Yesterday I attended a very interesting conference, on Non-Equilibrium Social Science, which stands for making economics more realistic and interesting – looking at the economy in terms of non-linear dynamic systems. As ever at a good conference there were some great opportunities for conversation – and book recommendations. I came away with Marion Fourcade’s Economists and Societies, and W.E.G.Salter’s Productivity and Technical Change, and William Hazlitt’s 1805 Essay on the Principles of Human Action.
Also, after hearing him speak, David Tuckett’s Minding the Market. His argument was, in a nutshell: “Financial markets are markets in stories.” He classed as standard models both the rational choice and ‘behavioural’ approaches to decision making, because both assume there is an objective reality about which an optimum can in principle be known or calculated. Instead, Prof Tuckett argued, the decision problem is one of making any sense at all of how to act now on the basis of information now about an ontologically uncertain future. His answer is that we act on the basis of ‘conviction narratives’ which are collective interpretations of what today’s ‘facts’ (all based on our sense perceptions) mean for tomorrow. He described some empirical work looking at the stories that run in financial markets, as extracted from unstructured texts such as newswire reports, brokers’ notes and Bank of England reports.
This is intriguing. It certainly chimes with my unease (as in my Tanner and Pro Bono lectures) about the way economists talk – especially in the context of policy – as if they are omniscient outsiders, not part of what they are analysing. My question – which Prof Tuckett agreed is still-unexplored territory – is how reality interacts with our narratives, sometimes changing them. I’d like to have followed up by asking if the idea is a Kuhnian paradigm shift, but in the domain of financial markets, or economic life in general, rather than scientific exploration.
Another conference highlight was Bridget Rosewell on the inadequacy of our standard cost-benefit approach for deciding whether or not to go ahead with transport infrastructure projects, inadequate because they use a comparative static, equilibrium framework for something that is bound to change the dynamics of the economy. She gave many examples of projects that would never have passed a modern cost-benefit assessment, from Bazalgette’s London sewers to the Jubilee Line Extension and – as she is scrupulous – an example of one that wasn’t making it in terms of her tale of self-fulfilling visions that deliver the benefits they subscribe. (This is the fantasy airport on Boris Island, which she supports.) Bridget touches on this infrastructure question in Reinventing London.