A Random Utility model treats human decision-making as if it has two components - a predictable, deterministic component, and a random component. But if there are a huge jumble of behavioral effects going on, it seems to me that outside of the lab, that's usually just going to be observationally equivalent to randomness in the objective function. Which is exactly a Random Utility model.
So what if Random Utility models are the grand unified theory of behavioral economics? What if the upshot of all of these psychological effects is simply that the random component of utility is partially irreducible - that there must be a random component of utility in almost any theory if that theory is going to have a chance of predicting human behavior accurately? Maybe sometimes the randomness is so negligible that people act like homo economicus, and sometimes the random part dominated so much that their decisions are completely unpredictable with science?
In other words, maybe the Grand Unified Theory of Behavioral Economics was invented and validated more than 40 years ago, and we just didn't recognize it for what it was?Good comments, too. Barkley Rosser weighs in and Noah responds.
I think this could be close to the truth. The problem with rational choice theory is the strength of the assumption, I suspect based on generalizing from a special case to homo economicus as a universally applicable paradigm. But while some types of behavior are highly regular (law-like), therefore predictable, some are not. Treating all behavior as more or less equally regular hence predictable seems to be a hasty generalization. This seems to fit what Keynes was getting at with his "animal spirits." (See John Harvey's Uncertainty And Animal Spirits.)
See also Competing for What? by Econolosophy
It is important to note that when the economist jumps from considering all preferences in his cost-benefit analyses to considering just purified preferences, he has entered the realm of moral philosophy. He can no longer claim to be a liberally neutral policy advocate.[2] He now needs to take a stance on what he thinks constitutes the good life and, as such, argue for policies that lead people in the direction of that life.
Which is wonderful! The beauty of moral philosophy is that everyone can and should be a moral philosopher. Indeed, society is at its best when people with different moral beliefs debate and envision, collectively, what the good life is and how society should be structured so that people can achieve it. Deliberative democracy is at the heart of what makes a modern society thriving and just.
Unfortunately, most economists do not want to debate with the broader public about moral philosophy. They would rather sneakily hide their moral views behind mathematical models, which they falsely claim are non-normative. I’m not sure how they’ve been able to pull off this swindle for so long; but it probably has something to do with the implicit bias we all have to be swayed by fancy physics-looking math, which we incorrectly assume must be grounded in positive empiricism and not moral intuition.
So in this post, let’s look at two policy recommendations that economists have given in recent decades, each of which appears non-normative upon first glance but in fact rests on a certain moral ideal....Noahpinion
Where is the supersymmetry when you need it ?
ReplyDeleteWow. The direct connection Econolosophy made between retirement savings and time available for politics came right out of left field. An intuitive substitution of the sort that sort of gets right to the heart of the perils involved in imagining the moral philosophy of others. It's stunning how he does that in an article about assumed moral philosophy in econ models. He goes head first and assumes people for lack of time due to retirement investment, have abandoned politics. LOL! Classic.
ReplyDeleteThis approach maybe good for micro level economics, but it just does not make sense from a macro point of view.
ReplyDeleteThe reason is that human beings are both individualistic, as well as herd animals at the same time. Also, the motivations for action of individuals vary tremendously. The models just cannot take those into account, and simplisti rules cannot be garnered from that observation.
Modern statistics, and the study of randomness springs from looking at errors in observation, and not at variation in the underlying phenomenon. These are two very different things. In one, the phenomenon being studied is invariant, but all variation springs from our inability to observe correctly. In the other, the phenomenon itself changes.
For macroeconomics, the circuitist approach couple with MMT, is likely the best approach, that leads to meaningful policy.
I thought that Econolosophy's argument that portfolio management would cut into time to study politics was weak, but the overall thrust I believe is correct. The contention is that people are better stewards of their own money than the gub'ment and portfolio decisions are better left to them. This leaves essentially two alternatives, either manage one's portfolio oneself or hire someone to do it.
ReplyDeleteManaging one's portfolio oneself is a big deal wrt to time and expertise. Most people are likely to either fail to undertake what is necessary to understand the field or else credit themselves with more expertise than they have. There is also a learning curve that can be expensive. In addition, the time element is significant, too. Portfolio management requires acquiring a lot of knowledge expertise, as well as staying up on relevant conditions. In addition, there are a lot of people that are likely just not up to the task and will become marks.
The other option is choosing a portfolio manager. Again, choice of a good portfolio manager requires a certain degree of sophistication that most people don't have and don't know how to acquire. This is also a problem for those whose portfolio falls under the minimum of hedge fund managers. So their options are limited. The alternatives are either a low-level personal financial adviser or a fund. Neither can be counted on out-performing the gub'ment with COLA added each year, after fees are deducted. How much is the gub'ment guarantee worth?
The rational choice for most people that would actually need to rely on SS is SS rather than a private plan.
So why the push to privatization? It's not an empirically decided issue but an ideological one that assumes the private sector is more efficient and effective than the gub'ment, just because. It's a normative (moral) stance.
I agree that the argument that portfolio management would cut into time to study politics was weak and intuitive. There is some research that longer working hours does cut into time spent participating in politics (See Bowling Alone by Putnam). But for the reasons Tom mentioned, it does seem plausible - and to the best of my knowledge, the connection has not been empirically studied. So if anything, I'm simply trying to bring it into the spotlight for further investigation, which I don't have the time to do.
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