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. 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?
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. 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.
Behavioural Economics / Finance
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. 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, by Dan Little : A recent post examined the Akerlof and Kranton formalization of identity within a rational choice framework. 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).
By Philip Pilkington, a writer and journalist based in Dublin, Ireland. 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.
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? 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.
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? 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?
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. 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.
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. 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.
The economic crisis is also a crisis for economic theory.