Economics, Reason

Richard Thaler

Tuesday, 10th October 2017

From Oct. 10, 2017

This article gives a decent description of how Thaler’s work pushed back against economic orthodoxy of the time. What’s interesting to me is that it also uncovers a fault line that has existed since the 19th century in economics, between the discipline as a social science and as moral theory. If it is a social science, it is describing action. How does it do this? By treating human reason as a given, and the human mind as a kind of black box. Humans operate under a set of opportunities and constraints. So, if someone does something that you don’t understand, is it because they are not rational? No, it’s because you don’t understand the opportunities and constraints they are faced with.

Economics today rarely if ever takes this very descriptive stance. The “economic man” described here is the rational self-interested utility maximizer, but what’s left out is the opacity of the felt opportunities and constraints. In other words, they are treated as objective and available to everyone. But under those conditions, reason must give way. We cannot be assumed to be rational, but rather are assumed to be irrational at times. If we are irrational, that must be explained, and we can also be trained out of our irrationality and chided for not changing. Then economics becomes moral science (not, perhaps, as Smith and others meant it, but in a more modern sense).

So, behavioural economics, far from being a deviation from modern economics, holds to this view that skews towards moral theory. People are irrational sometimes – behavioural economics tells us why that is, and tells us how we might use “nudges” to change that behaviour. But it also must draw on this older sense of economics as social theory, because it must treat opportunities and constraints as felt and perceived, not as objective.

There is, of course, one response to all this that seems to hardly ever be mentioned – why not start from the classical assumption that humans are rational utility maximizers at all times, and then when behaviour differs, start looking to see what we haven’t yet understood about the felt and perceived opportunities and constraints?

Better yet, instead of seeing humans as mechanistic in this 19th century manner (that is, there is a strong cause-effect relationship between the array of perceptions one has and action), maybe we see ourselves as machinic, that is, beings that improvise on a set of conditions, that assemble a new way of being at all times in response to what lies in front of us. It’s a Deleuzian term – I think we have yet to see a really thorough-going Deleuzian approach to economics, but there’s something really rich there that needs to be worked out. I’ll try to get to some of that, maybe, if I can finish out some existing projects. It needs to be done.

The problem with economics as moral theory is that it tends to impose a “right” way of being, whether that is the religious faith in the efficacy of the market, or the belief in the good outcomes of collectivized economic structures. The problem with economics as social theory is that it tends to be reductionist – figure out the opportunity and constraint structure and you’ve figured out who we are.

What’s needed is to think about how we act moving forward, not only reducing our current decisions to the individual and collective results of past actions (which is what consequentialist economics assumes), but thinking about new input and new data.

I like Thaler’s work and that of others who have raised what people consider to be the “more human” issues in economics. I just think there’s still a long way to go.

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