There is a part of this small, otherwise enjoyable article about the advent of neuroeconomics that bothers me. The premise of the piece is that neuroeconomics is “seeking a physical basis for [economic theory] inside the brain”. This is a field that is certainly sexy and possibly exciting; a while back I argued that it is a field that in some sense rediscovers the absolute primacy of “preferences” as the keystone of economic theory. I said:
The potentially exciting thing about neuroeconomics is that, even allowing for inexactness, it might tell us more about the actual hedonic motivators of people. Ambitious, yes, but not unimaginable. Of course, to an economist who wasn’t under the mistaken impression that simplified preferences are supposed to be realistic, it might just amount to saying “your simplification is a simplification”, which is slightly less exciting news. Or not news at all.
modern economic and financial theory is based on the assumption that people are rational, and thus that they systematically maximize their own happiness, or as economists call it, their “utility.”
Since it’s hard to figure out what is going on in people’s heads, the argument continues, we employed an idea called revealed preference, the reconstruction of unobserved objectives from observed choice. Neuroeconomics, the claim runs, may one day be able to identify brain structures that are associated with various components of choice, and so neatly sidestep the problem of unobservability.
But this is much too much:
While Glimcher and his colleagues have uncovered tantalizing evidence, they have yet to find most of the fundamental brain structures. Maybe that is because such structures simply do not exist, and the whole utility-maximization theory is wrong, or at least in need of fundamental revision.
Utility-maximization theory is wrong. It is wrong by construction, because it is a model, and models are wrong by construction. Why must we go through this? It might be easier to sell me an iPod if you first convince me that CDs are useless, but that’s marketing. Why do we need to market neuroeconomics this way? That tiny little word “wrong” up there is a sin, because it belies the very essence of modeling as a means to make sense of things.