by Tyler Cowen
on October 30, 2012 at 12:29 pm
1. Science is the key to growth.
2. Roberto Unger criticizes Keynesianism.
3. Are psychopaths physically attractive?
4. Are economists ignoring neuroeconomics?
5. How permanent is the rise in risk premia? And a combinatorial prediction market for the election and related matters.
6. Thwarted India and China markets in everything, Siri edition.
(4) Neuroeconomics is fascinating, but it’s not at all clear what it can add to economics. I’m sure for neuroscience researchers it will provide new questions and interesting findings, but economics as a field is not concerned with *how* the brain processes information to make its decisions. Should it be? If so, it would involve redefining the field. I’m not sure that is a priority right now, nor am I convinced a better understanding of neuroscience might have helped lessen the financial crisis and recession. Notice nowhere do any of the proponents explain *how* their research might have helped prevent or lessen the crisis. They just assume it must be crucial.
That’s roughly my thought. An economist in the article talks about eventually being able to explain why some people look at the bedrooms a house has, and others at the size of the backyard, and says that economics ignores this “anomaly”. But I’m not aware of any common economic theory that expects everyone to have the same preferences, instead the standard assumption is that people have different preferences and abilities (which is why trade happens). So where’s the anomaly? It may be interesting to know more about why people differ in what they prefer, but I can’t see it changing economics.
Perhaps of course some genius has seen an insight from neuroscience that completely changes the field of economics. But judging by this article, the writer hasn’t found this hypothetical genius. And in the absence, it’s not at all obvious what should change about economics.
Re#4. The idea that behavioral insights will fundamentally overhaul economics is mistaken. The idealized “Homo Economicus” has always been understood to be a crude representation, but one with great predictive value.
The fact that we sometimes don’t behave rationally is an asterisk to the model. Insights about framing issues to elicit more rational responses are great contributions to the field, but they are in the service of making people behave more rationally, not accommodating their foibles.
I read Kahneman and Tversky a long time ago. One thing I learned is that you can train yourself to think more rationally (make your “System 2” work harder in Kahneman’s phraseology.) I know this because I now get the “rational” answers to most of the “humans are irrational” pitfall tests they set, but I fell right into these traps when I first read them.
I think a lot of Libertarians do this, then they forget that most people will find some rational positions outrageous. Stop being so surprised and impatient about this.
I’m in favor of people behaving more rationally, even if that means overcoming biases. This can be done, more or less. And traditional, economic models that embed a theory of rational behavior have plenty of life left in them.
At the dawn of civilisation, people began to use objective facts as currency in the marketplace of ideas. In the twenty-first century, they are being replaced by assertions.
Reducing budgets for scientific research is not the only problem. There is more and more money available to promote pseudo-scientific claptrap like creationism, divine intervention in conception, global warming stopped in (insert whatever year you like), homeopathy, vaccines cause autism, cold fusion etc etc.
“Faced with the choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy on the proof.”
Perhaps instead of throwing more money at science and technology we could instead, or in conjunction, make it less difficult for people that are proficient at science and technology to immigrate.
A better title would be “What makes psychopaths physically attractive?” We already know they are, and that’s what the paper seeks to address, as per the abstract.
What can’t NGDP targeting do?
This morning I got out of bed and NGDP made my bed. I said “Dammit NGDP, I didn’t really ask you to do that. I mean, it’s fine, and the thought was nice, but I didn’t really ask you to do it.” I kind of felt like a douche.
“Perhaps instead of throwing more money at science and technology …”
The US is not “throwing” money at science and technology. If you want to raise the standard of living, you need to increase the body of knowledge. Some technologies can be developed by the private sector but some, by their nature, are best done through government sponsorship. Some of the most important research in the last century was done by monopolies and de facto monopolies – falling somewhere between the private and public sectors.
re 4: neuroeconomics is most definitely being ignored by most economists. For those saying that it really has nothing to offer to explain/present the recent crises I would say: you’re right. But economics is more than that, and on a decision theory/micro level you’d expect there to be a little more cross-talk. While there’s not a lot, there IS a lot of cross-talk between physicists/computer scientists and neuroscientists which makes me think that the future of the decision-making literature really belongs those guys. Economists get stuck with macro.
“The reluctance isn’t surprising, says Michael Woodford, a noted monetary theorist and professor of economics at Columbia University. “Economics is a field where there is a core of ideas developed during the 19th and 20th centuries that people agree are important,” he says. “If you want to argue that something should be part of that core, the bar is going to be higher than in many other fields.” For neuroeconomics, he adds, “that’s a promise that has yet to be delivered on.”
This excerpt from 4. makes me want to cry (though it does not surprise me one bit). This logic dings not just neuroeconomics but to some extent environmental economics, urban economics, consumer finance and the whole set of younger subfields. The ‘this is the way it’s been done’ mentality is more protective than productive. There is still a strong behavioralism in economics (as in you just need to study behavior). This may work well in numerous settings, but surely not all. Economists who study the psychology, the subjective preferences or expectations of economic actors often add to the analysis. Being in such “fringes” might get you some grumpy referee reports and lower your odds of reaching the top ranks of the profession, but you can still kill yourself for the higher bar. As for neuroscience it has the unfortunate added problem of high fixed costs and expensive experiments. But there are enough gaps in our understanding that economists will eventually pull in more strands…neuroeconomics will be useful and used.
+1 It is also funny that business schools have no trouble teaching behavioural economics in their graduate marketing classes, to help sell or price products, but economists seem to have some problem accepting it because it would cause friction in their perfectly equilibriated mathematical models. Whatever happened to experimentalism and pragmatism.
A business school professor told me that she shifted from the department of economics to business studies department because she found that there is more useful stuff in Kotler’s book than in the microeconomics books by Hal Varian and other economists.
That study doesn’t seem to really talk about physical attractiveness as defined by some combination of genetics and fitness, but talks about how people who ‘adorn’ themselves effectively are more likely to have certain ‘dark’ traits. So narcissists dress well… SHOCKING!!!
Economists who average over behavior do themselves two favors. They frequently call do-overs, and they avoid whole rafts of economic questions. You can talk about professional sports, but you can’t explain why football beat croquet in the market. Mumble. Mumble. Utility
“3. Are psychopaths physically attractive?”
Or do they just dress that way?
In either case, it sounds like some researchers have been watching “Don’t Trust the B**** in Apt. 23”
#2 Twenty minutes of my life that would have been better spent playing ping pong.
I could have sworn I had already read #4. Then I noticed the publication date was Sept 24. Wasn’t it linked from MR before?
http://marginalrevolution.com/marginalrevolution/2012/09/assorted-links-571.html but it was #6 the last time.
#2 is actually pretty good at diagnosing problems, but the solutions, dashed off in a sentence or two, are in the “collect underpants … big profits” style that seems to characterize essays of this sort: revive local banking and credit, promote via “industrial policy” the diffusion of “vanguard innovations.”
Another sign that TGGP, Claudia (and I) are reading this blog too much.
Re. #1 … I think funding science is important, but I’d love to see some research into the ‘kind’ of funding that return positive results.
For example, it seems odd that lots of loan guarantees went to funding solar companies that manufacture in the US … seriously? The most successful high tech US company (Apple) chooses to manufacture it’s very complicated devices in China, but somehow our solar companies think they are smarter/better than Apple? I’ll take Steve Job’s word over Obama/Romney’s … ‘those jobs aren’t coming back’. Which of course leads me to the conclusion that we funded these projects simply to be able to make a claim about jobs … however fleeting they were.
Fracking seems to be an example of really successful government investment (from an ROI perspective), but I don’t think any of the money went to fund manufacturing jobs. Granted, now that the practice has taken off .. all sorts of jobs are being created by this industry … WITHOUT gov’t support or loans.
The Internet was a successful investment (maybe the most successful) … albeit only because of a Brit who created the World Wide Web on top of it; and which had nothing to do with it’s original funding (which was to build a distributed network to withstand a nuclear attack). But sometimes you need to take chances to get lucky, again, I’m not aware of much of the funding for the Internet going to basic manufacturing jobs.
All too often it seems to be a debate about IF government spending on sciences is useful; it should be a debate about what kind of government funding in science is useful. My guess is these high ROI projects won’t grab headlines for ‘new jobs created’, at least not during the presidency of the person who pushed for the original funding!
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