Economic Anthropology - Formalism

Formalism

The formalist model is the one most closely linked to neoclassical economics, defining economics as the study of utility maximisation under conditions of scarcity. As an attempt to use neoclassical theory to analyze subjects outside of its traditional purview, formalist economic anthropology can be linked with new institutional economics. This approach usually makes the following central assumptions:

• Individuals pursue utility (or preference) maximisation by choosing between alternative means. They will always choose alternatives that maximise their utility (or that yields a given amount of utility for the least possible amount of inputs or effort required), often within specific informational or transaction cost constraints.
• Individuals will do so based on rationality, using all available information to measure the cost and utility of each means and considering the opportunity costs involved compared to spending their time and effort on other utility maximising pursuits. Lack of information can be modelled as information asymmetry or as a transaction cost. Whether by conscious forethought, instincts, or traditions, individuals are able to undertake the relevant calculations. In order to make rational choices individuals will seek to obtain all relevant information up to a point where the opportunity cost of information-gathering equals the additional utility gained from having been able to make better informed choices.
• All individuals live under conditions of scarcity of means while at the same time having unlimited wants.
• Underlying individuals' pursuit of utility maximisation is the principle of diminishing marginal utility, meaning that additional resources allocated towards a particular end will tend to achieve that end less and less efficiently. Rational actors will allocate their resources first towards those opportunities that provide the greatest payoff for them, and as opportunities get used up, allocate them towards progressively less efficient ends.

Some formalists use game theory as a model of rational behavior under specific cultural or interpersonal constraints. Formalists such as Raymond Firth and Harold K. Schneider assert that the neoclassical model of economics can be applied to any society if appropriate modifications are made, arguing that the principles outlined above have universal validity. All human cultures are therefore a collection of "choice making individuals whose every action involves conscious or unconscious selections among alternatives means to alternative ends" (Burling, 1962, quoted from Prattis, 1982:207), whereby the ends are culturally defined goals. Goals refer not only to economic value or financial gain but to anything that is valued by the individual, be it leisure, solidarity or prestige.

In the context of hunter-gatherer and Neolithic cultures, formalist models usually must deal with high transaction costs and are thus sometimes simplified to a model of bilateral monopoly.

Since a formalist model usually states what is to be maximized in terms of preferences, which often but not necessarily include culturally expressed value goals, it is deemed to be sufficiently abstract to be capable of explaining human behavior in any context. A traditional assumption many formalists borrow from neoclassical economics is that the individual will make rational choices based on full information, or information that is incomplete in a specific way, in order to maximize whatever that individual considers being of value. While preferences may vary or change, and information about choices may or may not be complete, the principles of economising and maximising still apply.

The role of the anthropologist may then be to analyse each culture in regards to its culturally appropriate means of attaining culturally recognized and valued goals. Individual preferences may differ from culturally recognized goals, and under economic rationality assumptions individual decisions are guided by individual preferences in an environment constrained by culture, including the preferences of others. Such an analysis should uncover the culturally-specific principles that underlie the rational decision-making process. In this way, economic theory has been applied by anthropologists to societies without price-regulating markets (e.g. Firth, 1961; Laughlin, 1973). Besides cultural values, formalists may also use evolutionary psychology to help model preferences.