How the Talmud Anticipated Behavioral Economics

Feb. 18 2019

In talmudic tort law, remuneration for damages must in many cases be paid in high-quality land. (As in most premodern economies, payment made in kind was more common than payment in cash.) A court thus places a price on the damages and then the responsible party must transfer to the plaintiff an area of his best land of equivalent value—rather than a larger area of lower-quality land. From the standpoint of classical economics, such a requirement is nonsensical, as Shlomo Zuckier writes:

[S]ince both fields are worth the same amount of money, what is the special preference for having [the tortfeasor] pay with the smaller, higher-quality field rather than the larger, lower-quality field? The standard answer given for this question is [that this] is preferable [from the paint of view of the plaintiff]. . . . In other words, a smaller, high-quality field costing $100 is more valuable than a larger, lower quality field of the same cost. . . .

A basic problem is posed to this approach from the perspective of economics [and] the concept of efficient markets. If a $100 high-quality field is worth more than a $100 low-quality field, why do they remain at the same price? Shouldn’t the high-quality field’s greater value be reflected by a correction in the markets such that it is now worth more than $100? . . .

It may be possible to resolve [this and similar] problems on the basis of a revolution in the study of economics that took place over the past half-century. Amos Tversky and Daniel Kahneman, two Israeli psychologists and scions of rabbinic dynasties, earned the Nobel Prize in economics in 2002 (received by Kahneman; Tversky was deceased by that point) on the basis of their research in the 1970s on behavioral economics. . . .

Kahneman and Tversky, approaching the field of economics from their backgrounds in psychology, took a new perspective on these issues. They pointed to all sorts of irrationalities that are built into the human psyche and raised the question of their significance for economics. For example, people are loss-averse, which means that people value not losing $5 more than they value earning $5, despite the fact that from an economic perspective these things are equivalent. [Furthermore, behavioral research suggests that] loss aversion is much stronger regarding their higher-quality assets than it is regarding their lower-quality assets. Therefore, although giving up either part of a field is of equal cost to the damager’s wallet, the cost to his psyche will be greater in the first case.

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More about: Economics, Halakhah, Psychology, Religion & Holidays, Talmud

 

What Egypt’s Withdrawal from the “Arab NATO” Signifies for U.S. Strategy

A few weeks ago, Egypt quietly announced its withdrawal from the Middle East Strategic Alliance (MESA), a coalition—which also includes Jordan, the Gulf states, and the U.S.—founded at President Trump’s urging to serve as an “Arab NATO” that could work to contain Iran. Jonathan Ariel notes three major factors that most likely contributed to Egyptian President Sisi’s abandonment of MESA: his distrust of Donald Trump (and concern that Trump might lose the 2020 election) and of Saudi Arabia’s Crown Prince Mohammad bin Salman; Cairo’s perception that Iran does not pose a major threat to its security; and the current situation in Gaza:

Gaza . . . is ruled by Hamas, defined by its covenant as “one of the wings of the Muslim Brotherhood in Palestine.” Sisi has ruthlessly persecuted the Brotherhood in Egypt. [But] Egypt, despite its dependence on Saudi largesse, has continued to maintain its ties with Qatar, which is under Saudi blockade over its unwillingness to toe the Saudi line regarding Iran. . . . Qatar is also supportive of the Muslim Brotherhood, . . . and of course Hamas.

[Qatar’s ruler] Sheikh Tamim is one of the key “go-to guys” when the situation in Gaza gets out of hand. Qatar has provided the cash that keeps Hamas solvent, and therefore at least somewhat restrained. . . . In return, Hamas listens to Qatar, which does not want it to help the Islamic State-affiliated factions involved in an armed insurrection against Egyptian forces in northern Sinai. Egypt’s military is having a hard enough time coping with the insurgency as it is. The last thing it needs is for Hamas to be given a green light to cooperate with Islamic State forces in Sinai. . . .

Over the past decade, ever since Benjamin Netanyahu returned to power, Israel has also been gradually placing more and more chips in its still covert but growing alliance with Saudi Arabia. Egypt’s decision to pull out of MESA should give it cause to reconsider. Without Egypt, MESA has zero viability unless it is to include either U.S. forces or Israeli ones. [But] one’s chances of winning the lottery seem infinitely higher than those of MESA’s including the IDF. . . . Given that Egypt, the Arab world’s biggest and militarily most powerful state and its traditional leader, has clearly indicated its lack of confidence in the Saudi leadership, Israel should urgently reexamine its strategy in this regard.

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More about: Egypt, Gaza Strip, Qatar, Saudi Arabia, U.S. Foreign policy