Advances on a Methodology of Design and Engineering in Economics and Political Science Copyright © Fernando Morett A thesis submitted to the Department of Philosophy, Logic, and Scientific Method of the London School of Economics and Political Science for the Degree of Doctor of Philosophy, 2014, London. To Paulina, Amélie and Ulrike Declaration I certify that the thesis I have presented for examination for the PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 85,504 words. Fernando Morett 3 Abstract This thesis consists of five chapters: 1.The Mechanical View, 2.Social Machines, 3.The FCC Auction Machine, 4.Self-Interested Knaves, and 5.Self-Interested but Sympathetic. In the first three chapters, I advance a methodological account of current design and engineering in economics and political science, which I call methodological mechanicism. It is not ontological or literal; it relies on a technological metaphor by describing market and state institutions as machines, and the human mind as consisting of a number of mechanisms. I introduce the Mechanical view on scientific theories as distinct from the Syntactic and the Semantic views. The electromagnetic theories from the nineteenth century are used to illustrate this view as well as the use of minimal and maximal analogies in model-building in normal and revolutionary science. The Mechanical view is extended to the social sciences, particularly to mechanism design theory and institutional design, using the International Monetary Fund, the NHS internal markets and the FCC auction as examples. Their blueprints are evaluated using criteria such as shielding and power for calculating joint effects as well as libertarian, dirigiste, egalitarian and inegalitarian properties; and the holistic and piecemeal engineering they adopt. Experimental parameter variation is introduced as a method complementing design. Any design assumes a particular moral psychology, so in chapters four and five I argue that the moral psychology of universal self-interest from Bernard Mandeville, and the related ideas on design and engineering, should be chosen over the moral psychology of self-interest, sympathy and sentiments of humanity from David Hume. Hume finds no solution for knavery in politics and civil society. He accepts egalitarianism as useful and consistent with utilitarian principles; however he rejects it because of some difficulties with its implementation. I show how those difficulties may be overcome, and I explain why his objections are unbalanced and not sufficiently justified. 4 Acknowledgments First and foremost, I would like to thank Professor Nancy Cartwright for her support and dedication as a supervisor. Her contribution to the philosophy of science has been a great inspiration to me. I also would like to thank Professor Rom Harré and Professor John Dupré, who very kindly accepted the offer of being the examiners of this thesis. It has been a great honour to have their wisdom and experience in the evaluation and improvement of my work. I am very grateful to the department of Philosophy, Logic and Scientific Method at the London School of Economics and Political Science (LSE), and the Mexican Council for Science and Technology ( CONACYT ) for their financial support throughout my PhD. I would like to thank the Directors of the Doctoral Programme and the Heads of the Department of Philosophy, Logic and Scientific Method at the LSE for their invaluable support and advice throughout my studies, research and teaching. I am also very grateful to all Professors and Lecturers at the Department of Philosophy, Logic and Scientific Method for their advice and teaching, which helped me to improve my knowledge and skills. I am very grateful to Alex Voorhoeve for his advice and recommendations on an early draft of chapter five. I also would like to thank my PhD fellows from whom I learnt so much, and whose companionship and cheerful conversations I always enjoyed. I thank all my students with whom I have shared the daily experience of doing philosophy, I learned many things from them. It has been a great honour and a pleasure to be part of the vibrant LSE community that is so full of knowledge, new ideas and people from all over the world. 5 CONTENTS DECLARATION ................................................................................................................................... 3 ABSTRACT ........................................................................................................................................... 4 ACKNOWLEDGMENTS ...................................................................................................................... 5 INTRODUCTION .............................................................................................................................. 9 CHAPTER 1 ........................................................................................................................................13 THE MECHANICAL VIEW ..............................................................................................................13 1.0. INTRODUCTION ...............................................................................................................................13 1.1. SYNTACTIC AND SEMANTIC GEOMETRY .............................................................................................18 1.2. THE MECHANICAL VIEW ................................................................................................................. 23 1.3. WHAT IS AN ANALOGY ? ................................................................................................................... 29 1.4. THE LOGICAL PROBLEM OF ANALOGY .............................................................................................. 38 1.5. METAPHOR ......................................................................................................................................51 1.6. TYPE -HIERARCHIES ......................................................................................................................... 56 1.7. MINIMAL ANALOGY ........................................................................................................................ 66 CHAPTER 2 ...................................................................................................................................... 82 SOCIAL MACHINES ........................................................................................................................ 82 2.0. INTRODUCTION .............................................................................................................................. 82 2.1. THE MACHINE METAPHOR ............................................................................................................... 87 2.2. BLUEPRINTS FOR SOCIAL MACHINES ................................................................................................. 95 2.3. THE ENGINEERING OF SOCIAL MACHINES ....................................................................................... 102 2.4. ANALYTICAL SOCIOLOGY ............................................................................................................... 118 2.5. INSTITUTIONAL DESIGN ................................................................................................................. 127 2.6. MECHANISM DESIGN THEORY ......................................................................................................... 134 CHAPTER 3 ..................................................................................................................................... 140 THE FCC AUCTION MACHINE ................................................................................................... 140 5.0. INTRODUCTION ............................................................................................................................. 140 5.1. THE FCC BLUEPRINT ..................................................................................................................... 142 5.2. EXPERIMENTAL PARAMETER VARIATION .......................................................................................... 154 5.3. THE ENGINEERING OF THE FCC AUCTION ...................................................................................... 158 6 CHAPTER 4 ..................................................................................................................................... 168 SELF-INTERESTED KNAVES ....................................................................................................... 168 4.0. INTRODUCTION ............................................................................................................................. 168 4.1. REFUTING ROMANTIC MORAL PSYCHOLOGY .................................................................................... 172 4.2. ERECTING MORAL PSYCHOLOGY ....................................................................................................