The Coloradan school of economics–what do you know about what people want?
Models only represent. Their creators often have a keen sense of their limitations, having struggled to find some adequate way of describing what they observe. Newton, for example, never claimed that his equations were anything other than simplified descriptions of physical phenomenon. But after several generations of being taught as the gospel truth, the distance between the model and the reality often begins to disappear, leading for example to the grandiose claims for the identity of words with the objects they represent, which somewhat opportunistic minds like Wittgenstein were able to overly-dramatically puncture later on. And so it seems to me with the new generation of psychologically-minded economists (or economically-minded psychologists) who have arrived at the shocking conclusion that in the mind “there is a conflict and interaction between passion, and reason and self-interest.”
Now, it’s not my intention to defend economists as a breed, particularly those of the so-called Austrian school who more than any other have contributed to the divorce of economics from actual lived human experience (accompanied by a more and more exclusive focus on mathematical models), but while most economists’ (and probably any sensible people’s) worldview is predicated on the idea that people pursue their self-interest, my understanding is that the crucial factor of rationality was introduced more as a standard by which to evaluate people’s behavior rather than a necessary component of it.
But even if economists have become more broad-minded as to the nature of people’s behavior, to tell the truth, the term “rational” still seems to encode a questionable invidious judgment about what things people ought to value. For instance, if one’s goal were to make as many friends as possible, one might rationally conclude on certain actions which would not necessarily be defensible from a purely wealth-aggrandizement point of view. So it seems to me that rationality within certain limits can pertain to the means of accomplishing a goal regardless of what that goal might be, and this does not seem to be sufficiently recognized within the field.
October 15th, 2006 at 8:54 pm
Economics is a value-neutral science. It does not tell us what people should and should not want, only how people act when they do want.
You can hardly criticise the Austrians for being overly mathematical: they’re the ones trying to reground economics in how humans actually act, as opposed to homo oeconomicus.
Rational is not used in economics to mean “coherent”, but “choosing those ends which appear to best fit their ends.” Rational does not mean “wealth-maximisation” but “ends-maximisation”, whatever those ends happen to be.
Really, before you post any more on economics, you should probably read Ludwig von Mises’ Epistemological Problems of Economics.
October 15th, 2006 at 10:33 pm
Um, I was under the impression that it was behavioral psychologists like Daniel Kahneman who were most reponsible for “regrounding economics in how humans actually act, as opposed to homo oeconomicus,” but if you can cite any prominenet “Austrian” economists who are doing the same, I’ll take your word for it. That still doesn’t change the fact that, to the best of my knowledge, in the first half of the 20th century the so-called Austrian school was especially involved in the overly-precise mathematical codification of the concept of homo oeconomicus. Secondly, I agree with you that economics should be “value-neutral,” though I would still question if it is a “science.” And “choosing those [means] which appear to best fit their ends” seems like a fair criterion of rationality as far as it goes, though if there aren’t any restrictions on the ends it can become somewhat vacuous. Are serial killers rational or irrational? Specifically I was responding to scenarios like the one in the article where psychological test subjects turn down monetary offers they view as insulting, leading economists to conclude that there is an internal conflict between emotion and “reason and self-interest”–followed by other economists pointing out how the behavior might be perfectly rational from a different point of view. So perhaps I should have been more clear, that the equation of rationality and wealth maximazation seems to me to be a residual prejudice rather than an explicit tenet of the discipline, and obviously it’s not a universally held one, particularly among the economist-psychologists. And consequently perhaps I should have also been clearer that in spite of this the overall trend is very good, and moving more and more to empirically-based investigations of how people make choices.
October 16th, 2006 at 12:45 am
From my (admittedly overly mathematical) perspective, I agree with this assessment, but this is almost word-for-word the primary criticism of neoclassical economics given by people who ascribe to the Austrian school. For whatever reason, they think a priori reasoning is non-mathematical and regression analysis is mathematical, whereas I would argue the opposite. In any case, any Austrians who are reading this are likely to think you’re confusing the Austrian school with the Chicago school unless you clarify what, exactly, you mean by the word “mathematical”.
October 16th, 2006 at 1:49 am
I also think a priori assigning of values is the essence of mathematical thinking in economics. Whichever school of economics best exemplifies that trend is not particularly important, so it was perhaps a mistake to name names. What is important is the distinction between a priori reasoning and empirical investigation, even though it’s doubtful that any economic inquiry could entirely exclude either one of these.