Do economists satisfice?

In Herbert Simon’s 1978 Swedish Bank prize lecture (pdf), he stated the following:

Milton Friedman sums up his celebrated polemic against realism in theory (1953, p. 41, italics supplied):

Complete “realism” is clearly unattainable, and the question whether a theory is realistic “enough” can be settled only be seeing whether it yields predictions that are good enough for the purpose in hand or that are better than predictions from alternative theories.

….. This is sometimes even interpreted to mean that economic theories of decision making are not falsified in any interesting or relevant sense when their empirical predictions of microphenomena are found to be grossly incompatible with the observed data. Such theories, we are told, are still realistic “enough” provided that they do not contradict aggregate observations of concern to political economy. Thus economists who are zealous in insisting that economic actors maximize turn around and become satisficers when the evaluation of their own theories is concerned. They believe that businessmen maximize, but they know that economic theorists satisfice.

As I read this quote, I pictured Friedman’s response (I am not aware whether he did respond). Friedman might say that it does not matter whether the assumption about the behaviour of economists is accurate. If we wanted to predict economists’ behaviour, would these predictions be any different based on whether they are satisficers or maximisers? If not, the assumption does not matter either way.

On this dimension, I would argue that this assumption matters. If economists were maximisers and not satisficers in the way they built their models and made predictions, economics courses might have changed since the 1960s. Moribund theories would be more readily discarded. And we’d more readily tear down the house that we built.

Of course, this is probably looking at the wrong dimension. Economists may be satisficers in their models as they are maximisers in other dimensions – career, status, prestige. To achieve those things, it may not matter whether you have made an economic model that accurately reflects the world.

One thought on “Do economists satisfice?

  1. To me this really is just our models are an abstraction away from reality and as we do make all these assumptions by convention we going away from the real world.

    I guess also is economics really a science or a social science.

    A physicist, a chemist, and an economist are shipwrecked on a desert island with only a can of beans to eat and no way to open it.
    The physicist makes a suggestion: “I can calculate just the right angle, mass, and velocity of a projectile that will knock the top off the can.”
    “No!” the economist cries, “That might spill the beans.” The chemist then says, “I can make a compound from some local plants that will eat through the tin and open the can.” “Fool! That would contaminate the beans!” says the Economist.
    Exasperated, the other two ask the economist if he has a plan. “Of course!” says the economist, “The solution is simple. First, we assume we have a can opener…”

    Thanks for your reply to my comments it is much appreciated and I learn with every post.

    But for now I think I may stop and try to study for my upcoming midsemesters.

    Good luck for your research and I look forward to reading the working paper when I get some time.

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