Homo Economicus?

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Donald MacKenzie reviews ‘Machine Dreams’ by Philip Mirowski · LRB 31 October 2002. Machine Dreams: Economics Becomes a Cyborg Science by Philip Mirowski Cambridge, 670 pp, £24.95, February 2002, ISBN 0 521 77526 4 I’ve started giving my students money.

Donald MacKenzie reviews ‘Machine Dreams’ by Philip Mirowski · LRB 31 October 2002

Not to bribe my way to favourable teaching reviews, but to provoke reflection about the relations between economic and sociological views of human beings. The money is used to play the ‘ultimatum game’.

Human rationality and economic theory

How do humans make decisions? Replacing ‘Rational Economic Person’: Networks, Behaviour and Policy in the 21st Century. EmailShare EmailShare This is the first of two guest pieces by Paul Ormerod, the author of “Pos­i­tive Link­ing” (Ama­zon USA; Ama­zon UK) and sev­eral other impor­tant books on non-equilibrium economics.

Replacing ‘Rational Economic Person’: Networks, Behaviour and Policy in the 21st Century

Paul and I have been research col­leagues and friends for over a decade now, and I regard him as the fore­most expo­nent of multi-agent and net­work eco­nom­ics today. As reg­u­lar read­ers will know, I pre­fer a “tops down” approach to eco­nom­ics over the multi-agent approach, mainly because the phe­nom­e­non of emer­gence is a sig­nif­i­cant con­cep­tual bar­rier between the “macro” sys­tems we wish to describe and the “micro” behav­iour of the indi­vid­ual enti­ties that com­prise the sys­tem. Paul has a flair for being able to develop mod­els that pen­e­trate that bar­rier suc­cess­fully. Jonah Lehrer on Decision-Making. Behavioural Economics / Finance. Why are We “Irrational”: The Path from Neoclassical to Behavioral Economics 2.0. A few months ago I discussed the failing of econophysics, and more generally, the economic paradigm that treats people like computers and views economic dynamics like physics.

Why are We “Irrational”: The Path from Neoclassical to Behavioral Economics 2.0

The natural follow up question is, “What can you say that is constructive?” The answer is an emerging approach to behavioral economics. Over the past few decades it has dawned on some researchers that we don't make decisions the way most economists think we should. Amartya Sen's Commitments" Amartya Sen's commitments, by Dan Little: A recent post examined the Akerlof and Kranton formalization of identity within a rational choice framework.

Amartya Sen's Commitments"

It is worth considering how this approach compares with Amartya Sen's arguments about "commitments" in "Rational Fools" (link).Sen's essay is a critique of the theory of narrow economic rationality to the extent that it is thought to realistically describe real human deliberative decision-making. He chooses Edgeworth as a clear expositor of the narrow theory: "the first principle of Economics is that every agent is actuated only by self interest" (Sen 317, quoting Mathematical Psychics). Sen notes that real choices don't reflect the maximizing logic associated with rational choice theory: "Choice may reflect a compromise among a variety of considerations of which personal welfare may be just one" (324). Here he argues for the importance of "commitments" in our deliberations about reasons for action.

Philip Pilkington: Falling for Behaviourism – The Neoclassicals Join a New Cult. By Philip Pilkington, a writer and journalist based in Dublin, Ireland.

Philip Pilkington: Falling for Behaviourism – The Neoclassicals Join a New Cult

You can follow him on Twitter at @pilkingtonphil The hedonistic conception of man is that of a lightning calculator of pleasures and pains who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact. He is an isolated definitive human datum, in stable equilibrium except for the buffets of the impinging forces that displace him in one direction or another.– Thorstein Veblen Recently someone directed my attention to a book by a British economist called Diane Coyle, entitled The Soulful Science. It is a defence of economic orthodoxy written for a mass audience. Philip Pilkington: Neoclassical Dogma – : How Economists Rationalise Their Hatred of Free Choice. By Philip Pilkington, a journalist and writer living in Dublin, Ireland What if all the world’s inside of your head Just creations of your own?

Philip Pilkington: Neoclassical Dogma – : How Economists Rationalise Their Hatred of Free Choice

Your devils and your gods All the living and the dead And you’re really all alone? You can live in this illusion You can choose to believe You keep looking but you can’t find the woods While you’re hiding in the trees – Nine Inch Nails, Right Where it Belongs Modern economics purports to be scientific. Akerlof and Kranton on identity economics. George Akerlof and Rachel Kranton have collaborated for over ten years on a simple idea: is it possible to introduce the concept of social identity into the formal mechanics of mainstream economics?

Akerlof and Kranton on identity economics

Can "identity" complement "interest" in the calculation of rational individual behavior? Their ideas were developed in several important articles: "Economics and Identity" (link), "Identity and the Economics of Organizations" (link), and "Identity and Schooling" (link). These earlier articles are all available on the Internet. Much of their thinking is pulled together in a recent book, Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being So what is their theory of identity and rational behavior? Coleman on the elementary actor. James Coleman's work has had a major influence on an important strand of thinking in the social sciences since the publication of Foundations of Social Theory in 1990.

Coleman on the elementary actor

He was a somewhat iconoclastic sociologist, in that his approach to social theory was grounded in an actor-centered view of the social world. He was a rational-choice theorist in a world of sociologists who usually have a lot of skepticism about rational-choice models of social action. Here is how Coleman describes two basic approaches to sociology in "Social Capital in the Creation of Human Capital" (link; 1988). There are two broad intellectual streams in the description and explanation of social action. David K. Levine is totally wrong on the rational expectations hypothesis. From Lars Pålsson Syll In the wake of the latest financial crisis many people have come to wonder why economists never have been able to predict these manias, panics and crashes that haunt our economies.

David K. Levine is totally wrong on the rational expectations hypothesis

In responding to these warranted wonderings, some economists – like renowned theoretical economist David K Levine in the article Why Economists Are Right: Rational Expectations and the Uncertainty Principle in Economics in the Huffington Post – have maintained that it is a fundamental principle that there can be no reliable way of predicting a crisis. To me this is a totally inadequate answer. And even trying to make an honour out of the inability of one’s own science to give answers to just questions, is indeed proof of a rather arrogant and insulting attitude.

Complex Economics: Individual and Collective Rationality. Review ‘What a refreshing read!

Complex Economics: Individual and Collective Rationality

Alan Kirman draws on his immense experience of how real people trade, from the Marseille and Ancona fish markets to experiments on public goods games, to propose an approach to economics centred on interaction between individuals and its consequences for aggregate behaviour. This book is essential reading in the quest for new economic thinking’. - Prof. Robert MacKay, University of Warwick, UK. Gerd Gigerenzer: On How Decisions are Really Made, Versus How Economists Say They Should Make Decisions, and Why the Folks in the Real World Often Have it Right.

This is a bit of a sleeper of a presentation from the recent INET conference. It was from a session titled “What Can Economists Know?” Which might cause willies among non-economists as being too much about epistemology and not enough about issues that might give insight, say, into why the overwhelming majority of economists in early 2007 thought a global financial crisis was impossible. This talk by Gerd Gigerenzer is about heuristics, and why they are often superior to the more formal methods of analysis and decision-making fetishized by economists. He argues that one of the big things that economists miss is how to approach decision-making under conditions of risk (when probabilities of outcomes can be estimated with some accuracy) versus uncertainty (when you can’t estimate the odds of outcomes and/or may face unknown unknowns).