Category: Dissertation

The Tale of Two Disciplines

Economics, as it is taught today, is split into two different disciplines. The first being economic theory, which is real science in that it attempts to explain the world as we know it. According to Einstein, theory should be a systematic description of the essential interrelations of reality. While the second being decision theory, uses mathematical or logical modes of operation to explain the end actions of individuals. In this mode of operation, the thing being studied can be via the usage of consistent axioms.

My Austrian friends have told me that the difference I am attempting to explain is that of praxeology and catallactics. The former being that study of purposeful human action and the latter being a study at how the market orders itself, how exchange happens. Robert Whately defined catallactics as the science of exchanges, which is something I am partial to. However, while these larger themes fit my prior complaints, much of the profession, including the material taught to students, does not use the heterodox methodology or terminology of Austrian economics. While I think heterodoxy is important, this leads to a different set of questions and not ones I will try to answer in this essay.

The broader point that I want to make is that the profession is split into two camps, and has been for a long time. The economic theorists have been left behind by the choice theorists. The science has lost its way in assuming that the logical nature of decision theory, which always ends in a binary variable of the choice is taken (1) or not taken (0). This is neither truly descriptive nor informative, minus what is the supposed outcome. Mind you, the outcome is only fictional until it happens in actuality. At that point, the supposed outcome and the actual may be different since each person, though they are subject to the law of demand, has a different set of constraints.

Our need for preference negation following the landmark paper, De gustibus non est disputandum, removes the source of variations via preferences from the field.  Stigler and Becker “show” that preferences do not matter. This has been a source of contention for many since, because surely any two given people will not act similarly in similar situations. If you remove what makes humanity, well, human, then what are we studying? Even more so, the current replication crisis in many fields shows that many studies are woefully underpowered or cannot be replicated. Why? What actions undertaken by a few people at a given time and place may not be the same actions undertaken by others in a similar experiment, albeit a different time and place. Economics is more complicated than choice theory.

Even when choice theory scales up into the macroeconomy, it cannot capture the complexity and vast amount of information necessary to be processed. The greatest tragedy of choice theory is that aggregates all of the actions taken by the individuals within the model. If you’ve ever seen the summation of utility curves, then you’re well aware of what I am talking about. Choice theorists don’t know how these utility measures came into being, they’ve assumed them into the model, nor can choice theorists tell you the magnitude of the utility. Not only that, but they assume that the summation works simply because preferences will cancel out. In a zero-sum world, there may be truth to that statement, but the world isn’t zero-sum, especially with the advent of zero-marginal cost technologies.

Janos Kornai said, “The ‘transplantation’ of the models of decision theory cannot, however, serve as a substitute for a scientific theory describing reality.” Choice theory won’t save the field, but it may keep us above water for a time. There is so much more to be explored, both the whys and the hows, but especially the patterns of entanglement.

Thus we are left with a void in economics, one that if filled would describe the reality of our world without reducing its inhabitants to a homo economicus.

Gathering my thoughts 6/4/19

Early this morning, I had a chance to sit down with my (unofficial) dissertation advisor to talk about research going into my final six credits of coursework. I hope to propose next spring, having written the first two-thirds of my dissertation between now and the end of the fall semester. High hopes? Maybe, but I’ve found that I do well with deadlines and short-term goals.

In this discussion, we brought about a number of books I am intent on reading this fall and why they made it into my reading list. They are separated into two groups and are listed as follows:

Socio-Ecological Economics:

Evolutionary Economics:

Each of these revolves around specific interests within my thoughts on social systems. Ideas evolve much like genes do; though, ideas find iterations through time and interactions, unlike genes which require propagation through technology. I have written before on the necessity of trans-disciplinary work on social systems; it’s become more of a buzzword, but in practice much can be accomplished. At some point, I will share my notes with you on each of these books; not in their complete form but an abridged version.

Many interesting ideas abounded throughout our conversation; so many that I wish I could have recorded it, but observations are equivalent to interactions and that may have changed the course of our conversation. The first of which is that we should read works not to duplicate them, but as to alter or inform our way of thinking; another acceptable outlet is to apply what and how someone else tackled a problem and using that method, go about solving other problems in a similar light. After reading a new work, one has to ask themselves, “Has this work rearranged the furniture in my head, removed some furniture while replacing it with new items, or a mixture of both?” In my life, there have been a few books that have severely altered my train of thought and how I perceived the world, while many others have given me only a nuanced view of something very specific. In economics, Karl Menger’s Principles was a building block of my thoughts thereafter.

In some ways, new knowledge is frightening, it threatens our previously held world views and in place of those is something unknown. One can find examples of this throughout time, it’s not limited to the actions of the church during the Middle Ages and Renaissance. Modern societies are often faced with new information that threatens their identities. Even the movements that cause societies to tremble face new information that they want to dismiss or refuse to pursue. Revisions of history are often rejected for a variety of reasons; confirmation bias is a powerful thing.

The next things to came up were about agent-based modeling and social sciences. Many of those in the social sciences aim for the creation of a better society, but this is in some ways anathema to doing pure science. It is most likely impossible to separate the subjective person from the objective analysis in social sciences. We have to perceive our data through the lens of theories and our understandings. In almost all cases, data even in its raw form must have gone through at least one filter before a researcher looks at it. The first of which is what data is seen as valuable enough to collect.

This lens of social science is one that causes many researchers to see themselves outside the system they are observing and many theses are built on the want to solve certain problems or issues. First of all, every person is already inside the system; we cannot take ourselves out. It is wishful thinking to assume away our place inside the very systems which we observe. ABM scientists are perhaps the worst at trying to step outside since much of the time they are outside of their models looking in. What would the modeler do if she were in one of the systems she has created? Second, many problems in social systems are unsolvable. What is possible is the observation of both phenomena and patterns; there exists no one solution since every iteration of a system produces a multitude of them. I am not a fan of formal equilibrium theory outside the classroom. (I am picking up Janos Kornai’s Anti-Equilibrium from the library today; his intuition on economic systems is fascinating.)

The final thing is that I have to narrow down my topics for my dissertation. There are far too many things to learn and not enough time learn them all. This is going to be quite an adventure.