Economists are, in short, more likely than you or I to be selfish creeps. Or to put it another way: The problem with economists is that they actually believe economic theory. For Frank, this is a problem because it's part of why so much economic theory does such a spectacularly bad job of explaining our everyday lives, and also why governments that try to craft policy according to rational-actor thought tend to screw things up.
Of course, it's still theoretically possible to defend rational-actor thought. You could argue that sure, maybe people on an individual level do not make careful, rational money decisions -- but in the agregate, the ur-decision of the masses is rational. In this formulation, rationality arises as a form of emergent behavior, out of the zillions of seemingly irrational decisions of everyday folks. Like a recessive gene, the rationality of buying stock in BagofRocks.com or springing for a pair of $300 Nikes or voting for George Bush's hallucinogenic tax cuts was present, but merely latent or deeply buried. If you really believe that, though, I got a bridge here in Brooklyn you wanna look at.
Posted by Clive Thompson at February 17, 2005 04:23 PM
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One professor of cognitive science I have has aruged that economics is a flawed or even pseudo-science, because it's basic premise is that human beings are rational - that is, that we follow rules of deductive logic. Humans are in fact very bad at following laws of logic, even when pressed.
I blogged a few weeks ago about a recent study that came out showing that a computer simulation of the stock market in which buys and sells were made with zero intelligence (ie, randomly) was a much more accurate predictor of the trends of the stock market than any model based on economic theory. If you're interested, the post can be found here (http://qualia.information-theory.net/index.php?p=30).
Posted by: Steve E. at February 17, 2005 5:42 PM
This makes me wonder how marketing majors lead their lives.
Posted by: drew hutchison at February 17, 2005 5:57 PM
Economic rationality is not "following the rules of deductive logic": it simply means that the actor ranks preferred outcomes in a consistent manner. i.e. if you prefer good A to good B, and good B to good C, then you prefer good A to good C etc
Posted by: Steve M at February 17, 2005 9:10 PM
my turn: "the average human being is about 95 percent 'rational', in the narrow sense of the term." it's my slippery theory, my slippery terms, and i'm sticking to it. tautologies are great.
i'd be interested in how exactly the economists are defining/quantifying 'self-interest' and 'rational'. like frank says, the terms are meaningless outside the limited context.
the guy at whom frank takes umbrage, tullock, seems to be your typical monomaniacal tout. straps on his theory in the morning and falls asleep with it on at night. to a man with a hammer, everything looks like nails. selective bias in action. refining the theory is a self-reinforcing feedback loop. this shall only lead to instability!
so maybe the nature of the theory/adherent is dialectical and self-reinforcing, self-fulfilling. or maybe the field of economics attracts those predisposed to self-interested behavior, a pre-existing trait. they may then find in economic theory a reassuring model for their own selfish worldviews. kind of like those ayn rand groupies -although at least economists know how to pronounce their theorists' names! hah! take that you ethical egoists!
i'm sure frank's oversimplifying to make a point, to make a column. the rational self-interest model can be useful, if not comprehensive. gary becker got a nobel for showing that it can be part of the toolset, anyway.
frank gets double points in my book, when in allowing the possibility that theorists' ideas are self-fulfilling, asks some biologists if they are adulterers heh, and then gets in another jab at the french! nifty.
Posted by: christo at February 17, 2005 9:39 PM
Excellent stuff here! Steve, yep, I saw that study too -- very hilarious. Christo, yes, I wondered about the self-selecting question also.
And of course, there are many many economists these days who do not monomaniacally ascribe to rational-actor thought. Kind of like all the A.I. guys who are realizing that it's impossible to model human behavior based on logical rule-sets, and are now trying to develop models for the emotions -- or the human physical needs, a la Will Wright's architecture of the behavior of The Sims, whose behavior is governing by stuff like Abraham Maslow's pyramid of needs.
Posted by: Clive at February 17, 2005 9:58 PM
First off... I learned economics from Professor Frank, so I should share a story. :) He was my freshman econ 101 micro econ teacher my very first semeseter of college -- a class I did pretty well in. However, the morning of my final exam (my very first in college), I overslept, waking up at 10:20am. The exam began at 9am. I tossed on a t-shirt and jeans and ran as fast as I could to the lecture hall where the exam was being given. This is at Cornell which is on the side of a fairly large hill. Not only that, but the exam was in a building where the front entrance is up a huge flight of stairs. Then, the exam was on the third floor... and there are no elevators.
So I get to the exam room after running up all these hills and stairs, scared for my life pretty much. I must have looked absolutely awful as I burst into the room. Professor Frank and a teaching assistant ran over to me as I told them between huge gasps of air: "I... *GASP*... I... *GASP*... overslept... *GASP*" Professor Frank and the TA told me to sit down and to relax. I specifically remembering him say "Don't have a heart attack. Breathe... slowly."
Anyway, they let me start the exam, and then finish it later. When the exam ended in the exam room I had to walk back with Professor Frank and all of the TAs and he joked with me that the economics lesson I was learning that day was the importance of investing in a good alarm clock...
So... beyond his basic research and writings (all execllent, I agree), I feel especially thankful to Professor Frank for calming down an extraordinarily scared freshman economics student many years ago.
HOWEVER... while I agree with his basic point about how some economists misunderstand the concept of self-interest, I think he's a little wrong here as well (he wasn't the only economics professor I had over the years). He's using the very narrow definition of self-interest. He'd be right if he pointed out that their narrow definition of self-interest was wrong, but he's claiming that the basic premise of self-interest is wrong.
This all is based on the idea that self-interest is interpreted very narrowly -- and in the very short term view or only in the monetary sense. Self-interest can encompass a lot more than that. For example, giving a waiter a big tip may not seem in the best "self-interest," but could pay off in the long term when the person returns to that restaurant.
Even more to the point, a large tip could pay off in the tipper feeling good about themselves. So while they may be worse off in the monetary sense, the benefit of feeling good could outweigh the monetary costs.
Self-interest that only looks at monetary issues and short-term is a bad economic theory. But, it doesn't mean that self-interest is incorrect. Economists (and others) just need to realize that self-interest includes many, many different variables, and not all of them are obvious to those watching the actions of individuals.
Posted by: Mike Masnick at February 17, 2005 10:58 PM
Mike, so cool that you had Frank as a professor!
Point well taken about how self-interest is sometimes, and even more often than not, about satisfying non-economic needs. But as I understand it, there's a debate about precisely how far the theory of non-economic self-interest goes in explaining apparent altruism. I.e. can it explain really hard-core limit cases, like deeply religious people who live in penury to serve the poor, or, perhaps more to the point, people who give their lives -- the ultimate nonrenewable, nonreplacable good -- to save someone else?
It's possible it can. Though this also the territory of various evolutionary theories -- such as David Sloan Wilson's fascinating work on the idea of religious groups as evolutionary mechanisms propagating their own survival, with people as cells within the larger religious organism.
Posted by: Clive at February 18, 2005 12:36 PM
They need to teach "Theory of Moral Sentiments" before they crack open "Wealth of Nations"...
Posted by: donna at February 18, 2005 2:37 PM
Posted by: Clive at February 18, 2005 4:41 PM
Clive> there are many many economists these days who do not monomaniacally ascribe to rational-actor thought.
Me.
What's wierd is, I knew that by the second year of grad school but I didn't quit. Which was irrational, because now I have to be an economist, whom everyone expects to be an emotionally stunted marketophile. Bleh.
Posted by: Edward Castronova at February 21, 2005 10:52 AM
Posted by: Live cams at March 13, 2005 8:25 PM
One professor of cognitive science I have has aruged that economics is a flawed or even pseudo-science, because it's basic premise is that human beings are rational - that is, that we follow rules of deductive logic. Humans are in fact very bad at following laws of logic, even when pressed.
I blogged a few weeks ago about a recent study that came out showing that a computer simulation of the stock market in which buys and sells were made with zero intelligence (ie, randomly) was a much more accurate predictor of the trends of the stock market than any model based on economic theory. If you're interested, the post can be found here (http://qualia.information-theory.net/index.php?p=30).
Posted by: Steve E. at February 17, 2005 5:42 PM
This makes me wonder how marketing majors lead their lives.
Posted by: drew hutchison at February 17, 2005 5:57 PM
Economic rationality is not "following the rules of deductive logic": it simply means that the actor ranks preferred outcomes in a consistent manner. i.e. if you prefer good A to good B, and good B to good C, then you prefer good A to good C etc
Posted by: Steve M at February 17, 2005 9:10 PM
my turn: "the average human being is about 95 percent 'rational', in the narrow sense of the term." it's my slippery theory, my slippery terms, and i'm sticking to it. tautologies are great.
i'd be interested in how exactly the economists are defining/quantifying 'self-interest' and 'rational'. like frank says, the terms are meaningless outside the limited context.
the guy at whom frank takes umbrage, tullock, seems to be your typical monomaniacal tout. straps on his theory in the morning and falls asleep with it on at night. to a man with a hammer, everything looks like nails. selective bias in action. refining the theory is a self-reinforcing feedback loop. this shall only lead to instability!
so maybe the nature of the theory/adherent is dialectical and self-reinforcing, self-fulfilling. or maybe the field of economics attracts those predisposed to self-interested behavior, a pre-existing trait. they may then find in economic theory a reassuring model for their own selfish worldviews. kind of like those ayn rand groupies -although at least economists know how to pronounce their theorists' names! hah! take that you ethical egoists!
i'm sure frank's oversimplifying to make a point, to make a column. the rational self-interest model can be useful, if not comprehensive. gary becker got a nobel for showing that it can be part of the toolset, anyway.
frank gets double points in my book, when in allowing the possibility that theorists' ideas are self-fulfilling, asks some biologists if they are adulterers heh, and then gets in another jab at the french! nifty.
Posted by: christo at February 17, 2005 9:39 PM
Excellent stuff here! Steve, yep, I saw that study too -- very hilarious. Christo, yes, I wondered about the self-selecting question also.
And of course, there are many many economists these days who do not monomaniacally ascribe to rational-actor thought. Kind of like all the A.I. guys who are realizing that it's impossible to model human behavior based on logical rule-sets, and are now trying to develop models for the emotions -- or the human physical needs, a la Will Wright's architecture of the behavior of The Sims, whose behavior is governing by stuff like Abraham Maslow's pyramid of needs.
Posted by: Clive at February 17, 2005 9:58 PM
First off... I learned economics from Professor Frank, so I should share a story. :) He was my freshman econ 101 micro econ teacher my very first semeseter of college -- a class I did pretty well in. However, the morning of my final exam (my very first in college), I overslept, waking up at 10:20am. The exam began at 9am. I tossed on a t-shirt and jeans and ran as fast as I could to the lecture hall where the exam was being given. This is at Cornell which is on the side of a fairly large hill. Not only that, but the exam was in a building where the front entrance is up a huge flight of stairs. Then, the exam was on the third floor... and there are no elevators.
So I get to the exam room after running up all these hills and stairs, scared for my life pretty much. I must have looked absolutely awful as I burst into the room. Professor Frank and a teaching assistant ran over to me as I told them between huge gasps of air: "I... *GASP*... I... *GASP*... overslept... *GASP*" Professor Frank and the TA told me to sit down and to relax. I specifically remembering him say "Don't have a heart attack. Breathe... slowly."
Anyway, they let me start the exam, and then finish it later. When the exam ended in the exam room I had to walk back with Professor Frank and all of the TAs and he joked with me that the economics lesson I was learning that day was the importance of investing in a good alarm clock...
So... beyond his basic research and writings (all execllent, I agree), I feel especially thankful to Professor Frank for calming down an extraordinarily scared freshman economics student many years ago.
HOWEVER... while I agree with his basic point about how some economists misunderstand the concept of self-interest, I think he's a little wrong here as well (he wasn't the only economics professor I had over the years). He's using the very narrow definition of self-interest. He'd be right if he pointed out that their narrow definition of self-interest was wrong, but he's claiming that the basic premise of self-interest is wrong.
This all is based on the idea that self-interest is interpreted very narrowly -- and in the very short term view or only in the monetary sense. Self-interest can encompass a lot more than that. For example, giving a waiter a big tip may not seem in the best "self-interest," but could pay off in the long term when the person returns to that restaurant.
Even more to the point, a large tip could pay off in the tipper feeling good about themselves. So while they may be worse off in the monetary sense, the benefit of feeling good could outweigh the monetary costs.
Self-interest that only looks at monetary issues and short-term is a bad economic theory. But, it doesn't mean that self-interest is incorrect. Economists (and others) just need to realize that self-interest includes many, many different variables, and not all of them are obvious to those watching the actions of individuals.
Posted by: Mike Masnick at February 17, 2005 10:58 PM
Mike, so cool that you had Frank as a professor!
Point well taken about how self-interest is sometimes, and even more often than not, about satisfying non-economic needs. But as I understand it, there's a debate about precisely how far the theory of non-economic self-interest goes in explaining apparent altruism. I.e. can it explain really hard-core limit cases, like deeply religious people who live in penury to serve the poor, or, perhaps more to the point, people who give their lives -- the ultimate nonrenewable, nonreplacable good -- to save someone else?
It's possible it can. Though this also the territory of various evolutionary theories -- such as David Sloan Wilson's fascinating work on the idea of religious groups as evolutionary mechanisms propagating their own survival, with people as cells within the larger religious organism.
Posted by: Clive at February 18, 2005 12:36 PM
They need to teach "Theory of Moral Sentiments" before they crack open "Wealth of Nations"...
Posted by: donna at February 18, 2005 2:37 PM
Heh.
Posted by: Clive at February 18, 2005 4:41 PM
Clive> there are many many economists these days who do not monomaniacally ascribe to rational-actor thought.
Me.
What's wierd is, I knew that by the second year of grad school but I didn't quit. Which was irrational, because now I have to be an economist, whom everyone expects to be an emotionally stunted marketophile. Bleh.
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