“The brain, the computer, and the economy: all three are devices whose purpose is to solve fundamental information problems in coordinating the activities of individual units – the neurons, the transistors, or individual people.” Robert J. Schiller
I have a love-hate relationship with the idea of neuroeconomics. The materialist neuroscience side of my brain likes the idea that behavior – even behavior resulting from emergent properties of complex networks – is quantifiable and predictable. It’s only predictable if you know all the input parameters (and you can’t know that Subject X has an aversion to green for reasons that have something to do with a lollipop at Coney Island when he was six). But the central fallacy of economics has been the “rational actor” paradigm, which is based on the assumption that individuals make rational choices when it comes to money and will always behave to maximize their own economic interests. They don’t. Economist with a clue understand this. Really smart economists are trying to understand the underlying why and how. Let’s start with the experimental result from psychology showing that humans are more likely to make a bad economic decision out of fear of loss than they are like to make that decision out of hope of gain. Does information have any effect?
Read More
Acts of the Apostles
“A false sense of precision”
“Whenever you hear the term ‘Darwinian’ from anyone other than historians of science, assume the crash position; it’s going to get real ugly.”
The quote is from a blogger known as Mike the Mad Biologist. The title of the post is When Economists Misunderstand Biology, an entry he wrote in response to economist Russ Roberts’ piece called What is economics good for?. In Roberts’ opening paragraph, he refers to his previous argument that macroeconomics is “deeply flawed and not a science”. He goes on to describe that economist Friedrich Hayek (the original anti-Keynesian) felt that to label economics a science gave “a false sense of precision and understanding.”
Read More »