Hayek and Behavioral Economics

Still on Hayek. Having just received my copy, I thought I’d give it another plug. My chapter Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension is in this collection. The full line-up as follows:

Foreword; V. Smith

Introduction; R. Frantz & R. Leeson

Friedrich Hayek’s Behavioural Economics in Historical Context; R. Frantz

A Hayekian/Kirznerian Economic History of the Modern World; D. McCloskey

Was Hayek an Austrian Economist? Yes and No. Was Hayek a Praxeologist? No.; W. Block

Error is Obvious, Coordination is the Puzzle; P. Boettke, W. Caceres & A. Martin

Hayek’s Contribution to a Reconstruction of Economic Theory; H. Gintis

On the Relationships Between Friedrich Hayek and Jean Piaget; C. Chelini & S. Riva

Cognitive Autonomy and Epistemology of Action in Hayek’s and Merleau-Ponty’s Thought; F. Di Iorio

Hayek’s Sensory Order, Gestalt Neuroeconomics, and Quantum Psychophysics; T. Takahashi & S. Egashira

Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension; L. Marsh

Hayek’s Complexity Assumption, Ecological and Bounded Rationality, and Behavioural Economics; M. Altman

Subjectivism and Explanations of the Principle; S. Fiori

Satisficing and Cognition; Complementarities between Simon and Hayek; P. Earl

The Oversight of Behavioural Economics on Hayek’s Insight; S. Rizzello & A. Spada

Complexity and Degeneracy in Socio-Economic Systems; G. Steel & H. Hosseini


Cognitive Opening and Closing: Toward an Exploration of the Mental World of Entrepreneurship

Some extracts from Thierry’s paper:

Contemporary analysis usually divides games of chance into three dimensions. In Machina and Schmeidler’s (1992) terms, this division can be viewed based on the example of an urn containing 90 balls of different colors, out of which an agent pulls a ball, of which he must ex ante guess its color to achieve a predetermined gain. If the agent knows that the number of red, white, and black balls is the same (30), he finds himself in a situation of risk: He knows the possible consequences and the probability distributions, that is, he has one in three chances of getting a ball of any particular color. However, if he knows that these balls are red, white, and black, but in indefinite proportions, he is confronted with situations qualified as uncertainty: The consequences are known, but the probability distributions are not. Yet again, if the agent knows there are 90 balls of different colors in the urn but does not know how many of these colors there are, he is in a state of incomplete information: The agent is unable to define the list of possible outcomes (situation of ambiguity) and can expect some surprises identifiable ex ante, as states of nature are identifiable.

An extra dimension may be added to this distinction: If the agent has himself placed 30 red balls in the box, but he does not know what other elements of indefinite character and number there are in the box, nor the structure of gains or losses associated with various results, then we can consider that the agent is in a position of ignorance. Not only is he unable to define the list of consequences of the game, but he also does not know the distribution of events. The agent is able to define what he knows, but unlike the three previous cases, he cannot determine the scope and nature of what he ignores. The surprise is necessarily unexpected in the sense that the agent is unable to identify ex ante the possible states of nature.

It is in this latter perspective that Kirzner (1973, 1979, 1982) argues that market actors face a phenomenon of ‘‘genuine ignorance,’’ reflecting their inability to know all the opportunities for exchange or profit available in an economy. At any point in time, each individual perceives only fragmentary aspects of social reality in which he participates, and not its other facets. Each exchange is made in ignorance of other exchanges performed at the same time; thus, there is no common knowledge of prices and no actor can perceive the whole. In a monetary economy, the consequences of these independent exchanges are mutually dependent. The implications of this genuine ignorance on the coordination of activities are thus considerable. Using the example of Schmeidler and Machina’s urn (1992) from the time when the consequences of a draw for each individual depend on the (unknown) number of elements (of unknown character) deposited in the ballot box by an (unknown) number of (unknown) people, the ability of such a game to produce a balance is at least questionable.

The stakes of this phenomenon of ignorance compel us to identify its sources. These are not found in any complexity of information, neither in the cost of its acquisition nor in its treatment (deliberation) from a perspective of bounded rationality. They come from a more fundamental phenomenon of dynamic subjectivism. According to authors such as Kinder (1973, 1979, 1997) and Lachmann (1977, 1986), agents’ preferences, endowments, knowledge, and strategies should be defined as personal, unique. Therefore, each individual is a priori ignorant of how others evaluate goods and services. Economic analysis is not therefore based on a perfect, or even sufficient knowledge of actors to coordinate their activities. The diversity of actors’ preferences, interpretations, and expectations would certainly not be a problem if they were constants. A process of trial and error would lead to new learning, opening onto a price structure that would allow coordination. But this is in fact not the case because the individual performances would change continuously, according to an endogenous process, ultimately explained by ignorance or internal self-ignorance (Aimar, 2008a). As Hayek (1951a, 1951b) explained, the actor can only partially perceive the existing opportunities for satisfaction, for reasons related to the organization of the human brain and the tacit characteristic of knowledge. His conscious choices being ignorant of a portion of his subjectivity, he makes mistakes, expressed by disappointment with satisfaction. He undergoes a de facto internal discoordination, forcing him to change his representations to make his beliefs conform to the reality of his interior environment. But changing choices results in transforming his internal environment and de facto creates new unknown areas. The mind, constantly evading the consciousness’s desire to fully absorb it, makes the process of self-discovery never-ending. Thus, market discoordination, the result of genuine ignorance, is finally but an internal discoordination, consequence of a phenomenon of self-ignorance.

It was around this phenomenon of genuine ignorance and its perverse effects on coordination between individuals that Kirzner introduced the theme of entrepreneurship. The entrepreneurial function, driven by the incentive of profit, is to discover unperceived opportunities. Mobilizing qualities of alertness, reflected in cognitive openness, it reveals previously hidden information. Through his discoveries being translated into new money transactions, the entrepreneur socializes his knowledge and contributes to pulling market activities toward coordination. He goes beyond reducing ignorance; he transforms ignorance into uncertainty. But according to Kirzner, a parallel mission of the entrepreneur is to organize already discovered opportunities in the form of firms’ production plans, in order to protect them from risk of obsolescence resulting from the volatility of data.

In a dynamic world, discovery and exploitation of opportunity are then the two faces of entrepreneurship. The author argues that these two dimensions may be contradictory in the entrepreneurial mind. As much as discovery implies a cognitive opening to the outside, all exploitation of discovered opportunities is accompanied by elements of mental rigidity. These take the form of cognitive closure, thus opposing the entrepreneur’s perception of new opportunities. The aim of this contribution is to illuminate by the structure of this contradiction by economic analysis, to provide the means to verify it through experimental economics and to consider its extensions in terms of neuroeconomics.

Our plan is this: After explaining the basics of the theory of entrepreneurship and the elements that determine its duality, we will define the bases for an experimental protocol likely to support our thesis of an opposition in the cognitive field between the relative strengths of discovery and the exploitation of opportunities in the entrepreneurial mind. The last section forms the conclusion.

In the context of organizational economics, the relationships between cognition and complexity have been studied for many years through the lens of bounded rationality. However, this is outside Austrian theories, which do not define the act of knowing as the result of a deliberated choice between gain and cost but as the result of a spontaneous process. Unfortunately, the internal forces of this process remain ill-defined. Yet, much Austrian work has shown the relationships between the institutional environment and entrepreneurship. However, in spite of Kirzner’s (1985, p. 25) appeal for a psychological study of entrepreneurial qualities, the mental determinants of entrepreneurship have still not been studied. Therefore, our goal here is to use Austrian tools to define the relationship between organizational complexity and entrepreneurial discovery from a mental angle. Using the example of a protocol, we intend to establish the bases on which to experiment with the various theoretical propositions in this matter. This should allow a finer judgment of the determinants of entrepreneurial discovery and a better understanding of the effects of competition.


Beyond Complexity: Can the Sensory Order Defend the Liberal Self?

Here are a couple of extracts from Chor-yung’s paper:

Friedrich Hayek’s social philosophy is one of the most systematic and sophisticated among the contributions made by 20th-century liberal thinkers. His defense of the free market and individual freedom and his critique of collectivism of various kinds are mainly based on his epistemological theses, which in turn are derived from his social philosophy. Hayek once famously said, ‘‘the differences between socialists and nonsocialists ultimately rest on purely intellectual issues capable of a scientific resolution and not on different judgments of value,’’ and he believes that the doctrines advocated by the socialists ‘‘can be shown to be based on factually false assumptions,’’ and the whole family of socialist thought can be ‘‘proved erroneous’’ (1973, p. 6). One important area contributing to the development of Hayek’s epistemological theses is his works on theoretical psychology, and his book The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952a) plays a crucial role in this since it helped Hayek spell out the logical character of his social philosophy (1952a, p. v). It can be said that The Sensory Order enables Hayek to develop a conception of mind (which is essentially a classificatory and rule constituting complex order of a mental kind) that, on its own, enhances our understanding of cognitive psychology, and, when linked with Hayek’s social and political thought, helps strengthen Hayek’s epistemological defense of the free market and limited government. Although The Sensory Order did not attract the kind of  scholarly attention it deserves for decades after its first publication in 1952, the path-breaking quality of the book and the integral part it plays in Hayek’s social philosophy are now widely recognized (see, e.g., Butos & Koppl, 2006; Caldwell, 2004; Feser, 2006; Gaus, 2006; Horwitz, 2000; Marsh, 2010; Rizzello, 1999; Smith, 1997; Weimer, 1982). Admittedly, The Sensory Order is a difficult book since it deals with questions of the most fundamental kind (such as the nature of mind and the limits of explanation). When one tries to relate The Sensory Order to Hayek’s broader defense of liberalism, the task becomes doubly difficult, and different interpretations of Hayek’s position in The Sensory Order may lead to diametrically opposite assessment of his contribution. Scholars who are unsympathetic to Hayek’s social philosophy tend to characterize his explanation of the mental order in The Sensory Order as ‘‘materialistic and naturalistic’’ and wonder how his brand of materialism with its implied physicalist notion of human agency can sit well with the defense of individual liberty. Contrariwise, defenders of Hayek like to stress his idea that the inherent nature of the mind as a classification apparatus sets limits to its capacity for self-explanation. They argue that social interaction in any developed society must involve so great a degree of complexity that no single mind or central planning unit can fully take into account all the respective preferences of, or the dispersed information possessed by, individual actors, making synoptic planning untenable. This chapter is an attempt to offer an interpretation of The Sensory Order in line with Hayek’s supporters. But it would like to go a step further by arguing that a liberal conception of human agency, in which the individual is characterized as distinct, free, evolutionary, creative yet culturally embedded, can be derived from Hayek’s theoretical psychology. In what follows, I outline my interpretation of The Sensory Order and defend Hayek against some major criticisms, including the criticism that his psychological works express or imply a physicalist conception of the mind. Furthermore, I identify some problems with Hayek’s conception of the self: in particular its ‘‘instrumental’’ tendency and corresponding lack of appreciation of the unique value of individual style and imagination.

All in all, it seems fair to say that there is a danger in Hayek’s liberalism to accord only an instrumental value to individual liberty. This is so because his idea of true individualism is derived from his social theory, and given the fact that there are inherent limitations in human rationality, the individual is valuable and his freedom should be protected precisely because it is only under such conditions that we can find out which individual gift, preference, and skill will eventually prevail through the process of free competition for the benefit of whole group. Perhaps, A. E. Galeotti is correct to say that to Hayek, liberty in the end is only ‘‘a procedural, methodological value’’ and ‘‘being a procedure, one appreciates it [i.e. liberty] on the ground of its positive results’’ (1991, pp. 284–285). If freedom is to be justified primarily on the grounds of beneficial results, does that mean that the autonomous and self-determining self has little value in itself or in other aspects that are important to humanity? The uniqueness of the human individual is valuable, according to Stuart Hampshire, because among living things as we know them, only the human individual displays the salient capacity ‘‘to develop idiosyncrasies of style and imagination, and to form specific conceptions of the good.’’ In addition, Hampshire points out that individual style and imagination, like works of art or the emotion attached to sexual love, is mostly unrepeatable, as ‘‘the leaps and swerves of a person’s imagination do not follow any standardized routes’’ and defy the prediction of rational and general rules and is therefore irreplaceable (1989, p. 118, 126). ‘‘If this individual essence is destroyed when the individual is destroyed,’’ says Hampshire, ‘‘the world is to that degree impoverished’’ (Hayek, 1952a, p. 117). One does not have to agree with Hampshire’s idea of individuality and the values he attaches to it here to see that something important is missing in Hayek’s liberal self. While this chapter shows that a distinct and creative self may be reconstructed from Hayek’s complex and impressive account of the mind, nowhere in Hayek’s voluminous works can we find any in-depth discussion of the value of individuality. If the self is unique and irreplaceable, its value as an individual not only should go beyond the requirements to struggle for better group survival, important though better survival for the human race is, the individual’s unique style, imagination, and personality should also feature large in any defense of liberalism. Although Hayek’s defense of liberalism is unique and theoretically sophisticated, his epistemological theses by and large have overlooked the need to explain those essential virtues that make the self uniquely valuable. Thinkers who are sympathetic to Hayek’s theory should have a lot of food for thought in moving forward the defense of liberalism beyond his contributions, which nevertheless are among the most thought-provoking in the 20th century.


Hayek’s Self-Organizing Mental Order and Folk-Psychological Theories of the Mind

The intro and conclusion to Chiara’s chapter:

Humans are social creatures and they deeply rely on mentalizing, which aims at understanding other people behaviors and formulating expectations about their future actions. The existence of inner mental states has been postulated to give an explanatory account of the observed behaviors of other individuals. In particular, the activation of theory of mind in social situations has been demonstrated by neuroeconomic and behavioral experiments such as: processes of market exchange and specialization of labor (Coricelli, McCabe, & Smith, 2000), decision-making involving strategic uncertainty, detection of social cheaters and, in general, cooperative games in which subjects need to predict their opponents’ strategies; these are all situations in which theory of mind1 is activated. Historically, two different models of mental processes have been considered in the literature about folk psychology: theory-theory and simulation-theory. Theory-theory posits that subjects who are attributing to others a particular mental state are applying a tacit piece of knowledge previously acquired ‘‘about what people feel, think, want, etc in given circumstances and how they will, therefore, act’’ (Perner, Gschaider, Kuhberger, & Schrofner, 1999). They basically own ‘‘folk theories’’ about others’ mental states and implicit causal laws about how the mind works. On the contrary, simulation theory posits that, in attributing mental states, subjects are not possessing tacitly codified knowledge, but they are rather running a simulation ‘‘putting themselves in others’ shoes.’’ Simulating means using one’s own mind as a model for other people’s mental states, while being unaware of this activity. Simulation directly bridges perception and action (Decety & Grezes, 2006). Hayek had already envisioned this relationship between sensory and motor activity (Hayek, 1952, p. 92) but he dwells more on a neuronal level explanation than a mental one.

Notwithstanding this historical opposition between theory and simulation, an approach that highlights their intermingling contributions and crossfertilizations has nowadays been favored (Goldman, 2006). This is the reason why, after introducing a brief sketch of these two positions, the paper focuses then on theory of mind broadly speaking as the capacity to share psychological states with others: this is the social cognitive capacity making humans collaborative and cooperative, able to be engaged in mutual coordinated actions and plans (Tomasello, 2005). Humans, as social actors, have to possess a cognitive machinery that makes them able to coordinate. This chapter investigates whether theory of mind can provide a plausible explanation, at the mind level, of the tacitly triggered process of knowledge coordination elaborated by Hayek. More specifically, does Hayek’s concept of coordinating and self-organizing orders imply a model of the mind that can be framed as the current philosophical concept of theory of mind? In particular, we address the question whether theory of mind can give an account of that ‘‘inter-personal’’ understanding of other people’s mental states that Hayek sketches without developing it in details (Hayek, 1952, p. 23).

The chapter is then structured as follow: second section frames the concept of mentalizing as it has been historically developed in theory-theory and simulation-theory; third section presents Hayek’s philosophical psychology, identifying specific issues to integrate the latter with modern theory of mind; it explains the roles of communication between individuals and the process of knowledge formation in Hayek’s view, trying to address the question why Hayek’s philosophical psychology does not properly consider the concept of ‘‘theory of mind.’’ Fourth section concludes with further ideas of comparison, presenting the concept of ‘‘social mind’’ from a neuroscientific perspective, considering the idea of mirror neurons.

Philosophical and experimental research in psychology has been centered on the social nature of the mind for the past 20 years. Imitation is an important aspect of social learning, even at the mental level: mental mimicry (Gallese & Goldman, 1998) is based on the capacity to imitate other people’s mental states and has been defined as a process of isomorphism between states of mind of different persons, according to which two persons feel the same state of mind just seeing the other person in a particular situation or understanding the other person’s mental state. A particular case of isomorphism is represented by empathy: this is an automatic process triggered by an affective state, elicited by the observation or imagination of another individual’s affective state. Empathy has been associated with both epistemological and social roles (De Vignemont & Singer, 2006): it provides knowledge of the environment around us, connecting emotional stimuli coming from the external environment, ‘‘their situative context’’ (ibid., p. 440), and the relationship between the empathizer and the target. Empathy has therefore a vivid social dimension.

Moreover, empathy has been advocated as one of the explanatory devices of altruistic and pro-social behaviors specific of human nature: justice and cooperation (Boyd & Richerson, 2006; Hoffman, 2000; Hume, 1739).

From a neuroscientific perspective, the ‘‘empathic’’ nature of the brain has been demonstrated by the existence of mirror neurons; in the second half of the Nineties a particular scientific discovery has been made in the macaque monkeys’ brain: mirror neurons (Gallese, Fatiga, Fogassi, & Rizzolatti, 1996; Rizzolatti, Fatiga, Gallese, & Fogassi, 1996). These are visuomotors neuronal cells that fire both during the individual execution of a goal-directed action and the observation of the same action in a target individuals. They are located in the so called area F5 of the brain that belongs to the ventral premotor cortex, and they are fundamental in developing a ‘‘motor-theory of social cognition’’ (Gallese, Keysers & Rizzolatti, 2004) since they completely change the philosophical basis of actions understanding: this means that with mirror neurons a direct link between ‘‘first and third person experience’’ (ibid., p. 396) is possible. Bridging first and third person, in particular, means connecting the ‘‘I do and I feel’’ experience with ‘‘he does and he feels’’ experience. This can occur, not on the basis of the visual representation and interpretation performed by a central system, but by the ‘‘penetration’’ of information related to the target into the neural system and knowledge of the observer, who is empathizing. The fact that the action perceived and registered by the mirror system is goal-directed is fundamental. In fact, in the original experiment on macaque monkeys (Umilta` et al., 2001), the mirror system is activated only when an action is explicitly directed towards an object: for instance, mirror neurons are firing both when the monkey is grasping an object and both when the monkey is looking at the experimenter grasping the same object. This happens in both a full vision and hidden conditions, that is, when both the object is present in the spatial vision of the animal and when it has been hidden beyond a sliding screen, but after being present. In contrast, mirror neurons do not fire when the object is not present from the beginning, and the grasping movement is directed toward nothing in particular. In this case, neither the full vision nor the hidden treatments are characterized by mirror neurons activation. This occurs because the action is perceived as not being goal-oriented.

More recent studies have shown that mirror neurons are present in human brain as well and that, moreover, they fire in response to a wider range of actions than the monkey system (Gallese et al., 2004). In particular, mirror neurons fire in humans in the case of facial expression recognition, because the observer tends to share the emotional and affective state of the target, demonstrating its understanding. Recognizing the powerful implications that the discovery of a mirror system in humans triggers, Gallese et al. (2004) propose a ‘‘unifying theory of social cognition’’ that is able to make sense of both first-person and third-person recognition and understanding of emotions and actions, both individually performed and observed in others: the understanding of social cognition implies a bridge ‘‘between others and ourselves’’ (Gallese et al., 2004, p. 400). Hayek himself highlights the relationship between perception and action developed by the mental order: in his opinion, the sensory representations of the environment are associated with a possible goal to be pursued in that environment through a movement pattern that will make the achievement of that goal possible. This process determines particular responses, suggesting possible corrections to be taken in the movement patterns if the first ones are not particularly successful. Hayek describes motor responses as directly belonging to the act of perception since they ‘‘serve for the proper evaluation of the stimulus’’ (Hayek, 1952, p. 92). The interaction between exteroceptive and proprioceptive impulses and the consequent feedbacks generate the processes of adaptation of the organism to the external environment, which are of particular significance for the elaboration of subjective knowledge. Hayek develops therefore a fundamental and modern theory about the mental order and its relationships with the physical and neuronal order, presenting in his ‘‘central thesis’’ the role of subjective knowledge created through a process of internal reconstruction and classification of external stimuli. It is precisely in connection with this specific point that the role of folk psychology may find its fruitful application in Hayek’s theory: folk psychology is the conceptual common sense framework that socialized subjects employ to interpret, understand and predict other subjects’ mental states and behaviors. Hayek believes that the fundamental operation that human mind can accomplish is classification. Beyond classification, we believe that mentalizing should be taken into consideration in order to give an account of the interpersonal and social dimensions of human life and human mind. In particular, of special interest for us, was to present an overview of current approaches in philosophy of mind, so to understand how the idea of folk psychology can be used as a tool to bridge Hayek’s theory of mental order toward an inter-personal conception of the mind, which Hayek himself seems to support, although never developing it in details.


The Emergence of the Mind: Hayek’s Account of Mental Phenomena as a Product of Spontaneous Physical and Social Orders

Extracts from Gloria’s chapter:

Friedrich Hayek’s social theory is well known for his articulation of the paradigm of spontaneous orders that challenges the traditional distinction between what is natural and what is artificial. The problem that Hayek saw is that language and other social objects do not fall under either heading completely. Language is, for example, seen as natural since it was not designed by man. At the same time, man has imposed rules of grammar on natural languages as these became formalized and documented. From this perspective, language falls under the category of artificial too. This distinction thus fails in its application not only to language but also to any other object that is, as Hayek puts it, the result of human action, but not of human design. The paradigm of spontaneous orders, which applies to all social objects, has thus become the hallmark of Hayek’s social theory.

However, what is lesser known is that Hayek also presents a similar paradigm of spontaneous orders in his theory of the mind. In The Sensory Order (TSO), Hayek defines the mind as a particular order arising from the cumulative sets of events taking place in the brain in response to stimuli. Although stimuli are also constituted by sets of events, Hayek observes that the relation between these two sets of events is at best one of imperfect correspondence, since stimuli do not always result in sense experiences.

What this means is that the mind does not emerge as a process of mapping of events external to the mind or, shall we say, reality; rather, the mind emerges, in part, from the interconnections that ensue between the electrical and chemical responses to stimuli. Central to this understanding of the mind is the role of memory in facilitating the conversion of these responses into sensations. According to Hayek, we do not first have sensations which are then preserved by memory, but it is as a result physiological memory that the physiological impulses are converted into sensations. The connexions between the physiological elements are thus the primary phenomenon which creates the mental phenomena. (TSO 2:50)

Memory, then, serves as an a priori mechanism that makes the emergence of the mind possible in the sense that it translates physical events of the brain into sense experiences that are unified. In a note for this passage, Hayek explains that this understanding of memory is already present in the Preface to his Beitrage zur Theorie der Entwicklung des Bewusstseins (the Beitrage). What this means is that this apriorism was present in Hayek’s theory of the mind by 1920 and that after he returned to this work in 1952, after more than three decades spent developing his social theory, Hayek did not change his mind in this regard. In TSO, Hayek develops more details to be added to the earlier view. Memory is not localized or passive, as it is understood in modular paradigms of memory, that is, stored in one discrete region until specifically recalled. Instead, it is distributed and dynamic, giving rise to neuronal activity that searches, with each new stimulus, for related networks of connections. This seems consistent with a description of spontaneous orders. A single neuron, for example, can participate in any number of networks, not just the one it is already in or one that engages only in its existing immediate surroundings. These interconnections between physiological events representing stimuli are what Hayek calls linkages. The view that memory is cortically distributed had already been set forth by the time TSO appeared, but it is not clear that Hayek was specifically aware of these findings. Hayek observes that, ‘‘It is difficult to see what other meaning ‘memory’ can have but the retention of connexions or relations.’’ However, an important consideration is that the interconnections between events can be as transient as the events themselves. The question thus arises, how does memory endure? One way to answer this within Hayek’s framework is that not only the structural basis but also the relational code that emerges from it is a continuant. Accordingly, memories endure even if any element of its structural basis is somewhat altered by entering into new interconnections. ‘‘In fact,’’ Hayek adds, ‘‘far from being diminished, the a priori element will tend to increase as in the course of this process the various objects are increasingly defined by explicit relations existing between them’’ (TSO 8.17). In other words, as memory increases, so does the mind. In this way, the mind emerges and continues to develop as a result of the role of memory in converting physical responses of the brain to external stimuli into an enduring and increasingly more sophisticated order of linkages supporting sensations that give us a finer grained picture of any new experiences.

The expression ‘‘we-mode intentions’’ is part of the growing scholarship on collective intentionality. The term ‘‘collective intentionality’’ has been made famous by John Searle and it first appeared in his 1995 book The Construction of Social Reality. But the investigations of this phenomenon are of much older lineage.18 Collective intentionality refers to the social phenomenon in which a number of individuals target the same intentional object in a coordinated way that is not necessarily deliberate. A bunch of people in a city theater watching a film, for example, all have the same intentional object, but they do not exemplify collective intentionality because they do not have a shared context in directing their attention to the film. For some, the film is a means for entertainment, for others an excuse to be near a particular person, and for yet others, it may just be an airconditioned escape from a hot summer’s day. However, a bunch of students in a classroom watching a film may exemplify collective intentionality since they have a shared context for their action. The students do not have to have a deliberate plan to arrive at a shared goal as perhaps the members of a string quartet would have in aiming at a flawless performance as their intentional target. Such collective intentions that we find in both the classroom and the string quartet examples Searle calls we-mode intentions.

According to one study, the discovery of mirror neurons may now provide evidence of a neurological basis for such we-mode intentions. Neurons identified as mirror neurons not only fire when an individual acts but also when an individual observes another individual performing the same action. Although mirror neurons were discovered in monkeys, scientists report that neuropsychological studies have shown that they exist also in the human brain. It must be clear that we-intentions can be understood at best as one aspect of the phenomenon of intersubjectivity but not as identical to it since the latter is not merely the experience of sharing intentional targets. Rather, it is the sharing an experience stream, which involves having a first-person experience of what another is experiencing, and this is not achieved by aiming at the same intentional target as the other person but, instead, by aiming at the experience of the other person. So, the we-mode intention interpretation of mirror neurons does not provide the missing explanation.

However, according to another interpretation of mirror neurons, they may constitute the neural substratum of a mechanism that enables us to resonate with others of our own kind, which would undoubtedly favor survival. This is more in line with the phenomenon of intersubjectivity as it offers an explanation for the realm of shared experiences so common in  human experience. Moreover, empirical data shows that mirror neurons match representations not only of actions but also of pains and emotions. In one experiment, the mirror phenomenon occurred in a pain-related neuron that responded to the patient’s pinprick in the same way as an observed pinprick on the examiner’s hand. In another experiment, mirror neurons responded to facial expression and sounds of disgust in the same way as if the experience of disgust had been a first-person experience.

What these studies show is that ‘‘mirror phenomena are not to be seen as limited to a particular group of motor neurons in the ventral cortex, but as a modality of functioning which is widespread in the brain’’ (Becchio & Bertone, 2004, p. 131). Or, as Hayek explains in TSO, ‘‘mental functions need not be localized in any particular part of the cortex’’ (TSO?). The applications AU :12 of these discoveries of modern neuroscience with regard to these linkages (to use Hayek’s term) not only offer evidence of the phenomenon of intersubjectivity and its mechanics in brain functions but are also potentially fruitful for studies that concern the phenomenon of empathy. Moreover, our understanding of mirror neurons can help to fuel interdisciplinary research on values, which is perhaps the next frontier in human social phenomena.


A Note on the Influence of Mach’s Psychology in the Sensory Order

Here are a couple of extracts from Giandomenica Becchio’s paper:

In the Preface of The Sensory Order, Hayek stated that this book was based on his readings in psychology during 1919–1920, when he was still a young student in Vienna interested in both psychology and economics. Among many others, Hayek explicitly cited Mach’s influence on him. Hayek’s contacts with the lively Viennese milieu during the 1920s and 1930s had a fundamental role in the story of the use of Mach in Hayek’s book. As Hayek himself explained, Mach had a great influence on Viennese students and scholars until the 1930s, because he represented ‘‘the only source of arguments against a metaphysical and nebulous attitude’’ that was spreading among scientists (Blackmore, Itagaki, & Tanaka, 2001, p. 124). The use of Mach’s philosophy as a tool against any metaphysical attitude was particularly strong inside the Vienna Circle, where scholars like Otto Neurath and Rudolph Carnap had founded the Ernst Mach Society (Verein Ernst Mach, 1927) to support their movement and to link Mach’s empiricism to their philosophical approach,which they later named ‘‘logical positivism’’ (Blumberg & Feigl, 1931). Hayek strongly criticized the Vienna Circle’s philosophical approach: he mainly rejected Neurath’s physicalism (the belief that all science ultimately reduces to the laws of physics, Neurath, 1931; Caldwell, 2004), even if he showed some interest in Carnap’s logical system (Carnap, 1928). When Hayek introduced the system of multiple classification in The Sensory Order, he cited Carnap as the one who provided ‘‘a somewhat similar statement of the problems of the order of sensory qualities’’ (Hayek, 1952, p. 51). Nevertheless, in the mid-1930s, when Carnap officially subscribed to Neurath’s physicalism, it culminated in the project of the unification of science (Stadler, 2001).1 Hayek’s aversion arose: From the fact that we shall never be able to achieve more than an ‘explanation of the principle’ by which the order of mental events is determined, it also follows that we shall never achieve a complete ‘unification’ of all sciences in the sense that all phenomena of which it treats can be described in physical term. (Hayek, 1952, p. 191)

And in the following footnote he specifically named both Carnap and Neurath: their physical language, since it refers to the phenomenal or sensory qualities of the objects, is not ‘‘physical’’ at all. Their use of this term rather implies a metaphysical belief in the ‘‘ultimate reality’’ and constancy of the phenomenal world for which there is little justification. (ibid.) In this passage Hayek accused them of having dropped their original antimetaphysical attitude – mediated through Mach – to propose a new form a metaphysical belief, based on the reduction of any reality to the empirical realm. Hayek’s j’accuse is significant: for 30 years the philosophers of the Vienna Circle claimed Mach’s philosophy as one of the main sources of their aversion to metaphysics and a pillar of their philosophical approach based on a new form of positivism.2 In the International Encyclopedia of Unified Science, Joergensen explained the three common traits between ‘‘Mach’s positivism’’ and the Vienna Circle philosophy: the idea that ‘‘human knowledge is a biological phenomenon’’; the rejection of any form of ‘‘thing-in-itself’’ (and for that matter, of any form of Kantianism) and the overlap between physical reality and physical elements (Joergensen, 1951, p. 853). To explain the link between Mach and Hayek on the one hand and Hayek’s aversion to the logical positivism (apparently and ‘‘officially’’ rooted in Mach’s philosophy) on the other hand, we need to consider what Hayek meant when he mentioned Mach’s influence in The Sensory Order.

As Hayek himself stated in the Preface of The Sensory Order, psychology is essentially ‘‘dealing with the problems of the methods of the social sciences [a] concern with the logical character of social theory’’ (Hayek, 1952, p. v). From a broader perspective, Hayek’s aversion to reductionism can be seen as the reverse side of the struggle for individualism he started in the late 1930s with the publication of ‘‘Economics and Knowledge’’ and culminated in Individualism and Economic Order (1949), which was published just few years before his decision to revise and finally publish The Sensory Order. During the early 1950s while working on The Sensory Order, Hayek composed ‘‘Within Systems and About Systems,’’ which dealt with the possible knowledge of our mental processes and with the relationship between knowledge and the external environment.

In the early 1930s, Hayek edited Carl Menger’s Collected Works (in German): he also wrote a well-known presentation of Menger’s thought and work. It was published in Economica, and it represented the introduction of Menger to the English-speaking world (Hayek, 1934). In this essay, Hayek stressed the centrality of individualism in Menger’s approach when he had described how markets work and how economic agents behave when they make an economic decision. In the same period Hayek started to work on the link between economic choice and individual knowledge, which culminated in his well-known paper Economics and Knowledge.

From Economics and Knowledge onward, Hayek introduced psychology into economics to explain the dynamics of a society in an individualistic perspective. In this view, Hayek’s decision to work back on revise and publish The Sensory Order can be regarded as the final step of his research project on the nature of individual choice.

After having described the role of knowledge in individual plans and the following mechanism of the market, as well as the use of knowledge in a competition as a discovery process, Hayek described the nature of human mind. The Sensory Order can be seen as Hayek’s tool to show how people know the internal and external reality, how they form their knowledge and how they can share it to make their own plans and coordinate them.

From Hayek’s presentation of Menger’s thought as a stronghold of individualism (1934) to the publication of The Sensory Order (1952), Hayek’s work can be regarded as a tentative to investigate how society works from an individualistic point of view and how the human mind knows from an antireductionist perspective; in opposition to a new kind of holistic and reductionist approach, supported by the predominant position inside the Vienna Circle, mainly by Neurath and Carnap.

The role of Mach in this story is important. Both Hayek and Neurath/Carnap considered Mach the most influential anti-metaphysical thinker. Nevertheless, Neurath/Carnap accepted Mach’s reductionism in psychology as well as his final philosophical approach as a direct development of his psychology. Furthermore, the unity between physics and psychology (between physical and sensorial orders) in Mach’s thought also opened the way to the Vienna Circle’s ideal of a unified science (from physics to social sciences), never accepted by Hayek.

Mach’s influence on Hayek is more complex, though.

Hayek started from Mach’s psychological inquiry, which was influenced by Kant’s research on the nature of knowledge; but, as Mach had refused the final stage of Kantism (the Dich an sich as a metaphysical residuals), Hayek refused the final stage of Machian philosophy (the isomorphism between physical and mental realm as a form of reductionism). Hayek refused Mach’s destruction of ‘‘the conception of elementary and constant sensations as ultimate constituents of the world’’ and he restored ‘‘the necessity of a belief in an objective physical world which is different from that presented to us by our senses’’ (Hayek, 1952, p. 176, 8.37). In a certain sense, Hayek went back to a sort of Kantian dualism, without introducing a negative concept, like Ding an sich. Hayek wrote: The conclusion towhich our theory leads is thus that to us not onlymind as a whole but also all individual mental processes must forever remain phenomena of a special kind, which. Although produced by the same principles which we know to operate in the physical world, we shall never be able fully to explain in terms of physical laws. (Hayek, 1952, p. 191)

It will derive its statements about some mental processes from its knowledge about other mental process, but it will never be able to bridge the gap between the realm of the mental and the realm of the physical. Such a verstehende psychology, which starts from our given knowledge of mental processes, will, however, never be able to explain why we must think thus and not otherwise, why we arrive at particular conclusions (Hayek, 1952, p. 192).


Hayek’s Post-Positivist Empiricism: Experience Beyond Sensation

Here is Jan Willem Lindemans‘ intro and conclusion to his chapter:

The philosophical foundations of Hayek’s works are not beyond dispute (Caldwell, 1992; Gray, 1984; Hutchison, 1992; Kukathas, 1989): was Hayek a rationalist or an empiricist; did he follow Kant or Hume, Mises or Popper? Difficulties arise because these questions touch upon social theory, political philosophy, methodology, and epistemology. Moreover, on different occasions, Hayek (intentionally) gave different definitions and evaluations of already complicated views such as ‘‘rationalism’’ and ‘‘empiricism.’’

In this chapter, I try to shed some light on the rationalism/empiricism issue by focusing on epistemology, where this issue really belongs. The debate there is mainly about the sources of knowledge (e.g., Markie, 2008). Empiricists argue that experience is the source of all our knowledge. This view was held by John Locke (1632–1704) and David Hume (1711–1776), but its roots go back to Francis Bacon (1561–1626) and even further to the ancient Greek Empiricist school in medicine (founded in the third century B.C. by Philinos of Kos or Serapion of Alexandria) and Aristotle (384–322 B.C.). In contrast with his teacher Plato, Aristotle believed in the ‘‘induction’’ (epago¯ge¯) of general knowledge from particular observations.

I will not have the space here to relate Hayek’s ideas to this long history of empiricism. But I will try to refer to David Hume now and then, because Hayek was a great admirer of Hume’s social and political philosophy and Hayek’s “Humeanism” is extensively discussed. I will also get back to the less well-known Empiricist school in medicine, because it has a very special conception of “experience,” which I believe to be useful to the discussion.

In contrast with empiricism, rationalism or “apriorism” is the idea that some knowledge is independent of experience or “a priori.” Traditionally, this meant that knowledge is based on rational intuition or embedded in our rational nature or the structure of the mind. If knowledge is embedded in our mind or nature, it is “innate,” which is why philosophers speak of “innatism” or ‘‘nativism.’’ Since this was Immanuel Kant’s (1724–1804) view, it is often called ‘‘Kantianism.’’ I will also use the term ‘‘Kantianism’’ rather than ‘‘rationalism’’ because Hayek most often defines the latter as the false view that social phenomena are rationally designed, which is a completely different issue. Kantianism goes back to the ‘‘innate ideas’’ of Rene´ Descartes (1596–1650) and the anamnesis of ideas in Plato’s philosophy (429–347 B.C.).

Many scholars have tried to position Hayek in the Kantianism/empiricism debate. Most scholars would probably agree with Connin (1990, p. 301) that ‘‘Hayek’s theory of knowledge is undoubtedly Kantian’’ (see also Feser, 2006, p. 300).However,many also understand that there is more to it (Caldwell, 2004, p. 273). Since ‘‘experience’’ is undeniably a basic concept in Hayek’s epistemology, some believe that his epistemology is a kind of synthesis between Kantianism and Humean empiricism (Horwitz, 2000, p. 25). De Vecchi (2003, p. 152) is less optimistic and says that ‘‘there is an unresolved tension between empiricism and anti-empiricism within the theory of the process of the formation of knowledge set out in The Sensory Order.’’ Moreover, some have made the link with ‘‘evolutionary epistemology’’ (Bartley, 1987, p. 21;Dempsey, 1996; Gray, 1984; Kukathas, 1989; Vanberg, 2002).

However, scholars have rarely wondered how Kantianism, empiricism, and evolutionism can be reconciled, and, more importantly, what ‘‘empiricism’’ and ‘‘experience’’ mean in such a context. Just as there are as many ‘‘rationalisms’’ as there are interpretations of the term ‘‘reason,’’ there are as many ‘‘empiricisms’’ as there are interpretations of the term ‘‘experience.’’ In this chapter, I will reconstruct Hayek’s epistemology based on a careful reading of The Sensory Order and some related writings. I will argue that Hayek’s epistemology is best characterized as a type of ‘‘post-positivist empiricism.’’

In the first paragraph, I review Hayek’s neurophysiological explanation of the mind in The Sensory Order. Hayek shows how the nervous system can perform the acts of classification characteristic of the working of the mind. Because the synaptic connections embody a kind of knowledge independent of ‘‘sense experience,’’ Hayek is not a ‘‘sensationalist empiricist.’’ The second paragraph discusses Hayek’s theory of the formation of synaptic connections. Connections are formed on the basis of what I will call ‘‘Hayek’s learning rule,’’ which boils down to the familiar idea that neurons that fire together wire together. Since this means that the knowledge embodied in the synaptic connections is in a sense the result of ‘‘experience,’’ be it ‘‘pre-sensory experience’’ rather than ‘‘sense experience,’’ Hayek is an empiricist after all, but one of the ‘‘post-positivist’’ kind. In the third paragraph, I analyze Hayek’s views on the evolution of the nervous system and the behavior it generates. There appear to be two kinds of ‘‘experience’’ Hayek’s Post-Positivist Empiricism: Experience Beyond Sensation at the basis of the synaptic connections: ‘‘experience of the individual’’ and ‘‘experience of the race.’’ Because Hayek denies that all knowledge is due to ‘‘experience of the individual,’’ he is not an ‘‘individualist empiricist.’’ However, since ‘‘experience of the race’’ is also ‘‘experience,’’ he is again an empiricist in the wider sense.

What Hayek failed to notice is that experience of the race is ‘‘postsensory’’ rather than ‘‘pre-sensory’’ and also in other aspects very different from individual experience. I will call it a kind of ‘‘selective experience,’’ which I contrast with ‘‘inductive experience.’’ Some links with Donald Campbell’s ‘‘evolutionary epistemology’’ are explored. In the last paragraph, I consider Campbell’s idea that all increases in knowledge are due to selection and make some suggestions for future research.

Very much like Campbell and Popper, Hayek should be read as an empiricist going beyond traditional empiricism, sensationalism, and positivism: with Hume beyond Hume. Rather than summarizing the whole argument from ‘‘sense experience’’ to ‘‘pre-sensory experience,’’ and from ‘‘individual experience’’ as ‘‘inductive experience’’ to ‘‘racial experience’’ as ‘‘selective experience,’’ I want to end, first, by taking Campbell’s evolutionary epistemology beyond Hayek and, second, by suggesting some possible lines of research. Hayek’s broad empiricism holds that knowledge is based on experience in the wider sense in which it includes individual sense experience, individual pre-sensory experience, and racial experience. However, from an evolutionary epistemological point of view, this empiricism is perhaps too broad.

Evolutionary epistemologists focus on the growth of knowledge and thus the source of increases in knowledge. The ‘‘Basic Selectionist Dogma’’ of Campbell’s ‘‘1960 model’’ (Campbell, 1997, p. 8) states that ‘‘A blindvariation- and-selective-retention process is fundamental to all inductive achievements, to all genuine increases in knowledge, to all increases in fit of system to environment’’ (Campbell, 1960, p. 380). The reason for this radical selectionism is that ‘‘real gains must have been the products of explorations going beyond the limits of foresight or prescience, and in this Learning rule + co-occurring impulses sense blind,’’ since ‘‘if such expansions had represented only wise anticipations, they would have been exploiting full or partial knowledge already achieved’’ (pp. 380–381). This basically means that ‘‘selective experience’’ is the source of all (increases in) knowledge. Hence, ‘‘evolutionary empiricism,’’ though also ‘‘post-positivist,’’ would be much stricter than Hayek’s broad empiricism.

Of course, this does not imply that Hayek’s pre-sensory experience based on the learning rule is nonsense from Campbell’s point of view. The second part of Campbell’s (1960, p. 380) Basic Selectionist Dogma says that ‘‘The many processes which shortcut a more full blind-variation-and-selectiveretention process are in themselves inductive achievements, containing wisdom about the environment achieved originally by blind variation and selective retention.’’ The evolution of Hayek’s learning rule itself is an ‘‘inductive achievement,’’ a ‘‘genuine increase in knowledge.’’ Hayek never reflects much on the fact that the learning rule is itself the result of the ‘‘experience of the race’’ and thus contains knowledge about (the regularity of) the environment. In contrast with the learning rule, the new connections that are the deterministic result of the learning rule are not (completely) ‘‘genuine increases in knowledge’’ since the knowledge was already achieved at the moment the learning rule evolved. Hence, the pre-sensory experience of the individual is still not the most fundamental kind of experience. The ‘‘experience of the race’’ that the learning rule works is a ‘‘pre-pre-sensory experience.’’

The empiricism/rationalism debate is not only about the sources of our beliefs and concepts but also about the justification of our knowledge. It is not only about how people do in fact acquire beliefs about the world but also about how they ought to acquire beliefs. Unfortunately, in The Sensory Order, Hayek was not particularly interested in the question whether knowledge ought to be based on experience. In contrast, Campbell’s evolutionary epistemology is clearly normative. While he sides with the skeptics against traditional epistemologists (Campbell, 1997, p. 12) and holds that ‘‘justification’’ is never complete (p. 13), he does construct a theory of ‘‘justification’’ on the basis of ‘‘Plausible co-selection of belief by referent’’ (p. 9). According to this theory, a belief – or a behavioral disposition other than a belief (cf. supra) – is ‘‘as justified as can be’’ if it is plausible that the belief has been systematically co-selected by the beliefindependent reality to which it refers. For instance, the beliefs we form about objects on the basis of seeing objects are justified if it is plausible that these objects were part of the environment that has selected the eye and the neural system that processes information coming from this eye. Campbell  calls this ‘‘competence of reference’’ selection (p. 10). If there is no such a plausible scenario, or if other co-selectors have probably been more influential, the belief is not justified. Campbell’s idea of co-selection by the belief-independent reality nicely illustrates that ‘‘selective experience’’ must be ‘‘immediate’’ (cf. supra).

Given what has been said, we can redefine ‘‘knowledge’’ as a behavioral disposition that has competence of reference because it was systematically coselected by its referent. Campbell’s theory is an externalist theory of justification because the knower does not necessarily have access to the grounds of justification. Campbell himself relates it to Alvin Goldman’s causal theory of knowledge (p. 9). Indeed, the referent causes the ‘‘belief’’ to survive. More specifically, Campbell’s theory is reliabilist because it claims that ‘‘competence of reference’’ selection processes are reliable sources of truth. Hence, Campbell also relates it to Goldman’s reliabilist theory of justification.

I believe that Campbell’s normative evolutionary epistemology is a welcome complement to Hayek’s epistemological ideas. Refining Hayek’s concept of ‘‘experience’’ and specifying the way in which we can call him an ‘‘empiricist’’ as well as what kind of empiricist he could have been are only the first steps, though. In this chapter, I have restricted the analysis to Hayek’s ‘‘empiricist’’ epistemology, that is, the theory of how people in general (should) acquire knowledge. The next step is to apply this epistemology to two specific classes of individuals, which are very important to Hayek: entrepreneurs and scientists. These are some questions that could be raised: What is the role of ‘‘experience’’ in Hayek’s market economics? Do (or should) entrepreneurs acquire knowledge on the basis of experience? What kind of experience? Can we use the concept of ‘‘selective experience’’ to justify entrepreneurial action? On the other hand, what is the role of ‘‘experience’’ in Hayek’s philosophy of science? Do (or should) scientists – psychologists as well as economists – acquire knowledge on the basis of experience? What kind of experience? Can we use the concept of ‘‘selective experience’’ to justify scientific theories? In that sense, I hope that this chapter is only the beginning.