Monday, May 6, 2019

More Evo-Nonsense

Occasionally, Evonomics provides something useful. For instance, it re-ran the blog post “Where do pro-Social institutions Come From? How Do Countries ‘Get to Denmark’? by Pseudoerasmus

Unfortunately, much of the time it runs critiques of “economics” by people who do not know anything about economics.

Here for example is Nick Hanauer writing about “How to Kill Neoliberalism Kill “Homo Economicus”:

I believe that these corrosive moral claims derive from a fundamentally flawed understanding of how market capitalism works, grounded in the dubious assumption that human beings are “homo economicus”:  perfectly selfish, perfectly rational, and relentlessly self-maximizing. It is this behavioral model upon which all the other models of orthodox economics are built. And it is nonsense.

The last 40 years of research across multiple scientific disciplines has proven, with certainty, that homo economicus does not exist. Outside of economic models, this is simply not how real humans behave. Rather, Homo sapiens have evolved to be other-regarding, reciprocal, heuristic, and intuitive moral creatures. We can be selfish, yes—even cruel. But it is our highly evolved prosocial nature—our innate facility for cooperation, not competition—that has enabled our species to dominate the planet, and to build such an extraordinary—and extraordinarily complex—quality of life. Pro-sociality is our economic super power.

What is nonsense is that economic theory is built on the assumption that human beings are “perfectly selfish, perfectly rational, and relentlessly self-maximizing.”

Here is Gary Becker on the meaning of rationality

“What is meant by rational behavior? Consider first what is not meant. Certainly not that people are necessarily selfish, “economic men” solely concerned with their own well-being. This would rule out charity and love for children, spouses relatives or anyone else, and a model of rational behavior could not be so grossly inconsistent with actual behavior and still be useful.”

“The essence of the model of rational behavior is contained in just two assumptions: each consumer has an ordered set of preferences, and he choses the most preferred position available to him.” (Becker Economic Theory page 26)

Show me where the sort of description of rationality that Hanauer puts forward appears in economics. I looked in my old copies of Varian and Silberberg. It wasn’t there.  Checked Mankiw’s principles text. Not there either. You can find assumptions about the consistency of preferences, but where do you find anything about what people are supposed to prefer? There is no more reason for economists to say that people can’t get utility from charity than there is for economists to say that you can’t get utility from eating apples.  

If we want to improve economics we need to start from where it actually is, not with some imagined boogeyman of homo economicus.

There are plenty of things we could do better. We could teach more history. We could place less emphasis on advanced math. We could try to get faculty and students that look more like the society we live in. But you aren’t going improve economics by assuming an imaginary homo economicus who isn’t there.

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