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Only in the last 20 years have economists begun to admit their traditional model of people in micro-economic markets, so-called "rational" actors, don't corresp

Only in the last 20 years have economists begun to admit their traditional model of people in micro-economic markets, so-called "rational" actors, don't correspond to reality. The amazing resistance of the field to such obvious claims (the more successful part of what's called behavioural economics) gives many of us looking in from the outside pause.

leereeves 9y ago
Or did economists know that people aren't rational actors, but lacking any better model, were simply unable to work without that assumption?
- simonh 9y ago
  Quite. When all you have is a hammer... Its also a bit like inexperienced strategists mistaking the map for the terrain, and discounting actual reports from the field because they don't match what they expect from their model of the situation.
acover 9y ago
I agree. There have been great advances in the last 40 years. There is the need to distinguish between honest economists and those who have assumed a conclusion. Basically the equivalent of creationists. It's unfortunate that in economics it's so hard to distinguish the two. Does classic economics describe commodity markets well under normal situations?
fulafel 9y ago
That was never a consensus.
microcolonel 9y ago
That's not exactly a fair representation of the recent work. It seems to be more that because people aren't very discerning, they often demand things which are bad for them. The real mystery to me is why this was ever considered a bad thing, shouldn't the market reward competent participants at every level (including consumers)? Say what you will, but before we introduced so much planning, the market worked just fine for most people, at the expense of some people; now it's been hobbled and it works poorly for nearly everyone, to the immense benefit of cronies and the bureaucrats who receive such generous donations for exercising the new control in their favour.
drewcrawford 9y ago
This is a common misconception. It is "traditional" macroeconomics (e.g. Keynes) did not engage with microeconomics at any point [1]. It was not until the 1970s and the Lucasian rationalist critique that microfoundations became an important inquiry. And that shift didn't occur because people were sentimentally attached to micro (if anything, they were attached to prevailing macro theories), it happened because Lucasian rationalism explained an empirical phenomenon (a shift in the Phillips curve) that was not explained by the other approaches. Since that time support for microfoundations has waxed and waned a few times, in response to several other empirical shifts. In practice, economics is much like the other sciences, with a slightly wider diversity of thought. Like the other sciences, most people only understand a caricature of it that is given through the lens of politics. Unlike the other sciences, more people seem inclined to accept this caricature and criticize it on that basis, which is unfortunate. [1] Everyone, but see https://www.jstor.org/stable/2231707?seq=1#page_scan_tab_contents https://www.jstor.org/stable/2231707?seq=1#page_scan_tab_con... for a plausibly-readable overview
- neilwilson 9y ago
  The problem is that the notion that 'microfoundations' can be linked to the macro economy by searching for 'deep parameters' suffers from precisely the same critique. It's even proved wrong within the body of theory that embraces it. The Sonnenschein-Mantel-Debreu theorem. Economists then do a lot of hand waving and point to 'data', without acknowledging that the 'data' is collected from a system that has been under the influence of their ideas for over 40 years and therefore will, inevitably, be the right shape. If you collect data from a man in a straitjacket, unsurprisingly it will look like a man in straitjacket. It can tell you nothing about ideas that involve removing the straitjacket. Non-falsifiability of theorems is the hallmark of macroeconomics. Because it is an ideology dressed up as a science.

leereeves 9y ago

Or did economists know that people aren't rational actors, but lacking any better model, were simply unable to work without that assumption?

simonh 9y ago
Quite. When all you have is a hammer... Its also a bit like inexperienced strategists mistaking the map for the terrain, and discounting actual reports from the field because they don't match what they expect from their model of the situation.

acover 9y ago

I agree. There have been great advances in the last 40 years. There is the need to distinguish between honest economists and those who have assumed a conclusion. Basically the equivalent of creationists. It's unfortunate that in economics it's so hard to distinguish the two. Does classic economics describe commodity markets well under normal situations?

fulafel 9y ago

That was never a consensus.

microcolonel 9y ago

That's not exactly a fair representation of the recent work. It seems to be more that because people aren't very discerning, they often demand things which are bad for them. The real mystery to me is why this was ever considered a bad thing, shouldn't the market reward competent participants at every level (including consumers)? Say what you will, but before we introduced so much planning, the market worked just fine for most people, at the expense of some people; now it's been hobbled and it works poorly for nearly everyone, to the immense benefit of cronies and the bureaucrats who receive such generous donations for exercising the new control in their favour.

drewcrawford 9y ago

This is a common misconception. It is "traditional" macroeconomics (e.g. Keynes) did not engage with microeconomics at any point [1]. It was not until the 1970s and the Lucasian rationalist critique that microfoundations became an important inquiry. And that shift didn't occur because people were sentimentally attached to micro (if anything, they were attached to prevailing macro theories), it happened because Lucasian rationalism explained an empirical phenomenon (a shift in the Phillips curve) that was not explained by the other approaches. Since that time support for microfoundations has waxed and waned a few times, in response to several other empirical shifts. In practice, economics is much like the other sciences, with a slightly wider diversity of thought. Like the other sciences, most people only understand a caricature of it that is given through the lens of politics. Unlike the other sciences, more people seem inclined to accept this caricature and criticize it on that basis, which is unfortunate. [1] Everyone, but see https://www.jstor.org/stable/2231707?seq=1#page_scan_tab_contents https://www.jstor.org/stable/2231707?seq=1#page_scan_tab_con... for a plausibly-readable overview

neilwilson 9y ago
The problem is that the notion that 'microfoundations' can be linked to the macro economy by searching for 'deep parameters' suffers from precisely the same critique. It's even proved wrong within the body of theory that embraces it. The Sonnenschein-Mantel-Debreu theorem. Economists then do a lot of hand waving and point to 'data', without acknowledging that the 'data' is collected from a system that has been under the influence of their ideas for over 40 years and therefore will, inevitably, be the right shape. If you collect data from a man in a straitjacket, unsurprisingly it will look like a man in straitjacket. It can tell you nothing about ideas that involve removing the straitjacket. Non-falsifiability of theorems is the hallmark of macroeconomics. Because it is an ideology dressed up as a science.