The concept of embededdness and sociological revisions of
                       rational choice (TA9)

Granovetter: Economic Action and Social Structure: The problem of Embededness

INTRODUCTION .................................................................................................... 4
      About Economic sociology ................................................................................. 4
      Ad Homo sociologicus ........................................................................................ 5
   CRITIQUES OF RATIONAL CHOICE (POLANYI, GRANOVETTER) ................................. 6
      Polanyi’s concept of embeddeness ..................................................................... 6
      Granovetter’s concept of embeddeness ............................................................ 10
   .................................................................... ERROR! BOOKMARK NOT DEFINED.12
      Trust and Granovetter’s concept of embeddeness ........... Error! Bookmark not
      Williamson: Opportunism and small number Error! Bookmark not defined.15
      Granovetter’s empirical counter-evidence: ... Error! Bookmark not defined.16
      Ad b) Auditing ................................................ Error! Bookmark not defined.17
      Hierarchies versus market ............................. Error! Bookmark not defined.18
      Evolutionism ................................................... Error! Bookmark not defined.19
   PROPONENTS OF RATIONAL CHOICE (ELSTER) ....................................................... 14
      Do Norms Exist to Promote Self-Interest? ..... Error! Bookmark not defined.26


Jiří Hlaváček – homo se asecurans

George Akerlof: "loyalty filters":

Herbert Simon: Bounded rationality

Oliver Williamson


About Economic sociology

The fundamental premise: deep understanding how social structure and
institutions shape information flow, trust, cooperation, norms, morality, power and
domination, in economic action and interaction.

Granovetter wants to show that social structure – social relationships and networks
         o Trust and malfeasance
         o The solution of dilemma market or hierarchy (Williamson)
Social structure is connected in sociology:
 With the problem of hierarchical class arrangement and social stratification
  (prevailing view thanks to Parson’s structural functionalism)
 With the problem of social networks and social norms (thanks the popular
  theory of social capital (Becker, Coleman, Bourdieu)

         Opposition between homo oeconomicus and homo sociologicus.
Homo oeconomicus                      Homo sociologicus
Supposed to be guided by instrumental Dictated by social norms
"Pulled" by the prospect of future    "Pushed" from behind by quasi-inertial

rewards                                    forces
Adapts to changing circumstances,          Insensitive to circumstances, sticking to
always on the lookout for improvements     the prescribed behavior
Caricatured as a self-contained, asocial   Caricatured as the mindless plaything of
atom                                       social forces

Economic sociology strives to overcome this dilemma:

 Critiques of rational choice (Grannovetter)

 Proponents of rational choice (rational action approach – Elster concept of
  social norms)

Ad Homo sociologicus

Originally it is the concept of Ralf Dahrendorf –

Boudon, R. (1981). The Logic of Social Action. London: Routledge & Kegan Paul.

Positive view: Homo sociologicus is a man, who consistently engaged in the rule-
governed behaviour, because he/she internalised these norms and values.

Granovetter: homo sociologicus is criticised as the concept of oversocialised man ()

Garfinkel speaks about “culture dope”

Critiques of rational choice (Polanyi, Granovetter)

View that economic behaviour was heavily embedded in social relations only
in premarket is false.

NON: With modernization social relations became much more autonomous so it
starts to be only epiphenomenona.

Polanyi’s concept of embeddeness


Trade Market in the Early Empires by Karl Polanyi, Conrad M. Arensberg, Harry W. Pearson.
1957 by The Free Press

The term economic is a compound of two meanings:

 The formal meaning of economic - logical character of the means-ends
   relationship, as apparent in such words as "economical" or "economizing."
   (The formal meaning implies a set of rules referring to choice between the
   alternative uses of insufficient means)

 The substantive meaning - man's dependence for his living upon nature and his
   (The substantive meaning implies neither choice nor insufficiency of means;
   man’s livelihood may or may not involve the necessity of choice )

   It refers to the interchange with his natural and social environment, in so far as
   this results in supplying him with the means of material want satisfaction.

Note about the possible confusion of concepts:

                           OTHERS SOCIAL                 NEOCLASSICAL
                           SCIENCES                      ECONOMICS
UNDERSTANDING OF            Procedural                    Substantive
CHOICE Simon                (Psychology)                  (Path non-dependence)
MEANING OF                  Substantive                   Formal
“ECONOMIC”                  (Anthropology, sociology)     (Economic)
Polanyi                     laws of nature (ecological)   laws of logic (mind)

Only the substantive meaning of "economic" is capable of yielding the concepts
that are required by the social sciences.

The human economy is embedded and enmeshed in institutions, economic and

The form of the economy consisted in a system of price-making markets makes that
the formal and the substantive meanings would in practice coincide.

The economy is an instituted process:

 Process suggests analysis in terms of motion. The movements refer either to
   changes in location, or in appropriation, or both.

 The instituting of the economic process vests that process with unity and

Empirical economies acquire unity and stability achieve through three forms of

 Reciprocity denotes movements between correlative points of symmetrical
   groupings (frequent mutuality);

 Redistribution designates appropriational movements toward a center and out
   of it again; (common sharing among individuals)

 Exchange refers here to vice versa movements taking place as between "hands"
   under a market system (frequent barter).

No sequence in time is implied.

                              FORMS OF INTEGRATION
RELATIONS              INEQUALITY (positional        EQUALITY (positional
(IN)DEPENDANCE         superiority/game superiority) equality/game fellowship)

RELATION WITH           Redistributive governance       Reciprocal gift giving 

COMMITMENTS              (Superiority with commitments)   ("The right " from attachment)
RELATION WITHOUT         Power exploitation              Contractual exchange
COMMITMENTS              ("The right " of stronger)       (Partnership without

Granovetter’s concept of embeddeness
Granovetter: Economic Action and Social Structure

Most behaviour is closely embedded in networks of interpersonal relations.

Such an argument avoids the extremes of under - and oversocialized views of
human action.

Dennis Wrong's 1961: "oversocialized conception of man " - people are
overwhelmingly sensitive to the opinions of others and hence obedient to the
dictates of consensually developed systems of norms and values.

Classical and neoclassical economics: an atomised, undersocialized conception
of human action resulting from narrow utilitarian pursuit of self – interest.

Granovetter’s paradox: both approaches have in common a conception of action
and decision carried out by atomised actors:
 In the undersocialized account, atomisation results from narrow utilitarian
  pursuit of self - interest;
 In the oversocialized one, from the fact that behavioural patterns have been
  internalised and ongoing social relations thus have only peripheral effects on

Trust and Granovetter’s concept of embeddeness

Hobbes view: there is nothing in the intrinsic meaning of "self - interest" that
excludes force or fraud. (59)

Revised view:
Albert Hirschman (1977): Certain human motivations kept others under control and
that, in particular, the pursuit of economic self - interest was typically not an
uncontrollable "passion ' but a civilized, gentle activity.

Erosion of revised view with solving problem of market failure:

Micro - level details of imperfectly competitive markets, characterized by
small numbers of participants with sunk (utopené náklady - náklady, které již
nelze získat zpět) and "specific human capital" investments.

The paper is polemic with:

 The undersocialized account (clever institutional arrangements make it too
   costly to engage in fraud and malfeasance, neoinstituonalism)

 The undersocialized account (general morality - have developed implicit
   agreements to certain kinds of regard for others – e.g. Arrow).

Granovetter’s embeddedness argument stresses the role of concrete personal
relations and structures of such relations in generating trust and discouraging

There is valuable information from one’s own past dealings with that person as a
basement of trust:
   (1) Cheap;
   (2) Richer, more detailed, and known to be accurate;
   (3) Individuals with whom one has a continuing relation have an economic
       motivation to be trustworthy,
   (4) Pure economic motives become overlaid with social content.

They are also risks of “close relations”!
   1. The trust enhances also opportunity for malfeasance: The more complete the
      trust, the greater the potential gain from malfeasance.

   2. Force and fraud are most efficiently pursued by teams, and the structure of
      these teams requires a level of internal trust

   3. More extended and large-scale disorder results from coalitions of
      combatants, impossible without prior relations (problem of collusion).

Paper: The strength of weak relationships.


  He gives empirical evidence that shows:

 A high level of order can often be found in the "market" - that is, across firm
  boundaries and is based on the trust relations

 A correspondingly high level of disorder can be found within the firm, when
  development of social relations is rather unfortunate.

Williamson question: Under what circumstances economic functions are
performed within the boundaries of hierarchical firms rather than by market
processes that cross these boundaries.

Williamson’s answer is that the organizational form observed is that which deals
most efficiently with the cost of economic transactions.

Transactions are internalised within hierarchies for two reasons:
 "Bounded rationality,"
 "Opportunism."

Granovetter’s polemics with Williamson:
He shows on empirical examples that social structure – social relationships and
networks shape the solution of dilemma market or hierarchy

  He gives empirical evidence that shows:

 A high level of order can often be found in the "market" - that is, across firm
  boundaries and is based on the trust relations

 A correspondingly high level of disorder can be found within the firm, when
  development of social relations is rather unfortunate.

Pressures toward vertical integration is probable in a market where:

 Transacting firms lack a network of personal relations that connects them or

 Such a network eventuates in conflict, disorder, opportunism, or malfeasance.

Rediscovery of Hobbesian analysis → Opportunism is mitigated and constrained
by authority relations and by the greater identification with transaction
partners when both are contained within one corporate entity.

Proponents of rational choice (Elster)
Social Norms and Economic Theory
Rationality and the Emotions

Dilemma homo oeconomicus versus homo sociologicus: both norms and self-
interest enter into the proximate explanations of action.


     Norms          Self-interest

The selection of the norm to which one subscribes can also be explained by self-
interest only to some extent.

Self-interest does not provide the full explanation for adherence to norms.

There must be some further explanation, X, of why norms exist.


 To investigate the role of emotions in maintaining social norms.

 Pay attention to envy and honor.

 Re-evaluate the psychological theories of conformism

Why the role of emotions cannot be disregarded:

Economics is concerned with the best ways of promoting human satisfaction in a
world of scarce resources. All human satisfaction comes in the form of emotional

There is only one exception: the hedonic satisfaction produced by the senses, such
as the taste of sweetness on the tongue or the feeling of wind on your face after a
long climb.

To accept social norms as a motivational mechanism is not to violate
methodological individualism.

To accept social norms as a motivational mechanism is not to deny the importance
of rational choice.

Adequate formulation is that actions typically are influenced both by
rationality and by norm.


Rationality is outcome oriented: If you want to achieve Y, do X.
Rationality is essentially conditional and future-oriented.

Social norms are not outcome-oriented.
Social norms are either unconditional or, if conditional, are not future-oriented.

Scale of complexity of social norms:
Do X, or: Don't do X.

If you do Y, then do X, or: If others do Y, then do X.
Do X if it would be good if everyone did X.

Social norms are shared by other people + partly sustained by their approval and
disapproval → social norms are enforced by members of the general
community, and not always out of self-interest

They are also sustained by the feelings of embarrassment, anxiety, guilt and
shame that a person suffers at the prospect of violating them.

Social norms must be distinguished from a number of other, related phenomena:

   Moral norms (sometimes outcome oriented),
   Legal norms (external enforcement),
   Private norms (not, sustained by the approval and disapproval of others),
   Habits and compulsive neuroses (private or idiosyncratic).

Consumption norms regulate manners of dress, manners of table and the like.

Norms against behavior "contrary to nature" include rules against incest,
cannibalism, homosexuality and sodomy.

Norms regulating the use of money often become legal like the law against buying
and selling votes.

Norms of reciprocity enjoins us to return favour done to us by others. Gift-giving is
often regulated by these norms.

Norms of retribution enjoin us to return harm done to us by others. Rules
regulating revenge are often highly elaborate.

Work norms. The workplace is a hotbed for norm-guided action.

Norms of cooperation. There are many outcome-oriented maxims of cooperation.

Norms of distribution regulate what is seen as a fair allocation of income or other

There must be some further explanation X – not only interests -, of why norms

Are Norms Rationalizations of Self-Interest?

Are Norms Followed Out of Self-Interest?

Do Norms Exist to Promote Self-Interest?

Do Norms Exist to Promote Common Interests?

Do Norms Exist to Promote Genetic Fitness?

Common answer to all questions is:
“Nor Yes, nor No, but sometimes Yes, sometimes No.”

He gives both evidences and contra-evidences for the questioned statements.

Interestedness does not provide the full explanation for adherence to norms.

Do Norms Exist to Promote Self-Interest?

Gary Becker (1976, pp. 5, 14) economic approach suggests that norms exist
because they promote self-interest, over and above the avoidance of sanctions.

Norms against drinking or overeating are individually useful.

Social norms are sometimes individually useful in that they help people to
economize on decision costs.

It is individually rational to follow norms is that they lend credibility to threats that
otherwise would not be believable.

Against–evidence: norm of vengeance.

When a person guided by a code of honour has a quarrel with one who is
exclusively motivated by rational considerations, the first will often have his way.

But in a quarrel between two persons guided by the code, both may do worse
than if they had agreed to let the legal system resolve their conflict. (Mafiosi
seem to do better for themselves in the United States than in Sicily.)


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