Tag Archives: economics

(Ain’t) Misbehaving

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Despite having read plenty of the behavioural economics books, of course I had to read [amazon_link id=”B00SSKM714″ target=”_blank” ]Misbehaving: The Making of Behavioural Economics[/amazon_link] by Richard Thaler, one of the first people to introduce and then popularise (through [amazon_link id=”0300122233″ target=”_blank” ]Nudge[/amazon_link] in particular) the introduction of psychological empiricism into economics. Nor do I regret it. It is a very good read. Although it goes over much familiar territory, it’s very interesting to read Thaler’s account of how a highly resistant discipline became accepting and then positively enthusiastic about behavioural models. Too enthusiastic – but more on that later.

[amazon_image id=”B00SSKM714″ link=”true” target=”_blank” size=”medium” ]Misbehaving: The Making of Behavioural Economics[/amazon_image]

[amazon_link id=”B00SSKM714″ target=”_blank” ]Misbehaving[/amazon_link] combines a broadly chronological account of Thaler’s career and work with a highly accessible explanation of what behavioural economics is, how it differs from the previously conventional kind, and the evidence from psychology about how people make decisions. The book starts by explaining why economists had adopted an unrealistic model of rational choice, and why it made economics so powerful: “That power derives from the fact that economics has a unified, core theory from which nearly everything follows.” Certainly early resistance to ‘behavioural’ assumptions tended to be that these derived from an ad hoc list of patterns of choice with no theory behind them, never mind that rational choice is ad hoc with respect to the facts. This seems to be hard for some economists still to accept perhaps because – as Thaler recounts – economists make choices far more often in conformity with their own models than do other groups of people. Misbehaving tells of a survey conducted among wine connoisseurs designed to explore how people regard sunk costs and opportunity costs, in which the people who gave the ‘correct’ answer were economists.

The book has lots of examples that will be useful to people teaching behavioural economics, including classroom experiments. I also very much enjoyed all the anecdotes, like the story of a vigorous debate with Richard Posner at a conference on law and economics, or a session on behavioural finance that had smoke coming out of Merton Miller’s ears. Resistance among distinguished economics professors who had built their glittering careers on rational choice models is, of course, entirely rational. Less rational, more human, was the behaviour of a group of University of Chicago economics faculty in selecting their offices in a brand new building.

Behavioural economics is now one of the most popular areas of the subject, and seminars on behavioural papers are packed. Sometimes it seems pretty much everyone I know has a new paper applying behavioural insights to their own sub-field. Perhaps this is just me being contrarian, but the new embrace by economists makes me uneasy. This is not just because of the well-known debate about paternalism (as discussed by Gilles St Paul in [amazon_link id=”0691128170″ target=”_blank” ]The Tyranny of Utility[/amazon_link] or Julian LeGrand and Bill New in [amazon_link id=”0691164371″ target=”_blank” ]Government Paternalism: Nanny State of helpful Friend?[/amazon_link]) It is because the sight of economists delighting in a new tool to engineer society is alarming – it’s the same old reductionism in more fashionable clothes. I happened to read this morning this essay by historian Ian Beacock on Arnold Toynbee. This quotation jumped out: “We’ve begun to treat vexing social and political dilemmas as simple design flaws, mistakes to be rectified through a technocratic combination of data science and gadgetry.”

I’m 100% in favour of empiricism. Why would you not do ‘what works’? But the behavioural rules of thumb are in danger of being seen as a new policy gadget.

[amazon_image id=”0691128170″ link=”true” target=”_blank” size=”medium” ]The Tyranny of Utility: Behavioral Social Science and the Rise of Paternalism[/amazon_image]   [amazon_image id=”0691164371″ link=”true” target=”_blank” size=”medium” ]Government Paternalism: Nanny State or Helpful Friend?[/amazon_image]

Economics and humankind

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Sitting in my colleague Terry Peach‘s office, I picked up Alfred Marshall’s [amazon_link id=”B009AJCWT4″ target=”_blank” ]Economics of Industry[/amazon_link]. I knew the phrase ‘the ordinary business of life’ of course, not least because Roger Backhouse used it as the title of [amazon_link id=”0691116296″ target=”_blank” ]his book on the history of economic thought[/amazon_link]. What I’d never realised was just how good the whole intro of Marshall’s book is:

“Political economy, or economics, is a study of man’s actions in the ordinary business of life; it inquires how he gets his income and how he uses it. It follows the actions of individuals and of nations as they seek, by separate or collective endeavour, to increase the material means of their well-being and to turn their resources to the best account. Thus it is on the one side a study of wealth, and on the other and more important side, a part of the study of man.”

In fact, it was hard to put it down once I’d started. It turns out to be a cracking read. I like the sentiment (making due allowance for the archaic use of ‘man’) and the way it’s expressed. I certainly see economics as part of the study of humankind, sitting alongside other human sciences – not only the social sciences but psychology and relevant parts of biology too.

[amazon_image id=”B009PCAIL0″ link=”true” target=”_blank” size=”medium” ]The Economics of Industry, by Alfred Marshall and Mary Paley Marshall[/amazon_image]   [amazon_image id=”0691116296″ link=”true” target=”_blank” size=”medium” ]The Ordinary Business of Life: A History of Economics from the Ancient World to the Twenty-First Century[/amazon_image]

Educating economists

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Yesterday I attended a conference organised by the Economics Network and hosted by the Bank of England on the subject of revisiting curriculum reform in economics (the talks from that event were collected, with other contributions, in [amazon_link id=”1907994041″ target=”_blank” ]What’s The Use of Economics?[/amazon_link])  Revisiting because it is three years since the conference I organised in the same location that kicked off the process of reform.

[amazon_image id=”1907994041″ link=”true” target=”_blank” size=”medium” ]What’s the Use of Economics: Teaching the Dismal Science After the Crisis[/amazon_image]

The new conference focused on practicalities, the hows, whereas the first was more about the whether and why. While there was substantial agreement among the participants yesterday about the kinds of change needed – more real world engagement , some interdisciplinarity, openness to different ideas – it’s fair to say there isn’t a consensus about what to put in a new curriculum. The ideals among different participants in the debate range from incremental reform to a substantial and serious revamp to a whole new, heterodox curriculum explicitly not centred on any ‘mainstream’ approach. It would be a healthy outcome to have more variety between the offers of different economics departments than the conformity that exists at present, so this range seems fine to me – although I do think employers of economists will continue to require a set of basic skills and knowledge which are currently delivered by the existing ‘mainstream’.

There was – among others – a session on the first year of experience of teaching the CORE course whose creation was led by Wendy Carlin. The development of the basic material was supported first by INET and Friends Provident Foundation is now supporting the work that will enable its wide use by many teachers and students, including independent learners. INET is now instead funding Robert Skidelsky with Ha-Joon Chang and others to develop a fully heterodox alternative.

There was also an excellent session on what students ought to learn about data, with contributions from Richard Davies on online big data, Jonathan Haskel with a very interesting business school perspective including the use of case studies (modern and historical), and Steve Pischke on teaching econometrics to undergraduates who will probably not go on to masters degrees but will head out into jobs. Pischke made some important points about any teaching of undergraduates: given their high school experience, they are not used to independent critical thinking and are uncomfortable with ambiguity and judgements.

All this and much more. The event was recorded so I’ll post the link when it’s available. The Twitter hashtag was #revisitecon.

I came away feeling very optimistic about the way the debate has moved in three years from a question about whether any change was possible to much more detailed practicalities.  There are plentiful barriers to changing the curriculum and the approach to teaching economics, but there is a broad alliance and plenty of momentum for reform in the UK now. It would be interesting to know what is happening in other countries?

Pinkoes, bards, and librarians

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I’m reading at the moment Jean Seaton’s terrific account of the BBC in the late 1970s and 1980s, [amazon_link id=”1846684749″ target=”_blank” ]Pinkoes and Traitors[/amazon_link]. One note took me this morning to Keynes’s [amazon_link id=”161427326X” target=”_blank” ]Essays in Biography[/amazon_link]. It’s best-known for his description of Lloyd George at the Versailles peace conference: “This extraordinary figure of our time, this syren, this goat-footed bard, this half-human visitor to our age from the hag-ridden magic and enchanted woods of Celtic antiquity.”

[amazon_image id=”0230249582″ link=”true” target=”_blank” size=”medium” ]Essays in Biography[/amazon_image]

I happened to read instead today the essay on Mary Paley Marshall, wife of Alfred, first female lecturer in economics at Cambridge, creator of the Marshall Library. She sounds a wonderful person – Keynes describes the deep intellectual partnership between husband and wife. I liked best, though, the bit about the library: “It was an essential part of Marshall’s technique of teaching to encourage his pupils to read widely in their subject and learn the use of a library. To answer a question on price index numbers, a 3rd or 4th year student would not be expected just to consult the latest standard authority. He must glance right back to Jevons and Giffen, if not to Bishop Fleetwood; he must look at any articles published on the subject in the Economic Journal in the last 20 years; and if he is led to browse over the history of prices since the Middle Ages… no harm will have been done.” Hence Mary’s donation of Alfred’s books  and her endowment of the Marshall Library. She was its Honorary Assistant Librarian until nearly 90.

It’s a delightful tribute – how nice to read Keynes being so warm and generous. I see there’s a (well-reviewed) new book about Keynes out – [amazon_link id=”B00LZGBGM4″ target=”_blank” ]Universal Man[/amazon_link] by Richard Davenport-Hines.

[amazon_image id=”B00LZGBGM4″ link=”true” target=”_blank” size=”medium” ]Universal Man: The Seven Lives of John Maynard Keynes[/amazon_image]

No doubt the role of history of thought will be one of the subjects for discussions at next week’s Economics Network conference on teaching economics.

Curiosity without borders

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Recently I got C.P.Snow’s [amazon_link id=”1107606144″ target=”_blank” ]The Two Cultures[/amazon_link] down from the shelf, to refer to for my essay with Andy Haldane in January’s Prospect. It was recently reissued with Snow’s own 1964 addition of a reflection on the reactions to his 1959 lectures, and with an interesting introduction by Stefan Collini. This week I read the whole thing again.

[amazon_image id=”1107606144″ link=”true” target=”_blank” size=”medium” ]The Two Cultures (Canto Classics)[/amazon_image]

What people remember is the vicious personal attack on Snow by F.R.Leavis, itself seeming to be an examplar of the chasm between the scientific and literary cultures that Snow had described.The essay is more balanced than this Punch and Judy version suggests: Snow certainly does not suggest that scientific knowledge is superior in any cosmic epistemological ranking. Both frames of reference are needed: “The clashing point of two subjects, two disciplines, two cultures… ought to produce creative chances. In the history of mental activity, that has been where some of the break-throughs came.”

What he does say is that the culture of the humanities dominated public life at the time, in the UK more than in the US and USSR, and that people from that literary culture did not feel the need to know the basics of the culture of science and technology. He suggests the attitude descended from the “Luddite” rejection of the Industrial Revolution by writers such as [amazon_link id=”1499261055″ target=”_blank” ]Ruskin[/amazon_link] and Blake, whereas, as the essay puts it: “With singular unanimity, in any country where they have had the chance, the poor have walked off the land into the factories as fast as the factories could take them.”

[amazon_image id=”1843680602″ link=”true” target=”_blank” size=”medium” ]Unto This Last[/amazon_image]  [amazon_image id=”0192810898″ link=”true” target=”_blank” size=”medium” ]Songs of Innocence and of Experience: Shewing the Two Contrary States of the Human Soul (Oxford Paperbacks)[/amazon_image]

Snow also points to the class-bound conservatism of the English (I mean English, not British) education system. It elevated the classics and literature as the appropriate subjects for the grooming of the elite via grammar and public schools and the top universities. Science did find its place, but was looked down on – certainly where it shaded into engineering and technology. Unlike Germany, France or the US, engineering was not a subject for a gentleman to study; this was more appropriate for the lower social orders.

This seems to me largely true, of the 1950s and 60s, and even now. Why else would successive British governments still feel the need to proseletyse for the ‘STEM’ subjects, if it were not that we had such a big gap with other countries to close? When you sit watching ‘University Challenge’ on TV and shout out the answers, I’m prepared to bet that the scientists can answer a few more humanities questions than vice versa. Our education system still forces young people to specialise absurdly early and absurdly sharply in either the sciences or the humanities. We still have an education system that allows far too many people to emerge saying, “I’m no good at maths,” which is like saying “I’m no good at thinking,” when it’s just that the symbols for getting thought onto paper or screen are different.

Snow insisted that the controversy missed the main point of his lecture, which was to underline the importance of scientific culture for economic development in poor countries. Here, though, his argument is – with hindsight – naively optimistic. “Since the gap between the rich countries and the poor can be removed, it will be,” Snow wrote. The scientific and technical knowledge being available, all that was needed was capital – a big task but a feasible one. Six decades later, it is clear that the gap can be closed but need not be. Electricity and indoor plumbing are very old technologies, as yet unavailable to very many inhabitants of poor countries, whereas mobile phones are a relatively new technology now available to and used by almost everyone in the world.

The missing element is what Snow described in his 1964 reflection as the third culture, the social sciences, and their perspective on “the human effects of the scientific revolution”. He blamed his English education, which meant he was “conditioned to be suspicious of any but the established intellectual disciplines.” 

I think the inhabitants of the culture of the humanities are broadly speaking at least as suspicious of the social sciences as they are of the natural sciences and technology: what they like about the social sciences are the historical and literary aspects, and what they dislike are the parts that use the scientific method, i.e.confronting human society with empirical evidence to test hypotheses systematically, even using maths. They often describe economists, for example, as suffering from ‘physics envy’. Maybe some do, but equations are just symbols for a prism on the world which might permit the testing of hypotheses. Even historians have models – hypotheses about causes and consequences – but they use words as their symbols, and sequences of events as their empirical evidence.

So I’m with Snow on the importance of crossing boundaries. He writes, “Unless one knows, production is as mysterious as witch doctoring.” Not enough people understand how things get made, whether cars or software systems. Not enough people understand how radio waves work or why epigenetics is worth getting your mind around. And not enough scientists read poetry, too. Here’s to curiosity without borders!