Psychology (evolutionary or otherwise) seems to be merging with economics already
Yes, and that’s unfortunate because emotion is not all that important to understanding the business cycle. There is a perfectly good explanation that shows that an economy made of quite rational agents [in the economic sense] will generate the business cycle.…
One thing about rational actors is that the are not presumed omniscient. They can be tricked....
This gets back to the main theme: We want the simplest explanation that accounts for the data. Yet I know of no test for “simplest.” Different people can in good faith look at competing explanatory theories and reach different conclusions about which is simplest.
To the extent that rather simple understandings of self-interested behavior explain the business cycle, I tend to agree that we need not look for more. And given the difficulty of measuring emotions, they seem like particularly unhelpful explanatory variables. I don’t mean to dismiss the possibility that they play a role; I just mean to advocate exploring all the other variables first. Yup, the scientific process is biased in favor of explaining things in terms of easily-measured variables; deal with it.
Yet evidence shows that people are “predictably irrational” in two ways. 1) They make predictions that are not only inaccurate, but predictably so; see the research into happiness. 2) They behave in ways that seem manifestly counter to (our understanding of) their self-interest; see the Ultimatum Game. How should economics deal with these dynamics?
Arguably, Dynamic 1 poses no problem for economics. Economists don’t study what you predict; they study what you do – whether or not based on a prediction.
Dynamic 2 is the real challenge to the “rational man” thesis. What conclusions do we draw from the fact that actors do not merely err, but that the errors reflect a predictable bias?
Some people cling to the rational man thesis regardless. They regard economics as a kind of positivist religion. When they find people acting in a manner inconsistent with what our understanding of economics predicts, they shake their fingers and say “Tsk, tsk, obviously there’s something wrong with them.”
Others look on economics as a social science. When they find an anomaly, they say, “Wow, obviously there’s something wrong with our data or our understanding. We presume that they’re behaving rationally, so clearly there’s more to this situation than we yet appreciate.”
And still others conclude that there is nothing “wrong” here; rather, the idea of rationality itself need to be modified to, for example, account for thought patterns that have proven adaptive over time even if they produce maladaptive (“irrational”) behavior on occasion.
In the abstract, I can’t say which of these explanations is the simplest way to reconcile the data.
This gets back to the main theme: We want the simplest explanation that accounts for the data. Yet I know of no test for “simplest.” Different people can in good faith look at competing explanatory theories and reach different conclusions about which is simplest.
To the extent that rather simple understandings of self-interested behavior explain the business cycle, I tend to agree that we need not look for more. And given the difficulty of measuring emotions, they seem like particularly unhelpful explanatory variables. I don’t mean to dismiss the possibility that they play a role; I just mean to advocate exploring all the other variables first. Yup, the scientific process is biased in favor of explaining things in terms of easily-measured variables; deal with it.
Yet evidence shows that people are “predictably irrational” in two ways. 1) They make predictions that are not only inaccurate, but predictably so; see the research into happiness. 2) They behave in ways that seem manifestly counter to (our understanding of) their self-interest; see the Ultimatum Game. How should economics deal with these dynamics?
Arguably, Dynamic 1 poses no problem for economics. Economists don’t study what you predict; they study what you do – whether or not based on a prediction.
Dynamic 2 is the real challenge to the “rational man” thesis. What conclusions do we draw from the fact that actors do not merely err, but that the errors reflect a predictable bias?
Some people cling to the rational man thesis regardless. They regard economics as a kind of positivist religion. When they find people acting in a manner inconsistent with what our understanding of economics predicts, they shake their fingers and say “Tsk, tsk, obviously there’s something wrong with them.”
Others look on economics as a social science. When they find an anomaly, they say, “Wow, obviously there’s something wrong with our data or our understanding. We presume that they’re behaving rationally, so clearly there’s more to this situation than we yet appreciate.”
And still others conclude that there is nothing “wrong” here; rather, the idea of rationality itself need to be modified to, for example, account for thought patterns that have proven adaptive over time even if they produce maladaptive (“irrational”) behavior on occasion.
In the abstract, I can’t say which of these explanations is the simplest way to reconcile the data.