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. 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’. A large class divides itself into pairs, who must not be friends or acquaintances. Each pair collects ten 5p coins. If everyone is a rational egoist – a homo economicus, the dominant construction of the individual in economics – proposers should offer their partners 5p, aiming to keep 45p for themselves. Of course, nuances of interpretation are possible. If people are not homines economici, should economic theory be rejected as a fantasy based on unsound foundations? You are not logged in.
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. 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.
Over to Paul… Modern economic theory was first set out on a formal basis in the late nineteenth century. This view of the world dominates both social and economic policy making. 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. 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. And as a result behavioral economics has become a burgeoning field of study. Initially, the bulk of this field consisted of cataloging behavior deemed aberrant and anomalous. And they probably are off the mark because, after all, neoclassical economics is missing half the story.
This new approach is a quiet revolution that may transform the way we look at economic behavior. Assumption: We are Logicians The seminal work on which behavioral economics 1.0 rests is that of Kahneman and Tversky. Linda is 31 years old, single, outspoken, and very bright. A. Amartya Sen's Commitments" Philip Pilkington: Falling for Behaviourism – The Neoclassicals Join a New Cult. 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. At first I thought I would find engagement with the major critiques of mainstream economics that have emerged, well, since Keynes’ time. The problem being, of course, that behaviourism is itself a stranger cult than neoclassical economics. The Curious Case of B.F. B.F. 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? 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. It is this that lends its practitioners ears all over the world; from the media, from policymakers and from the general public. Yet, at its very heart we find concepts that, having been carried over almost directly from the Christian tradition, are inherently theological. We’ve all heard it before of course: isn’t neoclassical economics a religion of sorts? Let us turn first to one of the most unusual and oft-cited pieces of contemporary economic doctrine: rational expectations theory. Rational expectations is indeed an obscure doctrine.
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? 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? "Economics and Identity" (2000) is a good place to begin. Here is how they incorporate the behavioral mechanism of identity into an actor model, using the example of gender identity: Everyone in the population is assigned a gender category, as either a ‘‘man’’ or a ‘‘woman.’’
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. 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.
One, characteristic of the work of most sociologists, sees the actor as socialized and action as governed by social norms, rules, and obligations. Coleman indicates here that his distinctive approach to sociology attempts to combine both streams; but this isn't quite accurate. So what about norms? 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. 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 main reason Levine gives for his view is what he calls “the uncertainty principle in economics” and the “theory of rational expectations”: These are rather preposterous allegations. Keynes, genuine uncertainty and ergodicity. Complex Economics: Individual and Collective Rationality. 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).