Tuesday, June 2, 2015

Psychologies and paradigms

A random utility model.
Noah Smith wrote about behavioral economics the other day. He makes the claim that there is no one theory of human behavior, no one psychology, so it is unlikely to replace the utility maximization framework of economics:
... psychology itself has no unified theory, at least not yet. Cognitive and social psychology are basically pre-paradigmatic sciences ... Psychology, therefore, will be able to furnish econ with a large grab bag of anomalies, but there’s a good chance it will never provide a grand unified theory that will render the rational maximization of classical economics entirely obsolete.
I have a few comments on this.

1. Rational maximization is a psychology

It is not a particularly fulfilling theory of human behavior, but at least it's an ethos a psychology. Therefore there is a default assumption and that should be recognized.

2. Rational maximization can follow from random behavior

Random behavior in high dimensional spaces can look like the results of optimization. It's really cool. And it means we can know nothing about psychology and still study economics!

3. Paradigms aren't just theoretical

I personally would lump economics into the group of pre-paradigmatic sciences as well. There may be a paradigm, but it isn't empirically successful (with notably rare exceptions including a case where behavior was taken to be random). There is no framework, just a collection of models. Unless you use information equilibrium! Both empirically successful (and here) and theoretically sensible.

1 comment:

  1. Another reason why it rational maximization is a difficult proposition to accept: people don't actually know what is going on:

    http://krugman.blogs.nytimes.com/2015/06/03/multipliers-and-reality/

    Random behavior that looks like optimizing behavior is a solution here.

    ReplyDelete

Comments are welcome. Please see the Moderation and comment policy.

Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.