Group items tagged

focused on policy, rather than discovery of fundamentals

We judge economics by what it can produce

It’s easy to understand why economics might be mistaken for science. It uses quantitative expression in mathematics and the succinct statement of its theories in axioms and derived “theorems,” so economics looks a lot like the models of science we are familiar with from physics.

But economics has never been able to show the record of improvement in predictive successes that physical science has shown through its use of harmless idealizations. In fact, when it comes to economic theory’s track record, there isn’t much predictive success to speak of at all.

There’s no Rosetta Stone for scientific translation. It’s quite simple really. The first step is getting rid of the technical language.

This sounds like a straightforward instruction, but many enormously intelligent people fail to follow it. The trick they fail to master is to train their brains to think in two ways. One, like a scientist; and two, like someone with no scientific training whatsoever.

And whenever I see or hear journalists or politicians discussing a particularly important social science – economics – I just don’t see them making the same efforts of jargon removal and technical translation. Whether it’s discussion of debt, or the argument for austerity, it’s hard to find good economics communication, where the language is rinsed free of jargon.

It would seem that in situations like the current Greek crisis, we should be able to rely on economics to tell us which policies are most likely to work. But does the discipline have sufficient predictive power to play an important role in our debates about public policy?

The problems that we want economists to help us solve are more like predicting how leaves will fall on a windy day than predicting how objects will fall in a vacuum. Economic phenomena are affected by a very large number of causal factors of many different kinds.

n the winter of 1928, John Maynard Keynes composed a short essay that took the long view. It was titled “Economic Possibilities for Our Grandchildren,” and in it Keynes imagined what the world would look like a century hence. By 2028, he predicted, the “standard of life” in Europe and the United States would be so improved that no one would need to worry about making money. “Our grandchildren,” Keynes reckoned, would work about three hours a day, and even this reduced schedule would represent more labor than was actually necessary.

We are told that we are an irrational tangle of biases, to be nudged any which way. Does this claim stand to reason?

A culture that believes its citizens are not reliably competent thinkers will treat those citizens differently to one that respects their reflective autonomy. Which kind of culture do we want to be? And we do have a choice. Because it turns out that the modern vision of compromised rationality is more open to challenge than many of its followers accept.

Modern skepticism about rationality is largely motivated by years of experiments on cognitive bias.

Business Insider went out onto the streets of NYC and tried to buy people’s just-purchased Powerball tickets ahead of the $700 million drawing. They did not get many takers, even when offering twice the price they paid (which meant they could just go and buy double the number of tickets and slash their odds of winning). The video says this is an example of regret avoidance.

Is there a connection between language and how we think and behave? In particular, Chen wanted to know: does our language affect our economic decisions? Chen designed a study — which he describes in detail in this blog post — to look at how language might affect individual’s ability to save for the future. According to his results, it does — big time.

Using vast inventories of data and meticulous analysis, Chen found that huge economic differences accompany this linguistic discrepancy. Futureless language speakers are 30 percent more likely to report having saved in any given year than futured language speakers.

But that’s only the beginning. There’s a wide field of research on the link between language and both psychology and behavior. Here, a few fascinating examples:

Economics is a subject that polarises like few others. To some, it's an immoral calculating machine. To others, it's an amoral - not immoral, but amoral - science, descriptive pure and simple. To still more, it has a positively moral commitment to freedom by trying to increase people's choices.

What's puzzling is that morality so often comes thumping into it - when the subject has been taught for generations as if morality was someone else's job.

Traditional economic theory could not explain, much less predict, the near collapse of the financial system and its long-lasting effects on the global economy. Since the 2008 crisis, there has been increasing interest in using ideas from complexity theory to make sense of economic and financial markets.

Henrich’s work with the ultimatum game was an example of a small but growing countertrend in the social sciences, one in which researchers look straight at the question of how deeply culture shapes human cognition. His new colleagues in the psychology department, Heine and Norenzayan, were also part of this trend. Heine focused on the different ways people in Western and Eastern cultures perceived the world, reasoned, and understood themselves in relationship to others. Norenzayan’s research focused on the ways religious belief influenced bonding and behavior. The three began to compile examples of cross-cultural research that, like Henrich’s work with the Machiguenga, challenged long-held assumptions of human psychological universality.

As Heine, Norenzayan, and Henrich furthered their search, they began to find research suggesting wide cultural differences almost everywhere they looked: in spatial reasoning, the way we infer the motivations of others, categorization, moral reasoning, the boundaries between the self and others, and other arenas. These differences, they believed, were not genetic. The distinct ways Americans and Machiguengans played the ultimatum game, for instance, wasn’t because they had differently evolved brains. Rather, Americans, without fully realizing it, were manifesting a psychological tendency shared with people in other industrialized countries that had been refined and handed down through thousands of generations in ever more complex market economies. When people are constantly doing business with strangers, it helps when they have the desire to go out of their way (with a lawsuit, a call to the Better Business Bureau, or a bad Yelp review) when they feel cheated. Because Machiguengan culture had a different history, their gut feeling about what was fair was distinctly their own. In the small-scale societies with a strong culture of gift-giving, yet another conception of fairness prevailed. There, generous financial offers were turned down because people’s minds had been shaped by a cultural norm that taught them that the acceptance of generous gifts brought burdensome obligations. Our economies hadn’t been shaped by our sense of fairness; it was the other way around.

Studies show that Western urban children grow up so closed off in man-made environments that their brains never form a deep or complex connection to the natural world. While studying children from the U.S., researchers have suggested a developmental timeline for what is called “folkbiological reasoning.” These studies posit that it is not until children are around 7 years old that they stop projecting human qualities onto animals and begin to understand that humans are one animal among many. Compared to Yucatec Maya communities in Mexico, however, Western urban children appear to be developmentally delayed in this regard. Children who grow up constantly interacting with the natural world are much less likely to anthropomorphize other living things into late childhood.