Daniel Little — The place for thick theories of the actor in philosophy

The neoclassical foundational assumption of rational maximization and Buchanan's rational choice theory are "thin" theories of the actor. As a result the models created on the basis of such assumptions are simplifications. The questions is whether they are oversimplifications. That depends on the case. Such assumptions may apply generally in certain simple cases but not to all. Moreover, the assumption of methodological individualism on which microfoundations depends is similarly limited. These assumptions don't scale owing to social embeddedness and historical, cultural and institutional influence. Attempting to scale them beyond their limits results in the the fallacy of composition, that is, incorrectly assuming that a whole is the sum of its parts when the relationship of the parts supervenes.

Understanding Society
The place for thick theories of the actor in philosophy
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

David Ruccio — Nobel economics: the behaviorism of economic decisions and its secret

Paraphrasing that nineteenth-century critic of political economy, we might say that “economic decision-making appears, at first sight, a very trivial thing, and easily understood. Its analysis shows that it is, in reality, a very queer thing, abounding in metaphysical subtleties and theological niceties.” We might credit Thaler and other behavioral economists, then, for having taken a first step in challenging the traditional neoclassical account of rational decision-making. But they stop far short of examining the perverse incentives that are built into the current economic system or the alternative rationalities that would serve as the basis for a different way of organizing economic and social life. And, in terms of economic theory, they appear not to be able to imagine another way of thinking about the economy, as a process without an individual subject.

David Ruccio points to the assumption of methodological individualism as the problem. I agree it is central.

However, I would go further and say that economics cannot limit itself to economic choice and create models that can possibly be representational of reality since home economicus is a gross oversimplification. 

It is difficult to conceive of any choices with which most people are presented that are exclusivity economic, and those are trivial. "Chocolate or vanilla, or some other of our 28 flavors?"

Human life is social. Homo socialis is the norm and homo economicus is an idealized abstraction. Making homo economicus the norm in a world that assumes methodological individualism is tantamount to assuming "there is no such thing as society" (Margaret Thatcher after reading Hayek).

Humans are embedded in environments — social, political, economics and ecological. Human individuals exist in networks of relationships, and these relationships are reflected in different ways in different societies base on culture and institutional arrangements, as well as historical and geographical conditions. Assuming a "standard individual" as methodological individualism does, e.g., as a homogenous representative agent unaffected by network connections, is so far removed from the reality of human action and interaction that it is not only useless but also dangerous if applied outside a model by presuming it to be realistic.

Moreover, humans don't make choices based on "reason" alone. They make choices based on affect as well, and often affect trumps reason. Feelings may be base or noble. For example, it is always reasonable to go beyond reason to love.

Even within the use of reason, different degrees of rigor are applied in different situations based on ability, on hand, and transaction cost, on the other. Most people don't have the ability that economists regularly assume they have, nor do they have access to the information if they do. In addition, rigorous analysis also takes transaction cost into consideration. Spending more time on decision making then is at stake in the decision is irrational. Smart people use heuristics instead.

All such considerations are excluded from economic analysis, which OK at the theoretical level. Theoreticians can chose freely to explore what and where they wish.

But excluding such considerations from applied economics, especially political economy, is disastrous for individuals and societies alike, as will as the entire world.

Economics applied to policy formulation needs to be realistic and and for models to be tested  their claims need to be tested using the tools of scientific method. Otherwise, GIGO, where people's lives are at stake. Policy also influences the future of the societies affected by it, as well as the entire world in the case of policy choices of dominant nations.

As matter of fact, policy makers seldom consider only economic advise since they are politicians that must balance a range of interests. However, economic input is a powerful influencer. Moreover, many politicians likely operate on confirmation bias and are prone to select in advise that agrees with their ideology and select out that which does not. 

As result of political competition that is based on ideological differences as well as competing interests, it essential that debate be well-informed so that persuasion is minimized and arguments are based on logic and evidence instead of assumptions that may not be realistic but go unrecognized.

Occasional Links & Commentary
Nobel economics: the behaviorism of economic decisions and its secret
David F. Ruccio | Professor of Economics, University of Notre Dame

See also

Lars is not criticizing the selection of Thaler, but rather, pointing out that his selection contradicts their own statements about rationality.

Lars P. Syll’s Blog
Nobel Committee making a colossal fool of itself
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Methodological arrogance

On reductionism.

This is also the case in philosophy where different methods attempt to exclude other methods by reducing the debate to a lower level of data, e.g, sense data only, or lower order of abstraction, e.g., all abstraction must be reducible to first order. These methodological assumptions reduce justification to observations of objects. For example, David Hume used philosophical reduction to sense data to exclude causality, arguing that causality is nothin more than observation of constant correlation.

The idea is that everything at a higher scale must be accountable at a lower scale. This doesn't even apply in physics (yet) as the hardest science, where the scope of quantum mechanics (micro) and cosmology (macro) still fall outside each other, and questions loom about how to reconcile the micro and macro levels.

To insist on reduction to individual psychology and behavior in economics is indeed arrogant, especially when the social unit in sociology is the family and economic considers economic units in terms of households and firms, and neither human psychology nor behavior are well understood (explained) scientifically.

Reductionism is a methodological assumption that is unsubstantiated by rigorous criteria. It is a stipulation and insisting on it as exclusive is arrogant when there are alternatives in the debate. This is the arrogance of dogmatism rather than open inquiry as the basis of gaining knowledge and the origin of scientific method in an environment where theology reigned.

In short, it is not only arrogance, it is dangerous, as Popper recognized. This is the point of the open society he advocated. Freedom of thought and expression is the basis for inquiry, discovery, and creativity. The discipline of economics risks falling into irrelevance if orthodoxy insists on imposing methodological reductionism as "settled."

Lars P. Syll’s Blog
Methodological arrogance
Lars P. Syll | Professor, Malmo University

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.

Paul Omerod — The Future of Economics Uses the Science of Real-Life Social Networks

In the early 21st century, just as in the late 19th, economics in general makes the assumption that individuals operate autonomously, isolated from the direct influences of others. A person has a fixed set of tastes and preferences; when choosing from a set of alternatives, he or she compares the attributes of those alternatives and selects the one which most closely corresponds to his or her preferences. At first sight, this may seem quite reasonable, or even ‘rational’, as economists describe this theory of behaviour. If I am interested in buying a product which many people want, I may have to pay a high price. So the choices other people make affect me indirectly through the workings of the market. My preferences, however, remain unaltered, according to this conventional view of economics.…

The fact that a person can and often does decide to change his or her preferences simply on the basis of what others do is known in economics as network effects. Also called network externalities or demand-side economies of scale, network effects pervade the modern world.

Network effects have in fact been pervasive throughout human history.…

In any event, the network view of the world inherently gives rise to the concept of collective action. If a set of values spreads across a network, the behaviour of the individual component parts is altered by these emergent, collective values. The agents in the network are not isolated individuals, but operate in society and have their behaviour, at least in part, shaped by society.…

Our current political institutions are to a large extent based on the vision of society and the economy operating like machines, populated by economically rational agents. This view of the world leads to centralised bureaucracies and centralised decision-making.

We live in a society where decisions are made through several layers of bureaucracy, in both the public and private sectors. On the whole, this leads to decisions that are insensitive to local (micro) conditions, and which are insensitive to society as it changes.

A lack of both resilience and robustness is a characteristic feature of such approaches to social and economic management. Structures, rules, regulations, incentives are put in place in the belief that a desired outcome can be achieved, that a potential crisis can be predicted and forestalled by such policies. As the recent financial crisis illustrates only too well, this view of the world is ill-suited to creating systems which are resilient when unexpected shocks occur, and which exhibit robustness in their ability to recover from the shock. The focus of policy needs to shift away from prediction and control. We can never predict the unpredictable. Instead, we need systems which exhibit resilience and robustness together with the ability to adapt and respond well to unpredictable future events.

Evonomics

The Future of Economics Uses the Science of Real-Life Social Networks
Paul Omerod

Jag Bhalla — The Epic Ptolemy-Sized Epicycling Errors of Free Market Fans

Jag Bhalla is a very clear writer. This is an excellent albeit summary smackdown of the assumptions that underlie conventional economic discourse that have shaped the debate even among non-economists. In Steven Colbert's epic takedown, "truthiness." Short and worth a read.

Evonomics
The Epic Ptolemy-Sized Epicycling Errors of Free Market Fans
Jag Bhalla

Russ — The Elemental Falsity of Genetic Determinism

Today the establishment “life sciences” tread as epigones the same path of reductionism and mechanism which physics trode in the 19th century, the path which physics debunked and abandoned long ago. Social Darwinism, biological determinism, genetic determinism, sociobiology, this ideological complex never had any scientific validity and was demonstrably false even prior to its full congealment. Francis Crick’s aptly named “Central Dogma” was already known to be false at the time he promulgated it. The same was true of the foundation doctrine of “one gene = one trait”, which together with the Central Dogma comprised the ideological basis of biological determinism. 

This “science” was falsified in toto and in detail even prior to its full ideological elaboration in the 1970s. It has since continued as the greatest scientific fraud ever perpetrated. It’s not just that determinist theory is completely wrong – almost all of history’s scientific theories were disproven, and almost certainly most of those believed in today will be disproven. It’s that this “theory” has always been known to be wrong by its publicists, and yet they fraudulently go ahead anyway. Crick with his dogma of a one-way information flow from DNA to proteins when it was already known biological information loops back from proteins to DNA is just the most infamous of the countless examples of conscious lies on the part of these charlatan “scientists”..In truth biological determinism is just the transcription of Randroid hyper-individualism and the “genius” delusion to the realm of pseudo-science. This junk science gets such a preponderance of funding and fawning mass media publicity because it’s a potent branch of capitalist propaganda..Even in basic form, biological determinism is not scientific but religious [ideological].…

Volatility
The Elemental Falsity of Genetic Determinism

Russ

Daniel Little — Do we still need microfoundations?

On examining assumptions and avoiding reductionism without invoking magical thinking, and ontological individualism as an overly restrictive reductionist assumption.

Understanding Society
Do we still need microfoundations?
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

Cameron K. Murray — Explaining everything explains nothing: Economics

Sure, humans often make calculated decisions, but the more I learn about the nexus between individual behaviour and how we behave in groups, the more I see very little value in rational-individualist views of economic systems that see all behaviour arising from God-given personal tastes. Without acknowledging the necessity of group-coordination mechanisms intrinsic in our behaviour, we are missing the main story.

Fresh Economic Thinking
Explaining everything explains nothing: Economics
Cameron K. Murray

Lars Syll’s Blog — On the poverty of microfoundationalist fantasies

Kevin Hoover quote on microfoundations based on representative agent modeling. Aggregation based on similarities of individuals assume similarity of individuals. In some cases that hold, in many others, not, and where it doesn't hold are the points of interest.

Not only does the representative-agent model fail to provide an analysis of those interactions, but it seems likely that that they will defy an analysis that insists on starting with the individual, and it is certain that no one knows at this point how to begin to provide an empirically relevant analysis on that basis.

You can't get there from here.

Lars P. Syll’s Blog
On the poverty of microfoundationalist fantasies
Lars P. Syll | Professor, Malmo University

David Sloan Wilson, Robert Kadar, and Joe Brewer — A New Powell Memo

Neoclassical economics and Austrian economics that assume methodological individualism and rational unity maximization are in conflict with evolutionary theory. When such views form the the basis for neoliberalism as a political theory and are used in policy formulation, they result in in anti-evolutionary outcomes that threaten the welfare and even existence of the species.

Social Evolution Forum
A New Powell Memo

David Sloan Wilson ,SUNY Distinguished Professor of Biology and Anthropology at Binghamton University and Arne Næss Chair in Global Justice and the Environment at the University of Oslo, Robert Kadar is founding editor of This View of Life and the co-founder of Evonomics, and Joe Brewer is a complexity researcher who specializes in culture design. He is culture editor for This View of Life and co-founder of Evonomics

ht IDEA Economics: Institute for Dynamic Economic Analysis

How To Use Economics & Not Be Used by Economists (1/6) — Lynn Fries interviews Ha-Joon Chang

Tape and transcript. Ha-Joon Chang talks about his new book, Economics: The User's Guide.

In the late 19th century, early 20th century the then-rising school of economics, Neoclassical economics, which is today's dominant school of economics, decided that they want to become scientists. You know, in modern world the title of science has a great aura, because after all, that progress in scientific knowledge is what has built the modern world. So if you can call yourself scientist, you immediately get much greater credibility. And, I mean, that, this is what the Neoclassical economists have aimed to achieve since the late 19th century.

And the most important thing they did at the beginning to achieve this goal was to rename the subject. So it wasn't political economy anymore, because when you say politics, you're already implying that people may disagree, you know. But if you're a, a scientist, you cannot have that kind of disagreement. So it was really important to get rid of that word politics from the name of the subject so that they can now claim that this is free of ethical judgments, this is free of political disagreement, and therefore there is a science like physics or chemistry....

Real News Network
How To Use Economics & Not Be Used by Economists (1/6)

Lynn Fries interviews Ha-Joon Chang, Reader in the Political Economy of Development at the University of Cambridge

Diane Coyle — Economies and economics

As part of the preparation for the new course I’m teaching at the University of Manchester this autumn, Economics for Public Policy, I’ve been looking again at Microeconomics: Behavior, Institutions and Evolution by Sam Bowles. It’s a decade old now but still pretty unique in its approach, which is rooted in social interactions and institutions rather than the atomised individuals of the standard micro course. In other words, it’s about economies, and not ‘economics’.

The Enlightened Economist
Economies and economics
Diane Coyle | Acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Daniel Little — Classifying mechanisms by location

If we are going to take social mechanisms seriously, we need to be able to say more about what they are. Earlier posts have opened the possibility of offering a scheme of classification for social mechanisms (link,link). Here I want to briefly explore a different idea: to group mechanisms according to which part they play within the space of social influence postulated by the idea of methodological localism (link). I introduced the idea of methodological localism in "Levels of the Social" (link) as an ontological alternative to both methodological individualism and methodological holism. That specification of the nature of social reality suggested a small handful of fundamental questions. Here I want to experiment with classifying a number of mechanisms according to which of these questions they answer. Here is the relevant statement from "Levels of the Social" (link):

According to methodological localism, the social is constituted by socially situated individuals, nested within social relations and institutions that have only an intermediate degree of persistence and permanence.

The socially situated individual finds herself within a concrete set of social relationships, networks, and institutions. This complex serves to socialize and provide incentives, as well as to constrain. The approach of methodological localism supports as well the reality that institutions often have extra-local scope, geographically, demographically, and administratively. So, we can legitimately describe institutions with broader scope as being “higher-level” institutions. 

Understanding Society

Classifying mechanisms by location
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

My view is that methodological individualism is just wrong and methodological holism is right. Individuals are elements in complex sets of a web of relationships that constitute a system. The elements of system have no meaning outside of the context in which they are embedded. It is impossible to say anything significant about the elements of a system without reference to the overall contexts, the system and its components, e.g., subsystems.

I believe that methodological localism is an articulation of the components of a system in terms of their characteristics and complex interactions with elements and subsystems, all within the context of the system.

In social science, the system is foundationally constituted by global society (humanity) and the environment. The elements are individual human beings. However, from the point of view of other contexts, physical and biological sciences, human beings are systems that are analyzable into networks of relations and subsystems.

If methodological individualism has a place in social science, it is the analysis of elements of the system, which is clearly incomplete with respect to the system as a whole and the parts that are not elements.

Finally, the whole is greater than the sum of the parts. This is called synergy. This is investigated in particular in systems theory.

There are two aspects to a system. The real aspect is the existential structure in which everything within a static environment is related and the context in which actual change takes place in a dynamic. The formal or ideational aspect of a system is the epistemic representation of this environment as a system.

Generally speaking, the systemic aspect of reality and knowledge are ignored or submerged so that assumptions and analysis are context-independent. Since meaning and significance are context-dependent, that haphazard methodological approach is defective and often results in nonsense.

Daniel Little — Why emergence?

Little argues that emergence is unnecessary to evoke in order to avoid reductionism, methodological individualism, and microfoundations. There is reason to hold that causal explanation stems from the macro (system) level as well as the meso (institutions, sub-systems) level, in addition to the micro (individual) level.

Understanding Society
Why emergence?
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

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)

Daniel Little — Mohamed Cherkaoui on the micro-macro debate

Strong (decontextualized) vesus weak (contextualized) methodological individualism. I call the former "methodological atomism" and Little calls the latter "methodological localism." Sociologists recognize this as an important distinction. In economics this is the distinction between neoclassical, Austrian, and New Keynesians, on one hand, and various approaches to institutionalism, on the other.

An actor-centered sociology does not have to be based on a rational-choice model of the actor, and it isn't forced to ignore interactions and relationships among actors as they go through their social lives. So one quick rebuttal to Cherkaoui's argument is that "micro"-sociology does not equate to "isolated individual"-sociology. (This is the point of my own construct of "methodological localism", looking at individuals as socially situated and socially constituted; link.) Actor-centered sociology is not the same as decontextualized methodological individualism (link).

Understanding Society
Mohamed Cherkaoui on the micro-macro debate
Daniel Little | Chancellor, University of Michigan at Dearborn

Lord Keynes — Greedy Reductionism, Science and Economics

John E. King’s new book The Microfoundations Delusion: Metaphor and Dogma in the History of Macroeconomics (Cheltenham, 2012) charges neoclassical economics with the delusion that macroeconomic processes must just be explained in terms of microeconomics, and indeed that microeconomics is the proper foundation for all macroeconomic phenomena.

Social Democracy for the 21st Century
Greedy Reductionism, Science and Economics
Lord Keynes

Lord Keynes — King on Post Keynesian Approaches to Microfoundations

One of the most important insights King makes is this: the idea of reducing macroeconomics to neoclassical microeconomics is an instance of the strong reductionist fallacy.

Strong reductionism has already failed, not only in biology, but also (more importantly) in the social sciences (King 2012: 226). There are fundamental emergent properties in macroeconomic systems that make their reduction to microeconomics impossible (King 2012: 226).
For example, a lower-order set of parts in a biological system may interact in ways that cannot be inferred by reductionist analysis (King 2012: 51). The principle of “downward causation” consists in the manner by which a “whole” (a system broadly defined) may affect, constrain or influence its parts.
In economics, we see macroeconomic phenomena that are irreducibly social in nature. 

Nor does the strong version of methodological individualism work (King 2012: 60; see also Hodgson 2007). For interactions between individuals may cause “emergent properties” or (that is to say) novel properties not displayed by, or deducible from, the individuals in isolation.

Social Democracy For The 21st Century
King on Post Keynesian Approaches to Microfoundations
Lord Keynes

King gives two reasons for the continuing attraction of the neoclassical microfoundations delusion: physics envy and politics in the age of neoliberalism (King 2012: 229). Reductionist ontological thinking in economics is nothing less than the attempt to reduce macroeconomics to the aggregate of micro behaviour, and the assumption of individual rationality implies a socially rational outcome (King 2012: 229, quoting Denis 2009: 14). In other words, this method produces the delusion that laissez faire results in the best economic outcomes.

Bingo. But nothing new to the readers of this blog.

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