Brian Davey — Mismodelling human beings – “rational economic men” in love, politics and everyday life

This chapter explores the assumptions about human nature on which mainstream economics is based. The description of “rational economic man” ignores most psychological and psychotherapy understandings of people. — Brian Davey, Credo: Economic beliefs in a world in crisis, Chapter 9

Key to the conceptual confidence trick are assumptions about what people in general are like. It is all based on an implicit modelling of human beings. Certain types of behaviour (the type that allows economists to model people and markets) are called “rational”. Now, you might think that this description of people is meant by economists to be applicable only to economic and market activities. Certainly this was the point of view of one of the founders of the famous Chicago school of economics, Frank Knight. Although committed to the alleged virtues of the market, Knight was not naive about how far you could take economic analysis. In his book Risk, Uncertainty and Profit he concluded that economics only applied to the satisfaction of wants, and that this business of satisfying wants by no means accounted for all of human activity. Indeed Knight questioned how far one could go with a “scienti c treatment” of human activity and wrote of his own views:

In his views on this subject the writer is very much an irrationalist. In his view the whole interpretation of life as activity directed towards securing anything considered as really wanted, is highly artificial and unreal. (Backhouse, 2002, p. 204)

Some contemporary economists of the Chicago school don’t see it this way. If people are calculating their individual self interest in their economic dealings why should one assume that they do not do the same thing in their political, their social and their interpersonal dealings? Should we not also assume that government ocials are calculating their interests too? At the very least, why should contact between business and government not lead to a cosy relationship, particularly if people can leave government posts and get lucrative jobs with industry? What about bribes and kickbacks from business for special favours? 

As I argued earlier, we can take the idea from Anaïs Nin that we do not see things as they are – we see things as we are. There is likely to be a loop in which a theory which describes how people are assumed to be, when powerfully propagated in textbooks as “social science”, will have an influence on how people behave. With economics we have a theory which argues that if people just look after their own interest that’s OK because “an invisible hand” described by wizard intellectuals delivers an approximation to an optimal allocation of resources. Under the influence of a view like this, concern about what is in a wider interest is not likely to blossom. It is unlikely to figure as a motivation or concern. As individualists people will look no further than themselves. They do not need to look further than themselves because the “invisible hand” will do the rest.

It is quite logical to believe that if people are actually like this then their attitude to the community and to the state will be framed in the same terms. Such people, customers of the state, rather than citizens and members of communities, will then have an interest in getting the best deal from the state to pursue their own individual agendas.…

This is an interesting post and the book is a free download.

Frank Knight assumed that utility maximization applied only to economic behavior, while Gary Becker extended that assumption to human behavior in general. This assumption that humans act in their self-interest to gain maximum satisfaction "naturally" or "by nature" rests on the assumption of methodological individualism, which in turn presumes an assumption of ontological individualism.

Extreme individualism contradicts the longstanding assumption that humans are social animals dating at least to Aristotle's Politics.* The assumption of sociality that has greater biological and psychological evidence than the assumption that humans are chiefly individualistic in interests, motivation, decision making and behavior, and act independently of other factors and influences.

The Western intellectual tradition has viewed "rationality" as the distinguishing characteristic of humanity and since its inception in ancient Greece, the Western intellectual tradition has also viewed rationality as moral and pro-social.

Radical (Jacobin) and reactionary (liberal) individualism are innovations that developed in reaction to overbearing government as a residual of the feudalism system that was an obstacle to rising capitalism. This was also a reaction of the Protestant Reformation to the Church's dogmatism and monopoly on knowledge asa means of social control. While these forms of individualism are "rational" in terms of the historical dialectic, given conditions prevailing at the beginning of the modern period, they are neither intrinsic to humanity as indicative of "human nature," nor naturalistic in terms of the course of human development and history.

Emphasis on individualism ignores the broad and deep social and economic influence of culture and institutions, for instance. Conventional economics excludes institutionalism as heterodox, for example, and ignores economic sociology.

Radical and reactionary individualism are pernicious assumptions both socially and also personally, for they are separative. Rather than resulting in spontaneous natural order, pursuit of self-interest primarily leads to egotism and social dysfunction. Extreme liberalism is opposed by both traditionalism and socialism for this reason. Freedom without responsibility confuses liberty with license.

Credo
Mismodelling human beings – “rational economic men” in love, politics and everyday life

Brian Davey

* From these things therefore it is clear that the city-state is a natural growth, and that man is by nature a political animal, and a man that is by nature and not merely by fortune citiless is either low in the scale of humanity or above it (like the “ clanless, lawless, hearthless” man reviled by Homer,1 for one by nature unsocial is also ‘a lover of war’） inasmuch as he is solitary, like an isolated piece at draughts. And why man is a political animal in a greater measure than any bee or any gregarious animal is clear. For nature, as we declare, does nothing without purpose; and man alone of the animals possesses speech. The mere voice, it is true, can indicate pain and pleasure, and therefore is possessed by the other animals as well （for their nature has been developed so far as to have sensations of what is painful and pleasant and to indicate those sensations to one another）, but speech is designed to indicate the advantageous and the harmful, and therefore also the right and the wrong; for it is the special property of man in distinction from the other animals that he alone has perception of good and bad and right and wrong and the other moral qualities, and it is partnership in these things that makes a household and a city-state.