Friday, November 18, 2011

Are economists good scientists?

I've had no time to post recently for several reasons, mostly the urgent need to work on a book closely related to this blog. The deadline is getting closer. I hope to resume something like my previous posting frequency soon.

But I would like to point everyone to a fascinating recent analysis of economists' opinions about the scientific method (that seems the best term for it, at least). Ole Rogeberg, a reader of this blog, alerted me to some work by himself and Hans Melberg in which they surveyed economists to see how much they looked to actual empirical tests of a theory's predictions in judging the value of a theory. The answer, it turns out, is -- not much. Internal consistency seems to be more important than empirical test.

This even for a theory -- the theory of "rational addiction", which seeks to explain heroin addiction and other life destroying addictions as the consequence of fully rational choices on the part of individuals as they maximize their expected utility over their lifetimes -- which on the face of it seems highly unlikely, making the burden of empirical evidence (one would think) even higher. Some history. Gary Becker (Nobel Prize) of the University of Chicago is famous for his efforts to push the neo-classical framework into every last corner of human life. He (and many followers) have applied the trusted old recipe of utility maximization to understand (they claim) everything from crime to patterns of having children to addiction. You may see a slobbering shivering drunk or junkie in an alleyway in winter and think -- like most people -- there goes someone trapped in some very destructive behavioural feedback controlled by the interaction of addictive physical substances, emotions and so on. Not Becker. It's all quite rational, he argues.

Now, Rogeberg and Melberg. Here's their abstract:
This paper reports on results from a survey of views on the theory of rational addiction among academics who have contributed to this research. The topic is important because if the literature is viewed by its participants as an intellectual game, then policy makers should be aware of this so as not to derive actual policy from misleading models. A majority of the respondents believe the literature is a success story that demonstrates the power of economic reasoning. At the same time, they also believe the empirical evidence to be weak, and they disagree both on the type of evidence that would validate the theory and the policy implications. These results shed light on how many economists think about model building, evidence requirements and the policy relevance of their work.
Now, in any area of science there are disgreements over what evidence really counts as important. I've certainly learned this from following 20 years of research on high temperature superconductivity, where every new paper with "knock down" evidence for some claim tends to be immediately countered by someone else claiming this evidence actually shows something quite different. The materials are complex as is the physics, and so far it just doesn't seem possible to bring clarity to the subject.

But in high-Tc research, theorists are under no illusion that they understand. They readily admit that they have no good theory. The same attitude doesn't seem to have been common in economics. Rogeberg and Melberg have also described their survey work in this clearly written paper in a less technical style.

A few more choice excerpts from their (full) paper below:
The core of the causal insight claims from rational addiction research is that people behave in a certain way (i.e. exhibit addictive behavior) because they face and solve a specific type of choice problem. Yet rational addiction researchers show no interest in empirically examining the actual choice problem – the preferences, beliefs, and choice processes – of the people whose behavior they claim to be explaining. Becker has even suggested that the rational choice process occurs at some subconscious level that the acting subject is unaware of, making human introspection irrelevant and leaving us no known way to gather relevant data...

The claim of causal insight, then, involves the claim that a choice problem people neither face nor would be able to solve prescribes an optimal consumption plan no one is aware of having. The gradual implementation of this unknown plan is then claimed to be the actual explanation for why people over time smoke more than they should according to the plans they actually thought they had. To quote Bertrand Russell out of context, this ‘is one of those views which are so absurd that only very learned men could possibly adopt them’ (Russell 1995, p. 110).
On the nature of reasoning in rational addiction models (this is Nobel Prize winning stuff, by the way):
[The addict]... looks strange because he sits down at (the first) period, surveys future income, production technologies, investment/addiction functions and consumption preferences over his lifetime to period T, maximizes the discounted value of his expected utility and decides to be an alcoholic. That’s the way he will get the greatest satisfaction out of life. (Winston 1980, p. 302)



  1. Mark,

    Thanks for the thought provoking post.

    I am not an economist, just a finance dude working in the corporate salt mines. But I can tell you folks are not always rational, and some hardly ever are.

    Good luck on the book! Let me know if there is anything I can do to help there.

  2. I find it amusing that you are criticising economists' use of the scientific method by using a sample of economists that is so blatantly and heavily biased.

    i.e. "Some economists believe that heroin junkies are so because it is their best option in life." "They have failed to find conclusive empirical evidence." "All economists are bad at using the scientific method." Very scientific.

    Perhaps I should use your post as a sample to answer a hypothesis about physicists.

  3. You could further use the "rational paradigm" to analyze suicide. It's rather poetic for an economist to rationally maximize their utility by ending their life.

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