the bio-complexity challenge to economics
Economics is fun to criticize, but hard to replace. Everybody thinks they can do better. How many times have you read an article lampooning the rational actor model or slamming the efficient markets hypothesis? Well, another research group has appeared that tries to offer a replacement. From New Scientist:
Earlier this year, several dozen quiet radicals met in a boxy red building on the outskirts of Frankfurt, Germany, to plot just that. The stated aim of this Ernst Strüngmann Forum at the Frankfurt Institute for Advanced Studies was to create “a new synthesis for economics”. But the most zealous of the participants – an unlikely alliance of economists, anthropologists, ecologists and evolutionary biologists – really do want to overthrow the old regime. They hope their ideas will mark the beginning of a new movement to rework economics using tools from more successful scientific disciplines.
Drill down, and it’s not difficult to see where mainstream “neoclassical” economics has gone wrong. Since the 19th century, economies have essentially been described with mathematical formulae. This elevated economics above most social sciences and allowed forecasting. But it comes at the price of ignoring the complexities of human beings and their interactions – the things that actually make economic systems tick.The problems start with Homo economicus, a species of fantasy beings who stand at the centre of orthodox economics. All members of H. economicus think rationally and act in their own self-interest at all times, never learning from or considering others.
The article then goes on to describe how they are building new set of models that have social rather than selfish actors. They are going to use models from biological theory to model large groups of economic agents.
More power to them, but here’s the deal with economics – it survives because it has a number of very strong features:
- A basic micro-economics that makes sense (e.g., supply and demand curves, marginal utility etc)
- Rational actor models are just short hand for “has goals, which can be selfish or altruistic.” My friend, rational does not mean what you think it means.
- A good grasp of various statistical methods.
- A good recipe for normal science (define utility functions, apply Langrangian, etc)
For an alternative economics to win, it needs to be so incredibly awesome that it overwhelms these very important features of existing economics. That is why various challengers, such as feminist economics or modern Austrian economics, are limited. They sometimes have valid criticisms, but they simply don’t do well when it comes to offering a real alternative. So, good luck, my biological friends, but don’t get lost in the weeds.