One of the findings in Dorner's book is that human beings seem to have a hard time recognising temporal relationships. Causal relationships which are closely linked in time are far more easily recognised that events that are separated by weeks and years. Most human beings are short term orientated, concentrating on the concrete, here and now and the ability to abstract and take the long term view seems rare. I am unaware of any mainstream political or economic theory which takes this into account, which is strange because of obviousness to anyone who has to deal with the public. (which makes me think that many theoreticians have limited public contact, especially with the proletariat)
The extinction of the Passenger Pigeon is an interesting example that illustrates this phenomena. No one actually set out to exterminate the Passenger Pigeon, a bird of once amazing superabundance, but each hunter with a gun and each farmer 'who destroyed its habitat on his own private land, ensured that i the species became extinct. It was a classic tragedy of the commons result.
It's a phenomenon that doesn't seem to get much intellectual attention from the Right, especially from the free market advocates, which is a shame.
Many of the intellectual Right harbor the same intellectual pathology of the Left, namely, that of the assumption of the rational man when modelling human choice. Political theory, much like economic theory does not spend much time discussing the reality of the stupid man, which is a shame, since many of the problems in these disciplines are better understood by assuming that the bulk of the actors in question are morons.
It needs to be remembered that Dr Dorner's experiments were done on college graduates, people from the right hand side of the bell curve and his findings make for depressing socio-political prognosis. If the smart half of the bell curve has a hard time understanding things, what hope in hell does the left hand side of the curve have? Dorner's findings show that even with the assistance of instruction, many people can't grasp even moderately complicated issues, especially if they're temporally separated. The end conclusion of his work-and anyone who has spent any time try to explain complex subjects to the public-is that the the vast bulk of humanity is cognitively limited.
Now, we need to understand what is meant by cognitively limited. It does not mean low IQ, what it means is the inability to see inter-relationships amongst disparate variables. It's the inability to perform multiparamentric analysis that marks the cognitively limited. The "small picture" takes precedence over the big one, because the big one is unable to be grasped. (And here we're not even talking about ill will, just simple lack of ability). This has important financial implications.
The problem lays with the concept of rationality. The man with limited cognitive ability acts rationally with regard to the data that he has but he has an incomplete data set: He operates within a smaller, more local universe. The problem then with rationality is that it needs to be qualified. Rationality for most most people is "small picture" rational, and very few people are "big picture" rational. As far as I'm aware, no one seems to have given a name to this limited from and rationality, which I propose be called Stenosophism: (gk steno=narrow, sophia=wisdom)
In a completely free market, the price discovery mechanism is the end result of the transaction between the seller and the buyer. In such a system, capital is dynamically allocated according to expected profit, and as such, the capital structure will reflect the cognitive abilities of the participants. Short term success is incidental to long term sustainability since the factors that influence long term sustainability have not even been grasped. Herein lays the origin of the business cycle.
Bubbles arise because the stenosophists literally don't see the bubble forming. Ponzi schemes appear perfectly rational to the cognitively limited, as today's small profits are more real than tomorrows abstract massive losses, and capital is allocated according to their limited understanding of events which is ultimately unsustainable. The small pool of people who do see the bubble are ignored and the very forces that unleash the bubble prevent it from being stopped. (The Austrian concept, that artificially low interest rates send the wrong "price information" to participants certainly fuels the fire, but smart investors can arrive at their own determination of the true interest rate. It's the unthinking that accept them at face value).
The tragedy-of-the-commons type of outcome comes about from the "stenosophistic" utlisation of the commons. The long term sustainability of the common is not even entertained by the user, rather the here and now is all that matters. No one actually set out to wipe out the Passenger Pigeon, yet everyone did.
Now, because the vast majority of market participants are stenosophistic, it means that most market decisions are "small picture" decisions and long-term-big-picture type of market goods have a hard time surviving is a stenognostic market place. Alfred Kahn wrote about it with regard to the "tyranny of small decisions". Here lays a paradox of the free market, being completely free to chose might mean less choice. It's called market failure.
Ferdinand Bardamu copped a lot of heat from Chuck Ross with regard to his defence of the public ownership of private utilities. I feel that Ferdinand's position is, to a degree, justified by the stenognostic nature of the market. Apart from monopoly concerns( A different and yet important issue) most shareholders are short term orientated. Today's CEO do not usually have lifetime commitments to their companies and are rewarded on short term performance, and most customers are seeking to switch to the provider who will provide initially the cheapest short term supply. The entire market place is geared toward short term profits at the expense of long term economic sustainability. Investment in maintenance and contingency capital are long term expenses which are frequently sacrificed for short term boosting of profit. The net result that that the service becomes unreliable and run down, and given the monopolistic nature of utility provision, expensive.
This also raises the subject of economic efficiency. What do we mean by efficient? For the stenognostic it means short term efficiency, and such a man can always find "savings" in any traditionally run business by cutting away all the "fat"; except the that "fat" is frequently long-term essential, and all the stuff that was trimmed ends up eventually needing to be replaced (always at greater expense). Corporate restructuring, thy name be stenognosis. The saga of the Boeing Dreamliner is a classic example of this form of corporate stupidity. (The link in the story is definitely worth a read.). Note, the CEO who made the decision to outsource has gone to Ford. Boeing is stuck with the costs of his decisions.
The problem is fundamentally that certain necessary utilities, because of their common-good-nature, need to be managed in such a way to ensure their long term provision in an environment that rewards and punishes in the short term: The market has to be protected form itself and therefore a degree of regulation of the market is necessary to stop it from doing stupid things, especially with regard to common-good community assets. In a free market, ownership of a community-vital asset is not contingent on having benevolence and wisdom. It stops being of of purely personal interest when it becomes an essential community interest.