Showing posts with label methodological atomism. Show all posts
Showing posts with label methodological atomism. Show all posts

Monday, August 5, 2013

Mark Buchanan — Why Homo Economicus Might Actually Be an Idiot

The findings could have important implications for policy makers. They suggest that institutions -- that is, the details that define how people interact -- have a big influence. The cooperative Homo socialis emerges only in the right institutional environment and can easily be exterminated by the wrong one. Institutions built on self-interest, such as corporate-governance rules that require executives to place the interests of shareholders over those of society, may perversely prevent more cooperation from emerging only because they take an outdated view of human behavior.
The take-home point is that Homo economicus is an oversimplified caricature who, in many situations, fails to benefit from real possibilities. Greed isn’t good, as Gordon Gekko famously said in the film “Wall Street.” In many cases, it’s not even very smart.
Neoclassical economics is based on methodological individualism — methodological atomism, really —  that assumes that individuals are free agents acting rationally in maximizing utility.  This supposedly results in the optimal resource allocation through efficiency of resource use guided by the invisible hand of the market through the profit motive and price discovery — the "butcher and baker" thing from Adam Smith.

On the other hand, systems thinkers and institutionalists counter that this is not representational. Reality doesn't work that way. Humans are social animals (as Aristotle observed millennia ago). They hunted in packs rather than as lone wolves, and they lived in communities, participating in community life. Social groups, from families, to clans, to tribes were nested in nations, as different levels of "society." 

Activity in these groups as characterized by rituals (conventions, traditions), now called "culture," and formal arrangements now called institutions, such as the form of governance and method of adjudication of disputes, and shared education of the young. Human beings never lived alone, outside of social context, as free agents making decisions independently. The lone hunter is not a human evolutionary trait, as it is for most cat species, for instance. Models based on this myth are bound to fail representationally.

In addition, all wisdom traditions worldwide from time immemorial teach that pursuit of self-interest leads to moral decrepitude and spiritual decay of both individuals and societies, while following the Golden Rule leads to moral integrity and spiritual advancement. While economics in claiming to be a positive science holds that it is amoral, the reality is that utility maximization is not only not representational of humans, it is also normative, specifically license for anti-social behavior.

One of the most successful evolutionary traits is the ability to organize. A smaller but well-organized group will almost always best a larger but less-organized one in competition for resources. Life scientists call this "return on coordination." Even those who are most committed to the principle of maximizing self-interest — thieves — know that organized crime is much more lucrative than hunting alone, even if they have to divide the take.

Mark Buchanan is not an economist, but rather a "real" scientist — theoretical physicist actually. While 19th century physicists were atomists, and neoclassical economics was modeled on 19th century physics, contemporary scientists are system thinkers that look to information systems and energy flow rather than the motion of billiard balls in classical space and time. Conventional economists haven't caught up with the scientific world.

Moreover, the social Darwinism that underlies neoclassical economist misreads even Darwin at that time, and evolutionary theory has developed significantly since then. Again, conventional economists have not kept up, resembling priests and magicians more than contemporary scientists in their ideological commitment to myths long ago debunked.

The odd thing is that there is even any discussion about this. The rest of the scientific world has moved far past the 19th century while conventional economics remains mired in it. The business world has moved beyond it, too. This would be laughable in its stupidity, but it is a tragedy when applied to policy making. The only people more naive than conventional economists are politicians and billionaires advocating laissez-faire. Oh, wait. Maybe there is more to it than stupidity?

Why Homo Economicus Might Actually Be an Idiot
Mark Buchanan
(h/t Mark Thoma at Economist's View)

Saturday, March 9, 2013

Lars Syll — Macroeconomics and the microfoundationalist programme

This is an extremely important point and even though the post is long it well worth the read.

Short translation: Neoclassical and New Keynesian models are built on the atomistic assumption of a representative agent (atom) that pursues maximum utility (Bentham's "calculus") based on rational expectation (perfect knowledge). Then the invisible hand of the perfect market in which there is no friction (field) operates completely efficiently in the same way as the law of least action in (ergodic) physical systems, based on perfect competition (single force) of equal participants.

Of course, this is a ludicrous assumption. Social scientists in other fields that aim at explanation with microfoundations use agent-based modeling. Neoclassical and New Keynesian economists are reluctant to accept this, however, since 1) abandoning present economic assumptions undermines key neoliberal assumptions, thereby throwing the entire ideology into question if not into the trash can, and 2) admission of complexity makes econometric modeling difficult if not intractable.

Lars P. Syll's Blog
Macroeconomics and the microfoundationalist programme
Lars P. Syll | Professor, Malmo University

Thursday, January 31, 2013

Methodological individualism versus methodological holism

Methodological localism emphasizes two ways in which actors are socially embedded. Actors are socially situated and socially constituted.
Socially situated. In any given situation individuals are embedded within a set of social relations and institutions that create opportunities and costs for them. They have friends and enemies, they have bosses and workers, they have neighbors and co-religionists, they have families. All of these relations and institutions serve to constitute the environment within which they make plans and perform their actions....
Socially constituted. The second form of social embeddedness is deeper and more persistent. The individual’s values, commitments, emotions, social ideals, repertoires of action, scripts of behavior, and ways of conceiving of the world are themselves the products of a lifetime of local social experiences. Individuals are socialized throughout their childhoods and adult lives into specific ways of thinking and acting, and the mosaic of these experiences serves to constitute the moral, emotional, and practical characteristics of the individual’s social-cognitive system. The way the individual thinks about the social world is itself a feature of his/her social setting. Moreover, the mechanisms of socialization—schools, religious institutions, military experience, playgrounds, families—are themselves concrete social phenomena that are amenable to empirical sociological investigation, and they too are locally embodied....
These two aspects of embeddedness provide the foundation for rather different kinds of social explanation and inquiry. The first aspect of social embeddedness is entirely compatible with a neutral and universal theory of the agent -- including rational choice theory in all its variants. The actor is assumed to be configured in the same way in all social contexts; what differs is the environment of constraint and opportunity that he or she confronts....
The second aspect, by contrast, assumes that human actors are to some important degree "plastic", and they take shape in different ways in different social settings. The developmental context -- the series of historically specific experiences the individual has as he/she develops personality and identity -- leads to important variations in personality and agency in different settings. So just knowing that the local social structure has a certain set of characteristics -- the specifics of a share-cropping regime, let us say -- doesn't allow us to infer how things will work out. We also need to know the features of identity, perception, motivation, and reasoning that characterize the local people before we can work out how they will process the features of the structure in which they find themselves. This insight suggests a research approach that drills down into the specific features of agency that are at work in a situation, and then try to determine how actors with these features will interact socially and collectively.
If both actors and structures differ substantially across social settings, then there are many possible pathways that interactions and processes can take.
Understanding Society
Social embeddedness and methodological localism
Daniel Little | Chancellor, University of Michigan at Dearborn

Daniel Little's methodological localism is a weak form of methodological individualism, the strong form being methodological atomism, or the view that by everything can be known about a group by examination of the individuals alone, apart from their relations. 

My own view is that of methodological holism, toward which the concept of being "socially constituted" points. 

Methodological holism is based in the assumption that societies are complex adaptive systems rather than mechanical ones. This is different from methodological collectivism, which holds that everything can be known about a system, including the elements, by examining the system alone, apart from individual elements.

Most social scientists reject methodological atomism and collectivism, and focus on either methodological individualism or holism. Generally the disagreements are over "microfoundations." Methodological individualists insist on strong microfoundations, while methodological holists emphasize context.

Methodological holism recognizes that individuals in human societies are related through reflection, reflexivity, and reciprocity as individuals, and interconnected through social, political, and economic institutions in such fashion that their behavior is interdependent. 

In addition, cultural beliefs, traditions, and rituals provide the contexts and sub-contexts in terms of which individuals relate not only to others but also to themselves. Individuals are not only embedded in context in the sense of being situated, but also their worldview, language, customs, values, norms, preferences, attitudes and so forth are constituted by context. Not only are individuals different across contexts, but also individuals change (adapt) as context shifts, resulting in emergence that is not predictable based on prior data.

The stronger the methodological individualism, the more a priori assumptions can be. The greater the methodological holism, the more a posteriori assumptions must be in order to make space for adaptation and emergence. 

See, for instance, Methodological Individualism vs. Holism by Carl Ratner, Director, Institute for Cultural Research and Education.