Economists on autopilot
One blog in my feed is the excellent synthesis blog, which brings you the musings of Greg Fisher, Paul Ormerod and others. From their about page:
We believe that this new approach, centred on the study of complex networks, has enormous potential to integrate, reconcile, and synthesise the social sciences. Viewing society as a complex network requires us to focus on actual human psychology and the nature of human interaction, rather than some inaccurate abstraction (such as “the rational agent”). We can drill down further and understand that neuroscience can help us to understand the nature of human cognition (the brain being a complex network itself), action, and interaction. Starting from these micro levels we can build a more representative understanding of social groups, including what we understand as the “macro level”. Therefore, complex networks offer a synthesis between subjects that until now have been largely kept apart, such as psychology and economics.
I recommend subscribing to their feed.
Their most recent post is by Ormerod, who asks why Daniel Kahneman’s observations about human decision-making have not been integrated into economic theory.
Perhaps Kahneman’s own work gives us an insight. He distinguishes between System 1 and System 2 thinking. System 1 is when the brain is almost on autopilot. He illustrated this in his talk last night. ‘If I mention the word “vomit”, your brain reacts. If I ask “what is 2 plus 2?”, the answer comes in your mind automatically’. System 2 thinking requires much more effort – most people, he said, cannot multiply 24 and 17 whilst at the same time negotiating a right turn in heavy traffic.
Actually, I guess that most economists could do this. Many of them could even carry out the maths required to optimise a particular function at the same time! In other words, economists are so steeped in calculus, they have performed these mathematical operations so many time, that for them, the maths of calculus has become System 1 thinking.
As mathematics is so ingrained in economists’ minds, when a new problem arises, the instinctive response is to write out the equations as a rational optimisation problem. It is much harder to integrate Kahneman’s insights, which require considerable System 2 thinking. Economists take the easy route.