A provocative opening to this article attacking something called “economic man”:
“Myth: Homo economicus is a valid assumption of human behavior.
Fact: Homo economicus is a fiction useful to right-wing economists.”
“Economic man” would be too easy, of course; “Homo economicus” sounds more intellectual and somehow also more ridiculous. Anyway, if I pretend not to see the right-wing bit – what’s a right-wing economist? – I think the fact is a fact and the myth is a fact too, and not just because defining a “valid assumption” is not quite as obvious as it seems.
The essay is actually pretty interesting, though obviously normatively motivated. It goes on to say:
“Specifically, social scientists believe that human behavior is often complex, imperfect, limited, self-contradictory and unpredictable. Homo economicus, however, is a greatly simplified model which assumes that individuals possess the following traits:
* Perfect self-interest
* Perfect rationality
* Perfect information”
I love that “human behavior is…. unpredictable”; the logical conclusion of that argument would be to abandon all social science, would it not? Let’s take the long view and ignore that bit. Aside from that, as I’ve argued before, the perfect information trait has been scrutinized intently for a few decades, so it’s probably an obsolete criticism. The rationality bit is, again, untestable, since what we mean by rationality is that some pattern that’s to some degree predictable – whatever it might be – affects behavior.
The self-interest trait is the one that comes in for a lot of criticism, in the essay and generally. The most important myth to dispel right away is that “self-interest” means “cares only about things that materially affect me”; it means “cares only about things that I care about”, which is delightfully tautological and more innocuous. We have a special definition of “selfish”. I think what the critic really means is more in the spirit of the following, from Wikipedia (sorry):
“Economic man is also amoral, ignoring all social values unless adhering to them gives him utility. Some believe such assumptions about humans are not only empirically inaccurate but unethical.”
There are two problems with that: one is the use of “unethical”, which I’ll save for another day, and the second is methodological. It’s possible to write down a rational, self-interested “economic man” who will do anything. Literally anything can be “rationalized”; it’s meaningless to say that it’s “empirically inaccurate” to assume that “social values” give a person utility, because it’s impossible to empirically answer that question one way or another. Economists seeking accuracy would, methodologically, model a person who acted in accordance with social values as if that person got utility from conforming to social values. Our rational, self-interested man has magically developed a social conscience!
Later in the original article, the author says (in direct contradiction to their earlier claim that behavior is unpredictable, by the way):
“Biologists recognize four levels of survival: the gene, the individual, the group, and the specie. All of them interact to produce the complex and often paradoxical behavior we witness in humans. The error of Homo economicus is that it focuses only on one level: the individual. It cannot explain why couples bear children (to promote genetic survival), or why soldiers often sacrifice their lives in war (to promote group survival), or why people practice charity (to promote human survival).”
Again, I can only plead that we recognize that whatever economists do or are perceived to do, their method of modeling people can explain anything, and I mean that as both a criticism and a compliment. Our method is neutral, our method is empty. Attack the normative interpretation of our conclusions. Attack the assumptions we make. Don’t attack the method: you’re shooting at thin air.
Let’s do a thought experiment: imagine we had a super-supercomputer that could accommodate all the complexity we wanted, and imagine that our computer has also figured out how to perfectly model every single human being, and imagine that we believe it. Forget the fatalist implications and just ask: would an economist – who seeks to model choice and the allocation of scarce resources, to describe the world, to make predictions, and, ultimately, to inform – reject the computer? Would he reject the model? If he would, he is not a scientist: if the economist would reject it, then I’ll let all the critics of economics attack him, because surely the only way to justify rejection of that gift would be because the model would generate predictions that the economist didn’t like.
Economists should never make their “economic man” to suit their ideological goals. That’s not science. We must make our “economic man” realistic but clear, acknowledge what he does and does not do, what he does and does not embody. He can be anything we want: we are therefore powerful, and must then be honest, if nothing else.
I mentioned the old “dismal science” slight on economics the other day. It’s not exactly new news, but I like the story of the origins of the term a lot, because knowing it would surely cause people to think twice before using the phrase.
“Carlyle attacked Mill, not for supporting Malthus’s predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact—that economics assumed that people were basically all the same, and thus all entitled to liberty—that led Carlyle to label economics “the dismal science.””
Now, economics is probably pretty low on the list of reasons to oppose slavery, but it seems that Carlyle was taking issue with John Stuart Mill (among others) for arguing that since people are basically the same, there’s no such thing as a “natural” hierarchy of people. Carlyle’s position, sadly, speaks for itself:
“Carlyle disagreed with the conclusion that slavery was wrong because he disagreed with the assumption that under the skin, people are all the same. He argued that blacks were subhumans (“two-legged cattle”), who needed the tutelage of whites wielding the “beneficent whip” if they were to contribute to the good of society.”
Aside from its connotations – which are about as politically incorrect as it’s possible to be these days, and would certainly not be allowed to be printed in any of the places where we see the phrase “dismal science” – the target Carlyle was directing his argument towards is not much like the method of economic science at all. In fact, he seems to really be taking issue not with the practice of scientific, positive economics but with the assumptions the economists made about people. From another article on the same subject:
“In short, Carlyle was of the view that compulsion, rather than market forces should regulate the supply of labour on plantations in the West Indies because the laws of supply and demand are not appropriately applied to the relationship between White and Black as they are contrary to “their mutual duties” (white = master and black = servant) as ordained by “the Maker of them both”. In Carlyle’s opinion: “declaring that Negro and White are unrelated, loose from one another, on a footing of perfect equality, and subject to no law but that of supply and demand according to the Dismal Science”, “is clearly no solution” to the problem.”
Oddly enough, and though it’s probably ridiculous to compare them, Carlyle is attacking exactly the same assumption that is still criticized today: the assumption on the motivation of people in economic models. Certainly the reasoning of the critic of today is significantly less outrageous than Carlyle’s, but they’re shooting at the same target.
Carlyle certainly seems to demand a different kind of response than today’s defense of the modeling of people – “it’s just an abstraction, we know we’re not being realistic”. Luckily, as some of Mill’s angry and eloquent responses indicate, Carlyle’s normative beliefs were vigorously challenged right from the start. His assumption was, I hope we can agree, unrealistic. If he had performed a positive economic analysis based on his assumption, it would have been badly wrong and inaccurate.
No normative belief or opinion can ever be “wrong”, but an assumption can certainly be wrong. Which assumption would lead to better economic science: Carlyle’s assumption of natural servitude or Mill’s assumption of natural equality? If Carlyle had argued that slavery was a good thing, plenty of people would have disagreed with his opinion. When he argued that people are inequal and thus servitude is a better use of people than freedom, he didn’t just have an objectionable opinion, he had bad science.
Modern economics has fought hard to work the number of abstractions made on the motivation of people down to just one: rationality. We don’t restrict what people care about, we just require there to be some method to the madness. Economics should be value-free, boring, scientific, clinical, and, yes, dismal, but I’d think twice before I called it the “dismal science”.