

Scenario 2

• The person 1 asks a favor to the person 2. Within the organizational culture is unestablished that this type of “favors” is well or badly seen and it depends on the people to make them.
• Person 2 will do the favor to person 1. Tacitly, it is being established a direct reciprocal relationship admitted by both, for which person 1 owes a favor to the person 2

Scenario 3

• Person 1 asks a favor for person 2. The organizational culture or social norms within the organization does not establish a clear pattern in this field and gives rise to interpretations.
• Person 2 will do the favor to person 1. Person 2 thinks it is an act of direct reciprocity. While person 1 interprets it as an action that enters the field of social norms not written in the organization.
• The conflict seems obvious even if it does not manifest itself in the short term. While for person 1 there is no “must” for person 2 there is a pending debt. The consequences are multiple, if reciprocity is unsolved (according to your point of view) person 2 is likely to start damaging the person’s reputation 1.

Conclusions

• Both context 1 and context 2 are cultural schemes where there is no information asymmetry. Nevertheless, in case 3, diverge interpretations of social norms within an organization trigger a series of events with negative consequences for the organization.
• Mixing social norms and market norms in decision-making usually involves conflicts in personal relationships.
• The establishment of social norms or organizational culture by management is a fundamental factor in solving asymmetries in terms of information.
• The decentralization and autonomy of the sub-organizations, together with the lack of regulatory or arbitration mechanisms produce reactances to the established organizational norms. This implies that, although the communication of social norms is appropriate, these groups will not recognize them.

Bibliography

• Artificial Intelligence. A modern approach. Third edition (2010)
• Predictably Irrational. Dan Ariely (2009)