Putting people in economic theory

Some books are hard to judge. I can’t decide whether [amazon_link id=”1107678943″ target=”_blank” ]An Economic Theory of Greed, Love, Groups and Networks[/amazon_link] by Paul Frijters with Gigi Foster is brilliant or barking. It looks appealing, an attempt to combine the good aspects of the theoretical rigour of choice theory based on self-interest with the realities of human emotions. Of course love and group identity shape our choices! The book has endorsements on the back from economists I greatly respect. Andrew Oswald calls it, “The most remarkable book I have read in the last decade…. a book that is intellectually taxing but unforgettable.” Jeffrey Williamson and Bruno Frey love it too. So embarking on reading this, I thought it was going to be in the rich tradition of the Adam Smith of [amazon_link id=”0143105922″ target=”_blank” ]Moral Sentiments[/amazon_link].

[amazon_image id=”1107678943″ link=”true” target=”_blank” size=”medium” ]An Economic Theory of Greed, Love, Groups, and Networks[/amazon_image]

Instead, it’s a more difficult and theoretical read. It’s best explained in a blog post by Paul Fritjers, who says:

“[W]e take the stance of aliens looking at humans as just another species, with love merely one behavioural strategy available to that species. Blasphemous as this may sound, our goal is to apply the scientific method to the realm of the heart.

At the most basic level, we contend that love is a submission strategy aimed at producing an implicit exchange. Someone who starts to love begins by desiring something from some outside entity. This entity can be a potential sexual partner, a parent, “society”, a god, or any other person or abstract notion.From a position of relative weakness, the loving person tries to gain control over this entity.”

In fact, there are four core concepts, including the fundamental one of self-interested choice (‘greed’), in this alternative decision theory. They are love, groups (and power relations) and networks. These concepts are selected from all the other possibilities social scientists have suggested as important in shaping economic choices, such as social norms, freedom, identity, institutions and so on. How they are selected is not fully explained; the author says it follows much work on the explanatory power of each as a potential core concept but I am puzzled about the selection and the mix of categories – emotions, social structures, descriptors of status. Nor did I ever really understand how ‘explanatory power’ was tested. One could say that any of these concepts is self-evidently important in some way in individual choices and social outcomes.

A large chunk of the book sets out this rather odd idea that love is a generalised ‘Stockholm syndrome’ (as Andrew Oswald describes it on the back), a means of getting something from a more powerful person or entity. Apparently, neuroscience says love is not an emotion and nobody is pre-programmed to love anything: “A child needs to be stimulated to develop the ability to love… Unlike many animals, humans do not necessarily love forever what  they bonded with in childhood.” So the book goes on to explain the ‘evolutionary advantage of the love program’, and fits love into the mould of power relations. This takes the book onto a discussion of groups and power, and from groups to networks and markets. These sections touch on other, familiar areas of sociology and network theory.

Somewhere in the necessarily quite dense chapters on this wide-ranging material, I lost track of how the four core concepts lead us to a new choice theory. The final section of the book does look at how the new theory applies in familiar economic contexts. I focused on competition policy, and was disappointed to find that the consequence is to add not much to mainstream economic theory: “The view at which this book arrives regarding competition regulation is thus very close to the standard mainstream view in terms of the merits of any individual case. What is added is an understanding of who the regulator actually are and why they are there, what keeps them honest, where their power comes from, and what language affected parties will use in their appeals to regulators.” But how weird to add an understanding of the regulator and yet not an understanding of how big companies accumulate power and lobby regulators and politicians.

I think the book wants to rescue the fundamental assumption in economics of self-interested choice and make it relevant given all that we’ve learned about evolution, neuroscience and psychology in recent times. I thoroughly applaud this aim, because it is consistent with the evidence from evolutionary biology. Finding out how all this material across the disciplines can be married in a theory of decision making, on which economic models can build, is an important research agenda. This book is an ambitious effort to do so. It didn’t work for me, but now I’d like a lot of other people to read it and say what they think.


Anthropology and all that jazz

It’s a salutary experience to read a book in a different discipline, even a neighbouring one, because it’s a reminder of how specialized we become, and how hard it is to communicate across the boundaries. Reading Gregory Bateson’s [amazon_link id=”0226039056″ target=”_blank” ]Steps to an Ecology of Mind[/amazon_link] – hailed as a classic of anthroplogy and psychology – was hard work. This was partly because of the unknown technical language, and partly because the methodology is so very different to how we economists do economics. In addition, there are areas of detail that are just not all that interesting to me, such as Balinese religious customs, say.

[amazon_image id=”0226039056″ link=”true” target=”_blank” size=”medium” ]Steps to an Ecology of Mind: Collected Essays in Anthropology, Psychiatry, Evolution and Epistemology[/amazon_image]

Still, I’ve taken a couple of useful overarching thoughts from the book, mainly about epistemology and methodology in the social sciences. One is that in social science, the game is to discover the rules of the game. Economics, I think, misses this point altogether. To make matters even more difficult, the game is like Alice’s game of croquet with the Red Queen – with mallets that are flamingos and balls that are hedgehogs, or in other words, it consists of wholly unpredictable components.

I liked also his emphasis, citing Margaret Mead, on avoiding the dualism of means and ends, and the instrumentalism that is used to justify. Bateson insists that not only do ends never justify means, but means are in fact ends in themselves. Echoes here of [amazon_link id=”0141037857″ target=”_blank” ]Sen’s theory of justice[/amazon_link]. There is a rejection of dualism threaded through the book, for example the dualism of ‘man’ and ‘nature’ or generally of the living creature and its environment; these co-evolve, Bateson argues. “If we continue to operate in terms of a Cartesian dualism of mind versus matter, we shall probably also continue to see the world in terms of God versus man; elite versus people; chosen race versus others; nation versus nation; and man versus environment. It is doubtful whether a species having both an advanced technology and this strange way of looking at its world can endure.” This is similar to the message of a book I greatly admire, [amazon_link id=”0521578493″ target=”_blank” ]Mourning Becomes The Law: Philosophy and Representation[/amazon_link] by the late Gillian Rose.

[amazon_image id=”0521578493″ link=”true” target=”_blank” size=”medium” ]Mourning Becomes the Law: Philosophy and Representation[/amazon_image]

The other interesting area is of course his application of cybernetic theory to anthropology and psychology. I found this very hard to follow, however. It seems to concern the well-known warning about reductionism and absence of systems-thinking: Korzybski’s ‘the map is not the territory’. Bateson warns that many problems stem from ignoring the systemic nature of the world in favour of ‘common sense’. John Kay’s[amazon_link id=”1846682894″ target=”_blank” ] Obliquity: Why Our Goals Are Best Achieved Indirectly[/amazon_link] is an accessible riff on this theme, a warning against social engineering by trying to intervene directly to fix things. Beyond this, I find it hard to summarize Bateson’s final section, although I now have his phrase in my head: “Information is a transform of difference”.

One day, I’ll do more than dabble in the other social sciences, and learn some of it properly. For now, back to economics.

How predictable are you?

Gregory Bateson’s [amazon_link id=”0226039056″ target=”_blank” ]Steps to An Ecology of Mind[/amazon_link] is tough going for a simple-minded economist, although there’s one insight that’s going to prove very useful for the Pro Bono Economics lecture I’m giving next month, The Economist As Outsider. I’m not yet ready to review the book, but meanwhile was very taken with this comment (in the ‘metalogue’ ‘Why Do Things have Outlines?’):

“It’s just the fact that animals are capable of seeing ahead and learning that makes them the only really unpredictable things in the world. To think that we try to make laws as though people were quite regular and predictable.”

[amazon_image id=”0226039056″ link=”true” target=”_blank” size=”medium” ]Steps to an Ecology of Mind: Collected Essays in Anthropology, Psychiatry, Evolution and Epistemology[/amazon_image]

That seems obviously true, but clashes with another of my favourite insights, which also seems obviously true, from John Seely Brown and Paul Duiguid in [amazon_link id=”1578517087″ target=”_blank” ]The Social Life of Information[/amazon_link]; namely, that while everyone thinks computers are predictable and people are unpredictable, it’s actually the other way round.

[amazon_image id=”0875847625″ link=”true” target=”_blank” size=”medium” ]The Social Life of Information[/amazon_image]

Octopuses and mental health

As I was reading James Gleick’s [amazon_link id=”0007225741″ target=”_blank” ]The Information[/amazon_link], I started pulling threads online and came across Jannis Kallinikos’ post on the LSE Review of Books about books that had inspired him. The selection was sufficiently interesting that I ordered from Abe the one I’d never read, nor even heard of, Gregory Bateson’s [amazon_link id=”0226039056″ target=”_blank” ]Steps To An Ecology of Mind[/amazon_link]. Last night, I started reading it. I don’t know whether this section of the Preface was written to amuse, but it made me laugh:

“Gradually it appeared that for the next advances in the study of logical typing in communication [not sure what that means] I should work with animal material [maybe ‘typing’ is a typo?] and I started to work with octopus [definitely – never heard of an octopus that can type]. My wife Lois worked with me, and for over a year we kept a dozen octopuses in our living room [as you do]. This preliminary work was promising but needed to be repeated and extended under better conditions. For this no grants were available.

At this point, John Lilly came forward and invited me to be the director of his dolphin laboratory in the Virgin Islands. I worked there for about a year and became interested in the problems of cetacean communication, but I think I am not cut out to administer a laboratory dubiously funded in a place where the logistics are intolerably difficult. [That went well, then.]

It was while I was struggling with these problems that I received a Career Development Award under the National Institute of Mental Health.

Terrific stuff. I’ve not started the book proper yet but am now looking forward immensely to reading it. So thanks to Prof Kallinikos.

[amazon_image id=”0226039056″ link=”true” target=”_blank” size=”medium” ]Steps to an Ecology of Mind: Collected Essays in Anthropology, Psychiatry, Evolution and Epistemology[/amazon_image]

Humans, not agents

In my early morning browsing, I read a paper called ‘Time to Abandon Group Thinking in Economics’ by Sergio Da Silva (pdf). It isn’t as clear as it might be, but the line of argument concerns the unscientific status of the representative agent approach to macroeconomics. In conventional macro, he writes: “The whole is viewed as merely the sum of the parts. Of course, this would be so if the constituent individuals were homogeneous. But they are not. Despite that, macroeconomics assumes homogeneity of individuals and focuses on a “representative individual.” Rather than explaining collective behavior from the interactions between the constituent individuals, macroeconomics studies the behavior of the average individual.”

This is not justified, he continues, because the macroeconomy does not empirically exhibit the property of “self-averaging,” such that as more and more individuals were aggregated, a central limit theorem holds – or, in a Poisson distribution, the model coefficient of variation approaches zero. To put it another way, what benefits an individual need not always benefit the group – there are losers as well as gainers.

The paper goes on to advocate applying the aggregation tools of statistical physics and biology to macroeconomics. This was one of the alternatives discussed at an international macro symposium the ESRC organised in Oxford last October, presented by J.P.Bouchaud & summed up in his essayEconomics Needs a Scientific Revolution. I think almost anything would be better than conventional macro, addicted to representative agent DSGE models despite their non-compatibility with any evidence. However, there’s no consensus (not surprisingly) about the alternative, and three were presented at the ESRC symposium. The other two were network approaches and complexity approaches.

The lesson macroeconomists should take – the point of this ramble – is that the social sciences need to be consistent with the biological and human sciences. This is essential for economics to move from being “applied logic” as Da Silva describes it in the paper to an empirical science.

There are two domains of knowledge to be incorporated. One is cognitive science and neuroscience, and there has been some progress here in microeconomics, with behavioural economics and neuroeconomics. Last year I attended a fascinating workshop at the Toulouse School of Economics that asked what cognitive science could tell economists about attention and therefore economic decisions – it resulted in my conference report The Invisible Hand Meets the Invisible Gorilla (pdf).

The other is evolutionary biology and ecology –  and macroeconomists display no interest in what these domains can teach us about aggregation and group behaviour. Business economists have long used evolutionary metaphors in an intuitive way, and evolutionary economists such as Geoffrey Hodgson in, for example, [amazon_link id=”0472084232″ target=”_blank” ]Economics and Evolution[/amazon_link] have tried to formalise models of behaviour at the level of markets. But – as I found when writing about these areas for [amazon_link id=”0691143161″ target=”_blank” ]The Soulful Science[/amazon_link] – there has been scant mainstream interest.

[amazon_image id=”0472084232″ link=”true” target=”_blank” size=”medium” ]Economics and Evolution: Bringing Life Back into Economics (Economics, Cognition, & Society)[/amazon_image]

Da Silva’s paper cites plenty of natural scientists but next to no economists. This must be a mistake by our profession.