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

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

Andrew Gelman — A quick rule of thumb is that when someone seems to be acting like a jerk, an economist will defend the behavior as being the essence of morality, but when someone seems to be doing something nice, an economist will raise the bar and argue that he’s not being nice at all.

A statistics professor looks at the economics profession.

This is an awkward topic to write about. I’m not saying I think economists are mean people; they just seem to have a default mode of thought which is a little perverse.

In the traditional view of Freudian psychiatrists, which no behavior can be taken at face value, and it takes a Freudian analyst to decode the true meaning. Similarly, in the world of pop economics, or neoclassical economics, any behavior that might seem good, or generous (for example, not maxing out your prices at a popular restaurant) is seen to be damaging of the public good—“unintended consequences” and all that—, while any behavior that might seem mean, or selfish, is actually for the greater good.

Let’s unpack this in five directions, from the perspective of the philosophy of science, the sociology of scientific professions, politics, the logic of rhetoric, and the logic of statistics....

Statistical Modeling, Causal Inference, and Social Science
A quick rule of thumb is that when someone seems to be acting like a jerk, an economist will defend the behavior as being the essence of morality, but when someone seems to be doing something nice, an economist will raise the bar and argue that he’s not being nice at all.
Andrew Gelman | Professor of Statistics and Political Science and Director of the Applied Statistics Center, Columbia University

Lars P. Syll — On Econs and Humans

Fun.

Lars P. Syll's Blog
On Econs and Humans
Lars P. Syll | Professor, Malmo University

Olivia Goldhill — A philosopher who studies life changes says our biggest decisions can never be rational

At some point, everyone reaches a crossroads in life: Do you decide to take that job and move to a new country, or stay put? Should you become a parent, or continue your life unencumbered by the needs of children?

Instinctively, we try to make these decisions by projecting ourselves into the future, trying to imagine which choice will make us happier. Perhaps we seek counsel or weigh up evidence. We might write out a pro/con list. What we are doing, ultimately, is trying to figure out whether or not we will be better off working for a new boss and living in Morocco, say, or raising three beautiful children.

This is fundamentally impossible, though, says philosopher L.A. Paul at the University of North Carolina at Chapel Hill, a pioneer in the philosophical study of transformative experiences. Certain life choices are so significant that they change who we are. Before undertaking those choices, we are unable to evaluate them from the perspective and values of our future, changed selves. In other words, your present self cannot know whether your future self will enjoy being a parent or not....

Having established the epistemological significance of transformative life choices, there still remains the question of how, exactly, we should make such decisions. Paul is still figuring this out. So far, her best proposal is that, while you can’t know which choice you’ll prefer, you can at least decide whether you want to experience a transformation.

Perennial wisdom suggests the principle, It is always reasonable to go beyond reason to love. The transformational power of love is the strongest force in human life.

From a systems perspective, this transformation involves emergence, and emergence involves uncertainty.

Quartz
A philosopher who studies life changes says our biggest decisions can never be rational
Olivia Goldhill

Bill Mitchell — Falling enrolments in mainstream economics programs is a desirable outcome

If you have had the misfortune to study economics formally at university then you will recall sitting through endless and tedious lectures where the instructor asserted some superior knowledge about psychology and human behaviour. If you had combined the economics study with studies in psychology and sociology, you would have soon realised that what was being taught in your economics course was total nonsense. There was an article in the Fairfax press recently (August 6, 2017) – Crisis in high school economics a threat to national wellbeing – ruing the declining enrolments in secondary school economics programs. The point is that these courses are typically more damaging than useful and the contention of the journalist that we are reducing the quality of the economic debate as a result of less people studying economics is problematic. The typical economics program is simple indoctrination into a set of neoliberal principles that allow poor policy to continue despite it delivering disastrous outcomes. There is a crying need for more economic and financial literacy, but that requires an entirely different approach to be adopted rather than jamming more kids into the existing courses and having them come out dangerously brain dead....

Bill Mitchell – billy blog
Falling enrolments in mainstream economics programs is a desirable outcome
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Chris Dillow — Choice in economics

Are rational choice theory and utility maximization unwarranted assumptions in that they contradict evidence?

Stumbling and Mumbling
Choice in economics
Chris Dillow | Investors Chronicle

Geoffrey Hodgson — Imagine Economics as an Evolutionary Science

Veblen took the view that humans were driven by habit. Habits are guided by both inherited propensities – called instincts – and existing institutions. A habit is a learned capacity to act or think in a particular way. Instead of beliefs being prime movers, they too are based on habits.

As the pragmatist philosopher John Dewey argued eloquently in his 1922 book Human Nature and Conduct, deliberate choices occur when our habitual propensities clash and we are forced to make a decision between them. Generally, habit drives reason and choice, rather than the other way round.

This way of putting instinct first, habit second, and reason third is consistent with our understanding of human evolution. The instinct-habit-reason ordering is consistent with the sequence in which these emerged long ago in the evolution of our species. It is also consistent with the way in which they develop in each human individual, from infanthood to adulthood.

This evolutionary perspective on human agency is very different from the mind-first, or beliefs-first, perspectives that still dominate economics and much of social science.…

As George Lakoff frequently points out, mind-first is so 18th century.

Evonomics
Imagine Economics as an Evolutionary Science

Geoffrey M. Hodgson is research professor at Hertfordshire Business School, University of Hertfordshire, England

David Sloan Wilson — The Death of the Invisible Hand: Why the Narrow Pursuit of Self Interest Always Fails

Good read. I recommend reading the whole thing. It is not long. It relates to recent discussion about "Darwinism" in the comment.

Evonomics
The Death of the Invisible Hand: Why the Narrow Pursuit of Self Interest Always Fails
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

Alex Tabarrok — What Was Gary Becker’s Biggest Mistake?

Gary Becker on rational choice theory applied to crime and punishment.

Marginal Revolution
What Was Gary Becker’s Biggest Mistake?
Alex Tabarrok | Bartley J. Madden Chair in Economics at the Mercatus Center and am a professor of economics at George Mason University. I am also a research fellow with the Mercatus Center

See also

Publisher's blurb:

It is widely believed today that the free market is the best mechanism ever invented to efficiently allocate resources in society. Just as fundamental as faith in the free market is the belief that government has a legitimate and competent role in policing and the punishment arena. This curious incendiary combination of free market efficiency and the Big Brother state has become seemingly obvious, but it hinges on the illusion of a supposedly natural order in the economic realm. The Illusion of Free Markets argues that our faith in “free markets” has severely distorted American politics and punishment practices.

Bernard Harcourt traces the birth of the idea of natural order to eighteenth-century economic thought and reveals its gradual evolution through the Chicago School of economics and ultimately into today’s myth of the free market. The modern category of “liberty” emerged in reaction to an earlier, integrated vision of punishment and public economy, known in the eighteenth century as “police.” This development shaped the dominant belief today that competitive markets are inherently efficient and should be sharply demarcated from a government-run penal sphere.

This modern vision rests on a simple but devastating illusion. Superimposing the political categories of “freedom” or “discipline” on forms of market organization has the unfortunate effect of obscuring rather than enlightening. It obscures by making both the free market and the prison system seem natural and necessary. In the process, it facilitated the birth of the penitentiary system in the nineteenth century and its ultimate culmination into mass incarceration today.

The Illusion of Free Markets: Punishment and the Myth of Natural Order
Bernard E. Harcourt

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

New Deal Democrat — How "the Ultimatum Game" explains the Populist backlash to Globalism

In the Ultimatum Game, one player is given $100 with complete discretion as to how much to share with a second player, whose only power is to accept or reject the division. While a strictly rational economic player would accept even a $1 share, in real life most people reject any share under $30. In so doing they harm themselves, but inflict even more harm on the greedy player, enforcing altrusim over the longer term.

Rationality is not a simple as economists make it out to be because interests not merely economic. Moreover, interest involves not only reason but morals, involving sentiment. As contemporary cognitive-affective research shows, cognition is joined at the neurological level with affect, that is, reason with feeling.

"In so doing they harm themselves, but inflict even more harm on the greedy player, enforcing altrusim over the longer term."

This behavior is observed in primates, for example, suggesting that it is an evolutionary trait. Social animals depend on "morals" to function together as units, beginning with the family, since this requires in-group coordination as well as competition. Free riding is discouraged (punished) at much lower levels. The issue is not so much altruism as a choice as much as reciprocity as a requirement.

I do think Brexit and, to a lesser extent, the nomination of Donald Trump by the GOP are watershed moments, where the elites in powerful Western nations have been suddenly and utterly swept aside. I expect this to be a dominant theme in politics over the next 10 years or more, as the neoliberal centrist consensus is destroyed and the left and right offer competing visions of a New Deal 2.0 vs. neofascism to replace it.

Angry Bear
How "the Ultimatum Game" explains the Populist backlash to Globalism

New Deal Democrat

Miles Kimball — Scott Adams on Donald Trump's Powers of Persuasion

Miles Kimball notices Scott Adams. IIRC, Miles Kimball was Noah Smith's dissertation adviser, so expect Noah to pick up on it, too.

Why is this important for economics? Because it shows that voting choice is not so much about policy (rational) but rather about persuasion and shaping perceptions (non-rational). The fact of the matter is that arguably most choices socially, political and economically are "managed" by preseason rather than "free" and "rational" as assumed.

Confessions of a Supply Side Liberal
Scott Adams on Donald Trump's Powers of Persuasion
Miles Kimball | Professor of Economics and Survey Research at the University of Michigan

Alexander Douglas — Individuals don’t have preferences

This is just a vague stab at a germ of an idea. It’s what I hope to work on in the future by looking at the history and philosophy of political economy. It’s not properly formed at all; I’m just getting the idea out there to be discussed by all the smart people who read my blog and have offered so much helpful advice in the past.

The basic claim I want to make is that the theory of individual preferences that lies at the basis of economic analysis, public choice theory, and other related social sciences, is wrong. Individuals don’t have preferences.…

Origin of Specious
Individuals don’t have preferences
Alexander Douglas | Lecturer in Philosophy at Heythrop College, London

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

Noah Smith — "The Case For Mindless Economics", 10 years on

This is a mindless argument. There is no rule about choosing assumption for modeling other than the usefulness of the model. A model might a heuristic or a thought experiment not designed or represented as realistic. However, models that are offered as being realistic face the test of evidence.

The best explanation is the one that satisfies the traditional four criteria — consistency, correspondence, simplicity, and usefulness — more fully than others.

Often there is not a best explanation in that meets all criteria, but any model that claims to be representational of reality must pass the correspondence test in terms of evidence in terms of what speaks for it and what speaks against it.

At the same time, it is possible that the currently best explanation, even though it is not terribly representation of reality, might be the best explanation available given the criteria, that it, it is consistent and relatively simple. It may be that it's just not very useful to rely on predictively.

Anyway, Noah sets forth the issues.

However, if a highly predictable model were ever generated in finance, that would be the end of a lot of financial transaction unless fools were taking the other side of the trade.

Noahpinion
"The Case For Mindless Economics", 10 years on
Noah Smith | Assistant Professor of Finance, Stony Brook University

Daniel Little — Rationality over the long term

Here I want to look more closely than usual at what is involved in reflecting on one's purposes and values, formulating a plan for the medium or long term, and acting in the short term in ways that further the big plan. My topic is "rationality in action", but I want to pay attention to the issues associated with large, extended purposes -- not bounded decisions like buying a house, making a financial investment, or choosing a college. I'm thinking of larger subjects for deliberation -- for example, conquering all of Europe (Napoleon), leading the United States through a war for the Union ( Lincoln), or becoming a committed and active anti-Nazi (Bonhoeffer).

Understanding Society
Rationality over the long term
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

Daniel Little — The similarity space of actor-centered research frameworks

  

Actor-centered sociology	Analytical sociology	Rational choice theory
Social outcomes derive from the actions of socially constituted actors in relations with each other	Explain outcomes as the aggregate result of the actions and interactions of purposive individuals	Individuals behave as economically rational agents. Explain outcomes as the aggregate result of these actions
Attention to “thick” theories of the actor	Desire-belief-opportunity framework for actors (DBO)	Narrow economic rationality: consistent preferences and maximization of utilities
Actors are formed and shaped by the social relations in which they develop	Causal models; commitment to the causal mechanisms approach	Equilibrium models; commitment to mathematical solutions for well-defined problems of choice.
Narrative accounts of the development of social outcomes give actions of the actors	Primacy of Coleman’s boat: explanation occurs from micro to macro and macro to micro	Game theory is used to represent interactions among rational agents
Agnostic about microfoundations	Commitment to requirement of microfoundations	Commitment to requirement of microfoundations

Understanding Society
The similarity space of actor-centered research frameworks
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

Justin Fox — From “Economic Man” to Behavioral Economics

Everything you always wanted to know about the development of decision theory.

Harvard Business Review

From “Economic Man” to Behavioral Economics

Justin Fox | former editorial director of Harvard Business Review and now a columnist for Bloomberg View

ht Mark Thoma at Economist's View

Peter Dorman — The Utility of Utility (about the methodology of economics)

Philosophy of economics — key methodological assumptions.

If you step back, however, this continued fealty to utility is rather strange, since utility does not play either a positive or normative role in any school of thought within psychology, which is presumably the academic discipline that tells us most of what we know about human behavior. 

In formal terms, this is a problem of external consistency. Internal consistency is about whether the elements in a model are consistent with one another; you can test this with algebra. External consistency is about whether these elements are consistent with what is already known by those who work in other domains with other models. If you devise a heat pump based on a set of assumptions about how its components work, and one of these assumptions violates the Second Law of Thermodynamics, your design might be internally consistent but fail the external consistency test. That’s the state of economics today: it uses models which, if you accept their maintained assumptions, are internally consistent, but the assumptions are inconsistent with what research outside the discipline has demonstrated. Or to put it more crudely, if economics is right, psychology is wrong. Who are you going to believe if the question is about human behavior?…

That said, there is a valid use for utility, as a heuristic element in thought experiments. Take game theory, for instance. The analysis of strategic choice can get very complicated, and it’s helpful to construct models in which players attempt to maximize something we call utility; this helps us figure out the logical processes at work. That does not mean, however, that we should assume that real human beings in the real world are crunching out expected utility values of their choices, much less that the normative value of a game’s outcome can be assessed on the basis of how much utility participants are getting. A heuristic device is not a theoretical proposition; it’s just an aid to thought.
The confusion between heuristics and theory runs deep in economics, I’m afraid...

Gadget economics.

My only piece of advice is to stop thinking of economics as a normative enterprise at all, since nothing in their training prepares economists to have a special insight into what makes people better or worse off. Wealthier, yes; better off, no. If you can do that, you will at least abandon one of the main purposes behind unreflected utility-speak.

Yes, but that defeats the normative purpose. As a policy science, macro is supposed to be about making people "better off." That's its appeal in policy formulation.

The other avenue, then, is for economists to fess up to their normative bias and be up front about it instead of sneaking it in to manufacture consent for a particular point of view because "science."

EconoSpeak

The Utility of Utility (about the methodology of economics)
Peter Dorman