Sunday, April 3, 2016

Geoffrey Hodgson — Economic Rationality Explains Everything and Nothing

But note that utility maximization is not a tautology. Tautologies are true by assumption or definition. Utility maximization is not a tautology because it is potentially false. But empirically it is unfalsifiable.
Ludwig Wittgenstein would call this masquerading as descriptive proposition a "nonsense statement." It looks like a descriptive statement but it can be interpreted to mean anything it is taken to mean. It's similar to curve-fitting or seeing faces in clouds. Its use is in "handwaving."

This is the case logically with most statements involving causality and purpose, as well as "the principle of sufficient reason." It generally involves turning a "how" question into a "why" question.

Science is a general account of how things stand. Philosophy is an attempt to explain why. This is a problem because there is usually no single explanation what accounts for why in most anything interesting.

For example, natural selection explains how evolution works in terms of observables. Intelligent design is an attempt to explain why it works in terms of unobservables. Confusing or conflating these involves a category error.

Cognitive science is showing that humans operate on the basis of a multitude of cognitive biases acquired in the course of development, such as "envisioning omniscient supernatural agents, magical causation, imminent justice, and promiscuous teleology." While these are often associated with superstition, Kant's analysis of the categories suggests that they are features of the way humans are "programmed" to think and reason. As a consequence distinguishing science from superstition is not always a simple matter. Conventional economics is rife with this kind of thinking.

"Philosophy is a battle against the bewitchment of our intelligence by means of our language.” — Ludwig Wittgenstein, Philosophical Investigations §109

Economic Rationality Explains Everything and Nothing
Geoffrey Hodgson | research professor at Hertfordshire Business School, University of Hertfordshire, England

See also
Robert Solow: I think that Professors Lucas and Sargent really seem to be serious in what they say, and in turn they have a proposal for constructive research that I find hard to talk about sympathetically. They call it equilibrium business cycle theory, and they say very firmly that it is based on two terribly important postulates — optimizing behavior and perpetual market clearing. When you read closely, they seem to regard the postulate of optimizing behavior as self-evident and the postulate of market-clearing behavior as essentially meaningless. I think they are too optimistic, since the one that they think is self-evident I regard as meaningless and the one that they think is meaningless, I regard as false. The assumption that everyone optimizes implies only weak and uninteresting consistency conditions on their behavior. Anything useful has to come from knowing what they optimize, and what constraints they perceive. Lucas and Sargent’s casual assumptions have no special claim to attention …
Lars P. Syll’s Blog
Solow kicking Lucas & Sargent in the pants
Lars P. Syll | Professor, Malmo University


Jason Smith jumps in.
 But that is the point -- the theory of utility is that utility is a number (or ordering), so finding that it is not a number is falsifying the theory.
A Wittgensteinian would say that if a number is assumed and there is no number, then the statement is not false but nonsensical. A key term is meaningless given the assumptions.

Information Transfer Economics
Marvelous demonstration that this blog post is too narrow to containJason Smith


Bob said...

Philosophy is the search for real solutions to imaginary problems.
Mainstream economics is the search for imaginary solutions to real problems.

Matt Franko said...

Tom you have to get the Philosophers fired up on this.... I think they have a lot to add to the discussion and in what should be a good way... "Help Wanted" or "Help Needed" from them big league imo....

andy blatchford said...

Geoff Hodgson rocks. I remember reading a paper by him and he had the best put down of utility ever "why did the chicken cross the road? To maximise it's utility"

andy blatchford said...

Geoff Hodgson rocks. I remember reading a paper by him and he had the best put down of utility ever "why did the chicken cross the road? To maximise it's utility"

Neil Wilson said...

Reasonable response here which the Philosophers may want to comment on.

MRW said...

Here’s a great antidote to all this bullshit. Some common sense. . . . and underscores why the ordinary guy has no patience with all these big words and small ideas. And he takes on utility, too.

Gerg Gigerenzer at INET. 2012. Around 20 min.

Yves Smith had a great title for introducing this video in 2012:
"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”
Her preamble was good: