Who is economic man?

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.

Psychologists are evil

This is just an outstanding quotation, from a New York Times article:

“Often introducing money into the exchange — putting it into the marketplace — is what people find repugnant. Mr. Bloom asserted that money is a relatively new invention in human existence and therefore “unnatural.”

Economists are asking the wrong question, Mr. Bloom said at the panel. They assume that “everything is subject to market pricing unless proven otherwise.”

“The problem is not that economists are unreasonable people, it’s that they’re evil people,” he said. “They work in a different moral universe. The burden of proof is on someone who wants to include” a transaction in the marketplace. (Mr. Roth, who acknowledges that “economists see very few tradeoffs as completely taboo,” did not take the criticism personally.)”

Sadly, it seems that Bloom was kidding. Isn’t it nice that “economists are evil” is a statement that can be mistaken for seriousness, but “psychologists are evil” is so clearly ridiculous?

How can economists plausibly evil, but psychologists cannot? I think the idea that economists “assume that “everything is subject to market pricing unless proven otherwise.”” is wrong. It’s a common criticism: economists reduce everything to dollars and cents, trying to measure the value of stuff that’s invaluable (the article is talking about how “repugnance” affects trade, using the example of selling organs).

As the social science of the allocation of scarce resources, how could economics operate without trying to figure out some concept of the value of something to someone? I think environmentalists have long despised economists for this reason. Say we’re talking about a scarce natural resource, a rain forest for example. Again, positive economic science cannot possibly hope to tell us what the “best” use of this resource is, but it can hope to tell us the consequences of each use. Unfortunately, it’s clearly easier to measure, say, the value of this resource to the logger and grazer who seek to use it today than it is to measure the value to humanity of preserving the forest.

Similarly, it’s easier to measure the willingness to pay for an organ by a terminally ill individual, and to measure the willingness of another individual to give up an organ, than it is to measure the potential consequences of allowing the sale of organs. The question at hand is: do we do what we can, even given this imbalance, or does the imbalance justify making no valuation, even the ones that are possible? Is attempting to value anything an assumption that “everything is subject to market pricing”?

Trying to understand more about the consequences of a particular allocation of resources is not the same as either propagandizing for that allocation or method of allocation, that is, markets. Even in jest, the charge that we “operate in a different moral universe” is a serious one. It actually makes me very sad, because I’m very familiar with the particular problem of introducing myself as an economist: it alienates a decent percentage of people you meet. (“I’m an economist, but I’m not evil, honest”.) Economists are evil, or at least morally bankrupt, to some people. I wish that wasn’t the case.

It’s understandable. Let’s take the ideal world where all positive economics is done scientifically and without normative judgment. Is it surprising that value-neutral economic science seems evil, while value-neutral physics, or chemistry, or psychology, seems like the noble pursuit of knowledge? The Methodology of Positive Economics by Friedman is, again, eloquent on this subject:

“The subject matter of economics is regarded by almost everyone as vitally important to himself and within the range of his own experience and competence; it is the source of continuous and extensive controversy and the occasion for frequent legislation. Self-proclaimed “experts” speak with many voices and can hardly all be regarded as disinterested; in any event, on questions that matter so much, “expert” opinion could hardly be accepted solely on faith even if the “experts” were nearly unanimous and clearly disinterested. The conclusions of positive economics seem to be, and are, immediately relevant to important normative problems, to questions of what ought to be done and how any given goal can be attained. Laymen and experts alike are inevitably tempted to shape positive conclusions to fit strongly held normative preconceptions and to reject positive conclusions if their normative implications – or what are said to be their normative implications – are unpalatable.”

It’s not just confusion between positive and normative economics, between the practice of the science and its interpretation, it’s the very attempt to be value-neutral, to be agnostic, that makes economics seem evil. This is all the more true if, as Friedman is arguing, that there’s temptation to attach value judgment to positive economics. If there’s any hope of us shedding the “evil” tag, this is a temptation that all economists must resist and fight.