How Economists Tricked Us Into Thinking Capitalism Works — Robert R. Raymond

Studies have determined that the Homo economicus personality is an extremely rare one. Instead, most humans are marked by a deep capacity for reciprocity, cooperation and selflessness.…

Truthout
How Economists Tricked Us Into Thinking Capitalism Works

Robert R. Raymond

See also

In India, the ‘development’ paradigm is premised on moving farmers out of agriculture and into the cities to work in construction, manufacturing or the service sector, despite these sectors not creating anything like the number of jobs required. The aim is to displace the existing labour-intensive system of food and agriculture with one dominated by a few transnational corporate agri-food giants which will then control the sector. Agriculture is to be wholly commercialised with large-scale, mechanised (monocrop) enterprises replacing family-run farms that help sustain hundreds of millions of rural livelihoods while feeding the urban masses.

Renowned journalist P Sainath encapsulates what is taking place when he says that the agrarian crisis can be explained in just five words: hijack of agriculture by corporations. He notes the process by which it is being done in five words too: predatory commercialisation of the countryside. And he takes five works to describe the outcome: biggest displacement in our history….

Duplicating enclosure and forced industrialization in the West.

Counterpunch
Capitalism and the Gut-Wrenching Hijack of India
Colin Todhunter

The Sacrificial Rites of Capitalism We Don’t Talk About — Lynn Parramore

Lynn Parramore reviews Suprita Rajan's A Tale of Two Capitalisms, which is about the intersection of economics with anthropology and sociology and the distinction between homo economicus of economics and homo communis (aka homo socialis) of anthropology and sociology — and ethics.

Ethos (ἦθος, ἔθος; plurals: ethe, ἤθη; ethea, ἤθεα) is a Greek word originally meaning "accustomed place" (as in ἤθεα ἵππων "the habitats of horses", Iliad 6.511, 15.268),[2] "custom, habit", equivalent to Latin mores.

Ethos forms the root of ethikos (ἠθικός), meaning "moral, showing moral character".[3] As an adjective in the neuter plural form ta ethika (τὰ ἠθικά), used for the study of morals, it is the origin of the modern English word ethics.

In modern usage, ethos denotes the disposition, character, or fundamental values peculiar to a specific person, people, corporation, culture, or movement. — Wikipedia

The etymology of the term "ethics" reveals that it can be traced to the customs of a people and later morphs into the dual meaning of the spirit of a people and the character of an individual. From this emerges the contemporary meaning of "ethics" as both individual and social in terms of right action and community-approved behavior.

While an act may not be illegal, that is, contra to positive law, it may be unethical in terms of an unwritten "law" as a tradition. Thus, liberalism is permeated with traditionalism. This is often overlooked in the narrow interpretation of liberalism, as in "Well, I didn't break any laws" as exculpatory. That excuse doesn't fly with the public.

INET
The Sacrificial Rites of Capitalism We Don’t Talk About
Lynn Parramore, Senior Research Analyst

Crossposted at Naked Capitalism

Nick Hanauer — How to Destroy Neoliberalism: Kill ‘Homo Economicus’

I believe that these corrosive moral claims derive from a fundamentally flawed understanding of how market capitalism works, grounded in the dubious assumption that human beings are “homo economicus”: perfectly selfish, perfectly rational, and relentlessly self-maximizing. It is this behavioral model upon which all the other models of orthodox economics are built. And it is nonsense.

The last 40 years of research across multiple scientific disciplines has proven, with certainty, that homo economicus does not exist. Outside of economic models, this is simply not how real humans behave. Rather, Homo sapiens have evolved to be other-regarding, reciprocal, heuristic, and intuitive moral creatures. We can be selfish, yes—even cruel. But it is our highly evolved prosocial nature—our innate facility for cooperation, not competition—that has enabled our species to dominate the planet, and to build such an extraordinary—and extraordinarily complex—quality of life. Pro-sociality is our economic super power.

Economists are not wrong when they attribute the material advances of modernity to market capitalism’s genius for self-organizing an increasingly complex and intricate division of knowledge, knowhow, and labor. But it’s important to recognize that the division of labor was not invented in the pin factories of Adam Smith’s eighteenth century Scotland; at some level, it has been a defining feature of all human societies since at least the cognitive revolution. Even our least complex societies, small bands of hunter-gatherers, are characterized by a division of labor—hunting and gathering—if largely along gender lines. The division of labor is a trait that is universal to our prosocial species.

Viewed through this prosocial lens, we can see that the highly specialized division of labor that characterizes our modern economy was not made possible by market capitalism. Rather, market capitalism was made possible by our fundamentally prosocial facility for cooperation, which is all the division of labor really is.…

The following observation is critical.

This dispute over behavioral models has profound non-academic consequences. Many economists, while acknowledging its flaws, still defend homo-economicus as a useful fiction—a tool for modeling and understanding the economic world. But it is much more than just an economic model. It is also a story we tell ourselves about ourselves that gives both permission and encouragement to some of the worst excesses of modern capitalism, and of contemporary moral and social life...

While models purport to be descriptive, they function as metaphors. All models are limited in the interest of economy and tractability. It is simply not possible to construct a complete description of a system that is complicated, let alone complex. The purpose of the model is to isolate important relationships and regularities using the model as an analogy, whether its construction is conceptual or mathematical. The question is then how useful is the model in elucidating relations and regularities that are not evident without analysis.

There is nothing inherently wrong with exploring a domain using all models that may be useful in this regard. Those that are actually useful will be used and eventually the others will be discarded or supplanted.

The economic model based on homo economicus as outlived its usefulness for several reasons. The first is a descriptive issue. The second is a normative one.

The first is that the scope of such models is too limited to provide much useful information. The assumes humans in the "state of nature" following evolutionary principles based on survival of the fittest" through competition in a symmetrical environment. Thus, the appeal to "spontaneous natural order" on the conditions that "imperfections," such as prosocial policy, are minimized.

This state of affairs doesn't apply to modern societies and their embedded economics that are highly influenced by culture and institutions. This means that in econometrics, important information will be put aside for modeling convenient, e.g., in the interest of mathematical tractability. The result is that model equilibria may not reflect observed events accurately. This is accounted for using ceteris paribus although conditions are actually changing, positing constants when conditions call for variables, and an indefinite "long run."

The second is more serious because it is normative. Conclusions that purport to be positive are used normatively and prescriptively. This is especially the case when models use technical terms take from ordinary language. Even if the terms are defined operationally, the ordinary language meaning comes along, altering not only the denotation but also the connotation. For example, "debt" as a liability becomes "debt" as something bad, dangerous, and to be avoided.

None of this is in way "scientific" regardless the trappings in the terminology of science.

If we accept that it is true—if we internalize that most people are mostly selfish—and then we look around the world at all of the unambiguous prosperity and goodness in it, then it follows logically, it must be true, by definition, that a billion individual acts of selfishness magically transubstantiate into prosperity and the common good. If it is true that humans really are just selfish maximizers, then selfishness must be the cause of prosperity. And it must be true that the more selfish we are, the more prosperous we all become. Under this logical construct, the only good decision is a business decision—“Greed is good”—and the only purpose of the corporation must be to maximize shareholder value, humanity be damned. Welcome to our neoliberal world.

But if, instead, we accept a prosocial behavioral model that correctly describes human beings as uniquely cooperative and intuitively moral creatures, then logically, the golden rule of economics must be the Golden Rule: Do business with others as you would have them do business with you. This is a story about ourselves that grants us permission and encouragement to be our best selves. It is a virtuous story that also has the virtue of being true....

Unfortunately, Hanauer then concludes, without justification, that capitalism is the solution rather than the problem. The problem is the approach to capitalism.

Capitalism is the greatest problem-solving social technology ever invented. But knowing that capitalism works is different than knowing why it works. And contrary to economic orthodoxy, it is reciprocity, not selfishness that guides it—indeed—as if by an invisible hand. It is social reciprocity that builds the high levels of trust necessary for large networks of people to cooperate at scale. And it is only through these networks of highly-cooperative specialists that the complexity that defines our modern economy can emerge....

I argue that this cannot be true and it is contradicted by what he said previously.

It is generally agreed that there are three major factors of economic productions — capital, land and labor. Rent is income generated without productive work. Feudalism is a system that favors the ownership of land and extraction of rent through agriculture. Capitalism is a system that favors the ownership of industrial and finance capital and extraction of rent through ownership of capital.

What is needed instead of a rejiggering of capitalism is an integrated system that balances capital, land and labor, that is, the means of production with people and the environment. This is different from most definitions of socialism and might be termed holism or ecologism, or some such that denote a condition of harmony, balance, and wellbeing of people and the planet.

What is required is a vision of possibilities and plans to actualize them. This design process may be speeded up by necessity as climate change begins to bite down harder.

Evonomics
How to Destroy Neoliberalism: Kill ‘Homo Economicus’ — Debunking the failed paradigm of traditional economics

Nick Hanauer

Wim Hordijk — The Evolutionary Roots of Irrationality

Standard economic theory assumes that humans behave fully rationally and are able to objectively calculate the value (or cost) of the different choices they are presented with. In fact, we pride ourselves on our rationality. Different from the animals, we humans have the unique capacity for logical thought and rational decision making. Or do we?

According to behavioral economist Dan Ariely, we should be less proud of ourselves. In his entertaining book Predictably Irrational, Ariely describes many case studies of every-day irrational human behavior. His simple but clever scientific experiments often require nothing more than a box of chocolates. However, subtle differences in the way these chocolates are offered to people can cause large and completely irrational differences in the way we behave. Moreover, these irrational behaviors fly square in the face of what conventional economic theory, based on rationality, would predict....

So much for methodological atomist in economics, or other social disciplines as James Buchanan's rational choice theory spreads.

Humans are not like atoms in physics and chemistry or even like cells in biology. They are not homogeneous and cannot be assumed to be so as the concepts of homo economicus and representative agent that underly neoclassical method do.  

Social systems in which human agents are elements, or families, do not resemble atoms and molecules closely enough to serve as a framework for representational models, where the arrangements of symbols in possibility space are asserted to reflect the configuration and behavior of objects in actual space with more than rough approximation.

Wim Hordik argues that this is not a imperfection, but rather an important aspect of the evolutionary development of humans that serves to protect. For example, if homo economicus were entirely true then life would be determined by quantity, objectivity and positivity, while quality, subjectivity and values would be largely excluded from importance and banished from consideration in decisions. The world would be colorless, so to speak.

The Evolution Institute
The Evolutionary Roots of Irrationality
Wim Hordijk | Senior Fellow at the Konrad Lorenz Institute for Evolution and Cognition Research in Klosterneuburg, Austria

Alexander Beunder — Behavioral Economics: Still Too Devoted To Homo Economicus?

I think Alexander Beunder attacks the wrong target — rationality. The foundational assumption of homo economics is methodological individualism based on a hidden assumption of ontological individualism, which is characteristic of many forms of liberalism as a philosophical position. The major opposing view is that of Aristotle, that humans are social animals. Thus, the key conceptual distinction is between homo economicus and homo socialis.

The basic assumption of homo socialis is that humans are embedded in social system. The unit of society is not the individual, but rather the family. Individual choice is not free of the influence of culture and institutions.

Homo economicus assumes a "standard individual," that is. a degree of homogeneity such that "rational" individuals can be presumed to similar in their economic preferences as revealed by their choices in markets. This assumption greatly limits the scope to a narrow range of human decision-making and a limited scale, that is, to the micro.

Conversely, homo socialis is influenced by many factors that are influenced by the position of the individual in the social system as whole and in the various subsystems that constitute nodes in the network of relationships.

This is not to say that assuming homo economicus is "wrong." What is illogical is extending the conclusion that result from applying the assumption beyond the limitations of those assumptions.

Homo economicus is a simplification than may lead to interesting and useful insights. However it is taken as necessary methodological approach it is likely to lead astray in wandering beyond the scope and scale of the assumptions.

Homs socialis also suggests that the macro level may not be determined by the micro, as the methodological approach of microfoundations assumes. Rather, the micro may be importantly affected by the macro and meso levels of a social system and its interrelated subsystems.

Rational choice theory is fine — as far as it goes. That may not be very far and to extend it has it has been could be leading to the presumption of knowledge instead of knowledge. And it is entirely possible for behavioral economists to accept the conventional frame while tweaking it from within.

The Minskys
Behavioral Economics: Still Too Devoted To Homo Economicus?

Alexander Beunder, independent journalist and economics tutor at the University of Amsterdam

Peter Fleming — Is Homo Economicus Dead?

Peter Fleming tells what his book, The Death of Homo Economicus, is about.

Economic Sociology and Political Economy

Is Homo Economicus Dead?

Peter Fleming | Professor of Business and Society at Cass Business School, City, University of London

Bill Mitchell — Our affect is driving us back to a need for continuous fiscal deficits

The field of psychology is usually ignored by mainstream economists, which, in its typically arrogant and closed practice, adopts a series of a priori assumptions about human behaviour – the so-called Homo economicus – where were are always rational and self-interested and, as a result, always make choices that maximise our present and future well-being based on available market signals. Real world forces that condition actual human behaviour, such as cognitive biases and irrationality, in general, as well as cooperative and collective behaviour is ignored by mainstream neo-classical (free market) economic theory, because admitting its dominance in human decision-making would void the entire edifice of that theory and scuttle the authority that is given to the on-going narratives about deregulation, small government, privatisation, pernicious cutting of income support, and the rest of the economic policies that have defined this dysfunctional neo-liberal era. But humans do not behave in the way economists suggest. We are a complex mass of irrationality, custom, habit, and affect. We certainly use cognitive processes in our decision making but often we take shortcuts based on affect. These tendencies are pushing our behaviour back to what was normal before the credit binge that led to the GFC. This shift in our behaviour is associated with stagnation and entrenched mass unemployment. But the reason for these parlous outcomes is not that we have returned to more normal spending behaviour but, rather, because governments have not realised that they had to return to more normal behaviour as well. Instead of promoting the benefits of austerity (in the face of all evidence to the contrary), governments should have been promoting the benefits of continuous fiscal deficits to support non-government saving desires and maintain better employment outcomes and stronger income growth.….

The problem is not with the model based on homo economicus but with the scope of its application. The conventional interpretation of the model assumes the scope of the model is sufficiently congruent with actual affairs to approximate reality closely enough to be the foundation for policy analysis and formulation. However, outcomes reveal that the restrictive assumptions on which such models are based limit the scope so much that the model is not as representational as assumed and so the models fail as a policy tool.

There is also the issue of scale. The assumption is that the microfoundations of the model underlie macro behavior and can be used to project macro behavior. However, this involves the fallacy of composition, when it is assumed that what is true of a part of the whole is true of the whole. It also fails to take into account synergy, that is, the whole is greater than the sum of its part owing to relationships, interaction, feedback and reflexivity.

Modeling that restrictively assumes homo economicus, methodological individualism and a representative agent for tractablity fail owing to both scope and scale. Simple is a feature. Simplistic is a bug.

Some of the reasons for this failure of models based on homo economicus as policy tools are found in the psychological factors that Bill calls to attention. These psychological factors strongly influence individual preference and behavior and also underlie sociological effects that strongly influence group behavior.

Bill Mitchell – billy blog
Our affect is driving us back to a need for continuous fiscal deficits
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

George Monbiot — We’re Not as Selfish as Economists Think We Are. Here’s the Proof.

In complex adaptive systems, optimization involves adaptation through feedback and learning, as well as taking into account return on coordination. This happens naturally and spontaneously not only cognitively but also affectively since it a positive evolutionary trait. Evolutionary success involves a combination of competition and cooperation through coordination, as in teamwork. Homo socialis is the reality rather than homo economicus.

Evonomics
We’re Not as Selfish as Economists Think We Are. Here’s the Proof.

George Monbiot

Peter Radford — Flat Earth Rules

The Radford Free Press
Flat Earth Rules
Peter Radford

Thorton Hall — Economics Advances Our Understanding of Human Society... Among the Neanderthals

Really good. I promise you'll like it. No spoilers.

Sums up the evolution of homo economicus and homo socialis.

Thorton Hall — Philosophy
Economics Advances Our Understanding of Human Society... Among the Neanderthals

Thorton Hall

If you liked that one, you'll probably like this too

I learned it by watching you, Dad. Don't blame Austrians for taking your assumptions to their correct logical conclusion.

Bruce Webb — Homo Oeconomicus vs Homo Socialis: The Anthropology of Neo-Classical Econ

I have been working (in my head) on a wonkish, fully cited, post on the fundamental fallacy embedded at the basis of neo-classical econ. But I am still engaged on reading the ur-texts (hint Karl Polanyi and a revisit to E.P. Thompson) so instead will just throw out my thesis and let the thoughtful critics (and jackals) gnaw on it.…

Call for input.

My comments in the ensuing discussion.

Angry Bear
Homo Oeconomicus vs Homo Socialis: The Anthropology of Neo-Classical Econ
Bruce Webb

Kate Douglas — After the crash, can biologists fix economics?

THE GLOBAL financial crisis of 2008 took the world by surprise. Few mainstream economists saw it coming. Most were blind even to the possibility of such a catastrophic collapse. Since then, they have failed to agree on the interventions required to fix it. But it’s not just the crash: there is a growing feeling that orthodox economics can’t provide the answers to our most pressing problems, such as why inequality is spiralling. No wonder there’s talk of revolution.

Earlier this year, several dozen quiet radicals met in a boxy red building on the outskirts of Frankfurt, Germany, to plot just that. The stated aim of this Ernst Strüngmann Forum at the Frankfurt Institute for Advanced Studies was to create “a new synthesis for economics”.  But the most zealous of the participants – an unlikely alliance of economists, anthropologists, ecologists and evolutionary biologists – really do want to overthrow the old regime. They hope their ideas will mark the beginning of a new movement to rework economics using tools from more successful scientific disciplines.…

“Morality evolved out of cooperation within and competition between groups, so when acting as a single group to tackle global problems we will have to assume the role of natural selection ourselves,” [David Sloan]Wilson says. This might involve pursuing a wide variety of strategies, identifying those that work best, and then creating incentives to cooperate on implementation. “In some ways it’s the opposite of the invisible hand.”

Heresy! It's the basis of heterodox economics.

See also, Biologist David Sloan Wilson on social science, economics and evolution

New Scientist

After the crash, can biologists fix economics?
Kate Douglas

ht Mark Thoma at Economist's View

Roger Farmer — The Economics of George Orwell

Without agreeing with Coyle and Farmer about keeping some version of an economics based on homo economicus, that is, methodological individualism, rationality and utility maximizing, rather than jumping into an unclear assumption of homo socialis, I agree that there is a danger of authoritarianism creeping in when individualism as foundational is abandoned. 

But as we have seen demonstrated abundantly, methodological individualism based on free choice and freedom from restraint can also be used to rationalize institutionalization of asymmetric power, which is authoritarianism under the guise of liberalism.

Individualism as foundational is unrealistic because humans are social, hence heavily influenced by social relations, structure and interdependence, including culture and institutional arrangements. 

But homo socialis is complex and needs to be approached carefully in order to avoid cognitive-affective bias, oversimplification, generalizing, etc. in arriving at an appropriate theory of human being to ground a sociological economics and political economy that is sufficiently realistic to yield more satisfactory results than the now dominant approach. 

For example, by focusing on too limited a sample, it is all to possible to fashion a theory based on Western civilization and culture that excludes the bulk of humanity in an age of emerging nations and increasing emergence in the complex adaptive system that constitutes the global village. 

I don't think that behavioral economics as it presently exists is necessarily the place to begin, and there are many reasons to suspect it is limited in this regard since it is coming from the same place. Economics needs to be set in a larger context.

Roger Farmer's Economic Window

The Economics of George Orwell
Roger Farmer

David Henderson — Thaler and Caplan on Homo Economicus

For a good laugh.

I guess he hasn't heard of Enron and rampant fraud during the housing bubble, the MERS debacle, and ongoing financial shenanigans. And remember Bill Clinton's reasoning about the Lewinsky affair, "I did it because I could."

I do want to make one criticism of Thaler's view. You might regard it as picky--it might even be picky. But here goes.

Thaler argues that the homo economicus would not take only one to four pennies from the "Take a Penny" tray at checkout counters, but would take them all. I don't think so. And the reason is simple: the person on the other side of the counter would regard him as a thief. Would the retailer call the cops? Not likely. But his reputation with that particular retailer would be damaged. And home economicus would, because he maximizes over a long period, worry about this reputation.

And David Henderson thinks that home economicus would be concerned over taking a few pennies because of long run repetitional erosion? The bank CEOs must be rolling on the floor laughing if they read this. They are the ultimate homines economici. What's irrational about putting millions in the banks and getting away with it. Have they even suffered repetitional erosion in any way that affects them, that is, in their social circles? No way.

Actually, repetitional erosion in the long run is more a characteristic of homo socialis, who cares about social relationships. Homo economicus is only interested in maximizing (economic) utility under an assumption of methodological individualism. Anything legal is rational regardless of whether it is ethical and less where it is moral. It is also rational to look at doing what is illegal in terms of the risk-reward ratio and the probability of 1) getting caught and 2) being punished. That calculus often works in favor of criminal behavior, especially in an environment of privilege and a double standard of justice.

Liberal economics is amoral. It's a science, right? Homo economicus is a foundational assumption of classical liberalism:  Homo economicus is just concerned about pursuing his own happiness through exercise of freedom and taking full responsibility for success and failure, which is his natural right.

Perhaps this is why Thomas Jefferson as a slave owner saw no contradiction in asserting in the US Declaration of Independence, "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." And later, perhaps why he viewed breeding slaves when their importation was not longer permitted by law as in his rational interest. After all, it was perfectly legal.

EconLog

Thaler and Caplan on Homo Economicus
David Henderson | research fellow at Stanford University’s Hoover Institution, and an associate professor of economics at the Graduate School of Business and Public Policy, Naval Postgraduate School, in Monterey, California

Lars P. Syll — Kenneth Arrow’s take down of rational expectations

When you look at any experimental work not directly related to economics, but trying to test rational behavior in other ways, experiments have conspicuously failed to show rational behavior … Finally, there aren’t enough repetitions to justify rational expectations. The world is changing. We’re not really proceeding on a stationary basis.

Lars P. Syll’s Blog
Kenneth Arrow’s take down of rational expectations
Lars P. Syll | Professor, Malmo University

Noah Smith — Sociology vs.the Empire

Noah Smith responds to a couple of the critics of his Bloomberg post. Here is the most salient point in my view.

Also, I'd like to take the opportunity to rant about the concept of "power". This has always struck me as just another form of economic phlogiston - just another labeled residual, like "technology" or "culture" or "confidence", whose behavior we are expected to take for granted. The reasoning always seems to be something like "Economic outcomes happen because of power. How do you know who has power? Just look at who does better in the economic outcomes!" Some people have actual theories of specific kinds of power, just like some people have actual theories of how technology works instead of just using it as a label for a production-function residual. But I often see people waving their hands at a phenomenon and saying "It's power, of course!" Which doesn't seem very explanatory at all.

According to conventional economists, by homo economicus. According to socio-economists, society is socially determined by homo socialis. Each type of explanation provides a different construction of human behavior and interaction.

According to conventional "orthodox" economics, homo economicus acts "rationally" in the sense of pursuing self-interest in maximizing satisfaction based on the ability to consume scarce resources and to produce the optimal balance of scarce resources. This results in a tendency to general equilibrium in the sense that no one can make oneself better off by altering ones choices with respect to what is already given or can be developed economically. Modeling this requires very tightly constrained assumptions, so tight as to make the model non-representational other than in simple (special) cases. Therefore, this is not a general theory of human action in the scientific sense, or if it claimed to be one, it has been amply disconfirmed by events.

Many economists would admit that this is not what they are aiming at anyway, and they would be correct. But there are a few economists that do what to extend the model generally. Gary Becker comes to mind, and his theory of rational choice extends far beyond economics now and reaches deeply into the social sciences. Some hold that social science that is not based on this theory is obsolete.

Moreover, homo economicus and conventional economics are based on non-economic assumptions that are questionable if not disconfirmed. To a philosopher, this appears to be very similar to scholastic philosophy in its quest for systematization based on first principles that are asserted as self-evident. The difference is in the level of formalization but the projects are similar, as is the dogmatism.

Does this mean that such a approach is useless? I would say only if it is taken to be comprehensive. It gives insight into a particular type of human action that is highly significant in life. But the assumptions are too limited to provide a comprehensive general theory of the causality involved in human action in terms of time-independent invariance that can be quantified and expressed in a formal model, as general theory in the natural sciences requires.

The reason for this is evident and explains why economics is a social science. Social science deals with human behavior, which is both more complicated (lots of moving parts) and complex (emergent) than objects and their interaction in the natural sciences. Human action is time-dependent, that is, historically determined, in that human action and interaction are determined socially by changing contexts. Cultural rituals, institutional arrangements, class structure, power structure, and other influences on individuals through their relationships with others exerts strong effects on their choices, decisions, and behavior both individually and socially.

In addition, there are also the constraints imposed by ontological and epistemological uncertainty that inhibit projecting the past onto the future with any great degree of predictability other than in rather trivial cases. Much of what is significant about the future remains unknown and to a great extent unknowable. And then there is the distinction between known unknowns and unknown unknowns. There is a reason that humans are said to be at the mercy of fate, and why "luck" has meaning for us. There is some wisdom in the saying that one makes one's own luck, but that is only partially true in view of uncertainty and the inability to control affairs.

According to sociologists homo socialis is far less knowable and predictable  a creature than economists hold homo economicus to be. Consequently, sociologists tend to be more humble about their discipline than conventional economists armed with ceteris paribus and modeling assumptions designed to stake out a position, for example, general equilibrium. Some economists interpret this as weakness and deference.

A significant difference between conventional economics and sociology lies in the subjective versus objective, positive versus normative, quantity versus quality distinctions. These distinctions are not significant in the natural sciences, which emphasize objectivity and seeks to reduce subjectivity, prize positivity over normatively, and ignore what cannot be quantified as being irrelevant or even nonexistent. Economists self-identify as similar to natural scientists rather than social scientists or even life scientists.

Conversely, sociologists view human beings as characterized by such dichotomies, and they regard studying human action without taking them into account as truncating the study. Ignoring or minimizing these factors misses what is most significant about homo socialis — social interaction based on similarity and difference in subjectivity, normatively, and quality. Whereas economists view homo economicus as inhabiting a world along with others more similar than not, sociologists see individuals and groups constructing different worldviews and meshing them — or not. Conflict is central to sociology, for example, precisely because it is socially endemic, for example, owing to different ideologies with norms perceived to be incompatible.

Power is a central category in sociology and political science. In fact, just as economics is concerned with distribution of scarce resources among individuals and units like firms and households, so too political science is concerned with the distribution of power among individuals and institutions in societies, and also among societies.

Perhaps power relationships cannot be quantified but that does not mean that power is not a factor socially, politically and economically so that it can be dispensed with in economic reasoning.  Neither are there "utiles" of satisfaction (Jeremy Bentham), or "leets" of capital (Joan Robinson). There is ambiguity underlying conventional economics also.

It seems that human beings are both socially determined and also economically determined. The question is whether economic factors determine social factors or vice versa. Does rational pursuit of maximum utility result in meritocracy and just deserts based on marginalism, as neoclassical economists claim? Or do social factors like cultural convention and institutional arrangement involving matters like power determine economic outcomes?

This reruns us to the dichotomy that I proposed above between the conception of homo socialis and homo economicus, and whether human action is more socially determined or economically determined? How could this be shown based on relevant criteria. What are those criteria? What method is called for. What counts as a more satisfactory explanation? These are questions that go beyond both sociology and economics. They are "philosophical" issues in the sense elf being foundational.

Douglas T Kenrick — Cruzonomics: The Problem of Free Market Psychology

How people actually choose and make decisions — not the way conventional economists and market fundamentalists assume, or game theorists.

Truthout | News Analysis

Cruzonomics: The Problem of Free Market Psychology
Douglas T Kenrick, Psychology Today

Dirk Helbing — A new kind of economy is born: social decision-makers beat the “homo economicus”

The Internet and Social Media change our way of decision-making. We are no longer the independent decision makers we used to be. Instead, we have become networked minds, social decision-makers, more than ever before. This has several fundamental implications. First of all, our economic theories must change, and second, our economic institutions must be adapted to support the social decision-maker, the “homo socialis”, rather than be tailored to the perfect egoist, known as “homo economicus”.

The financial, economic and public debt crisis has seriously damaged our trust in mainstream economic theory. Can it really offer an adequate description of economic reality? Laboratory experiments keep questioning one of the main pillars of economic theory, the “homo economicus”. They show that the perfectly self-regarding decision-maker is not the rule, but rather the exception [1,2]. And they show that markets, as they are organized today, are undermining ethical behavior [3].

Latest scientific results have shown that a “homo socialis” with other-regarding preferences will eventually result from the merciless forces of evolution, even if people optimize their utility, if offspring tend to stay close to their parents [4].[1] Another, independent study was recently summarized by the statement “evolution will punish you, if you’re selfish and mean” [5]. Is this really true? And what implications would this have for our economic theory and institutions?

In fact, the success of the human species as compared to others results mainly from its social nature. There is much evidence that evolution has created different incentive systems, not just one: besides the desire to possess (in order to survive in times of crises), this includes sexual satisfaction (to ensure reproduction), curiosity and creativity (to explore opportunities and risks), emotional satisfaction (based on empathy), and social recognition (reputation, power). Already Adam Smith noted: “How ever selfish man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it.”[2]

Dirk Helbing, professor of sociology at ETH Zurich and complexity scientist concludes: “The social nature of man has dramatic implications, both for economic theory and for the way we need to organize our economy.” As we are more and more connected with others, the “homo economicus”, i.e. the independent decision-maker and perfect egoist, is no longer an adequate representation or good approximation of human decision-makers. “Reality has changed. We are applying an outdated theory, and that’s what makes economic crises more severe,” says Helbing.

Real-World Economics Review Blog
A new kind of economy is born: social decision-makers beat the “homo economicus”
Dirk Helbing | Chair of Sociology (Modeling and Simulation), Swiss Federal Institute of Technology, Zürich

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?

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

Lars P. Syll — What’s the use of economics?

Reprogramming economics students to think "rationally" and dupe the rubes with numbers as they are prepared for ordination into the contemporary secular priesthood. Same old sophistry and magical thinking posing as knowledge.

Lars P. Syll

What’s the use of economics?

quoting Alan Kirman | Professor Emeritus of Economics at the University of Aix-Marseille III and at the Ecole des Hautes Etudes en Sciences Sociales