Monday, September 06, 2010

eonomics and evolution as different paradigms

Video - An Ecological Approach to Stopping Fundamentalism.

Scienceblogs | So far I have shown that Homo economicus, the conception of human nature imagined by rational choice theory, is a far cry from the real thing. Moreover, it stubbornly refuses to gravitate toward the real thing, even when its shortcomings are made glaringly apparent. This might seem pathological, but only when we adopt a naïve conception of science as smoothly converging upon the truth. When we take seriously the concepts of paradigms from philosophy of science, multiple local equilibria from complex systems theory, and multiple adaptive peaks from evolutionary theory, then stasis, or an incapacity for change, is something that we should expect (see E&E I).

For over half a century, Milton Friedman's argument that Homo economicus doesn't need to resemble the real thing to be predictive has helped to maintain the dominance of rational choice theory. That argument has now failed in two ways. First, rational choice theory isn't as predictive as it needs to be to formulate successful policy. Second, Friedman's basic argument counts as an example of naïve adaptationism of the sort criticized by Stephen Jay Gould and Richard Leowontin in their famous "Spandrels" paper written in 1979, as I show in E&E III. The fact that these two classic papers have never (to my knowledge) been related to each other says it all about economics and evolution as different paradigms, the overarching theme of this series.

There should be universal agreement on the need to base economic theory and policy on a more accurate conception of human nature--on Homo sapiens, not Homo economicus. That is the rallying cry of a new breed of economics called behavioral economics, which originated in the 1970's and has become widely known through bestsellers such as Nudge: Improving Decisions About Wealth, Health, and Happiness by Richard Thaler and Cass Sunstein, Predictably Irrational: The Hidden Forces that Shape Our Decisions, by Dan Ariely, and Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, by George Akerloff and Robert Shiller.