Artificial Intelligence and Society: Philosophy of Fallibility
Part 12: Do Selfish Individuals Implement Innovations Determined by Social Contracts?

Faculty Fellow, RIETI

Is the number of innovations implemented by individuals and companies based on personal decisions reaching the amount agreed upon under social contracts in the original position? A quest for knowledge (innovation) can be regarded as an investment activity intended to acquire new scientific and technical knowledge by using a certain quantity of resources (e.g., working hours and capital stocks). Innovation increases the productivity of the entire economy by creating new products and services and new methods of producing them. In other words, innovation has the function of expanding the economic pie. On the other hand, innovation also has a destructive nature: new products created through innovation, by replacing existing products, may cause incumbent companies' profitability to deteriorate, resulting in a change in the balance of power between people and between companies (a situation that Joseph Schumpeter called "creative destruction"). If defined in relation to the Rawlsian original position, innovation is an activity that updates people's scientific knowledge and reshuffles their positions under the renewed knowledge.

Moreover, the discovery of knowledge and development of new products as a result of innovation may be regarded as a phenomenon with an unknown probability distribution that intrinsically involves the "Knightian uncertainty," rather than as a stochastic event whose probability distribution is known ex ante. At least in my series, I will proceed with my discussions under that assumption. As was already mentioned, under the Knightian uncertainty, the basic principle of behavior of selfish individuals, is the same as the Rawlsian difference principle. Both of these principles are equivalent to the max-min rule, which advocates the maximization of the worst-case gains (minimum gains).
The question of what quantity of resources individuals should allocate to innovation under the Knightian uncertainty seems at first glance to be different from the question of what quantity of resources should be allocated to innovation as a society-wide choice in the original position. That is because the intensity and extent of the effects of those two sorts of uncertainty are assumed to be different: the effects of uncertainty brought about by the investment in innovation by individuals are limited to the individuals and their surroundings, while uncertainty brought about by society-wide investment in innovation affects the whole society. In this case, the amount of innovations pursued selfishly by individuals appears to be different from the amount of society-wide innovations pursued in the original position.

But that may not be true. The reason is as follows.

The reshuffling of individuals in response to innovations may be significantly affected either by innovations implemented by other people, or by the mutual effects of innovations by other people and innovations adopted by those individuals themselves. Given that the scope of the mutual effects of those innovations is complicated and wide-ranging enough to be unpredictable, it is appropriate to assume that uncertainty brought about by specific individuals affects not only themselves and people around them but also the whole of society. In this case, the probability distribution of the events corresponding to the uncertainty is unknown because this uncertainty is a Knightian one, and as a result, there is no difference between those individuals and people around them and the whole society in the degree of uncertainty faced. In other words, with respect to innovation, there is no difference between the Knightian uncertainty faced by individuals and the uncertainty faced by the whole society. This means that the effects of innovation implemented by individuals could affect the whole society. As a result, the amount of innovations pursued selfishly by individuals and the amount of society-wide innovations pursued (per individual) in the original position are expected to be almost the same. The reason for that is that when individuals and the whole society face the same Knightian uncertainty, the amount of innovations pursued by individuals under the max-min rule is also the same as the amount of innovations agreed upon by people in the original position under the same rule (Note 1).

As shown above, we have found a remarkable aspect of the nature of innovation activity: in innovation activity, private choices made by selfish individuals match social consensuses formed in the original position. Even though people shed the veil of ignorance and start to live within society, they come under that veil once again when they try to make decisions regarding innovation activity because of the updating of scientific knowledge (updated in an unexpected way). After all, in generation after generation, selfish individuals have to decide the quantity of resources to be allocated to innovation under the veil of ignorance, and as a result, with regard to innovation, people return to the original position in each generation. In each generation, scientific knowledge as an ambient condition is routinely updated, and people return to a renewed original position accordingly.

  1. ^ The amount of innovations pursued under the veil of ignorance is not necessarily the socially optimal level. That is because there is an effect caused by knowledge spillover. People in the original position under the veil of ignorance do not take into consideration external effects. As a result, the number of innovations chosen in the original position may be undervalued (or overvalued) compared with the optimal level of innovations chosen by social planners in view of external effects as well. However, the externality is not the main topic of my writing. What I want to emphasize here is that the amount of innovations pursued selfishly by individuals in their lives is roughly the same as the amount of innovations pursued under social contracts in the original position.

October 28, 2022

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