This weekend I was discussing the 2016 Nobel Laureates for Economics with my wife. We had vaguely heard something about “contributions to contract theory” as the primary catalyst for Hart and Holmström’s Nobel prizes. We were discussing the contract theory concept of “moral hazard”, wherein one of the parties cannot validate some relevant information about the other party. As the formulas for moral hazard go, the criteria hinge on the extent to which parties have shared incentives are shared, and the extent of the rationality of the actor who has the information asymmetry. We were also discussing job-market signalling (for which Spence was also awarded a Nobel Prize), which refers to those actors who might, for example, acquire an expensive certification as a way to signal skill to an employer, independent of quality of the education itself.
She asked incredulously how long ago these theories were developed – 1960’s and 1970’s – and concluded, “these seem very intuitive… How is it that we are just happening upon them now?” I didn’t have a great answer, and we moved onto other topics. Later, she said “you know, hand hygiene in medical settings is surprisingly new, too. And alcohol-based antiseptic in hospitals is even newer…” (She is studying medicine.) I proceeded to look up the history of hand-washing, I discovered that a Hungarian doctor named Semmelweis, in the mid 1800s, discovered that hand-washing in a hospital setting could prevent illness from spreading between patients and clinicians. He was fired upon making that discovery. His peer doctors rejected the notion that it was in fact they who had been spreading the illnesses through the hospital. Semmelweis died at 47, committed to a mental asylum and widely discredited, after unsuccessfully working his way from hospital to hospital throughout Europe. It took over a half-century for hand hygiene to gain acceptance within care facilities after Semmelweis first proposed it.
The social behaviors we take for granted today and seem obvious to modern ears – one who went for an MBA to demonstrate her employability; hand sanitizer and hygiene practices in hospital settings – all had origin somewhere. Karl Marx once described “the market” as an entity with personality and with behavior types that we could study and interrogate. Today, we debate the sides of our political economy with this view of the market taken for granted. Truth itself, as a matter of empirical fact, is obvious to a post-Enlightenment thinker, but before the scientific method, truth meant something different; hard even to describe today. And it is not simply “how intuitive” an idea is that determines how new (or how old) it is. After all, our systems are evolving, and the language we use to describe behavioral phenomena within them has to change, too.
What strikes me most here, though, is that the language itself can affect our society. Our transactions, societal habits, and cultural norms are as much an effect of the ideas and language we use as they are a cause. I wonder, then: what is the language we are circling around today – perhaps related to social impact, autonomous driving, virtual reality, or universal basic income – which will seem intuitive to a future professional that is totally alien today?