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.

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Written by fabiorojas

July 30, 2015 at 12:01 am

Posted in biology, economics, fabio

5 Responses

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  1. Let me reformulate your argument:

    Science is worthwhile not because it is truth (whatever that may be). It is worthwhile to the extent it provides tools to make more-or-less accurate predictions. Whether its axioms (eg, frictionless motion) are true or moral is irrelevant. Does it give engineers (like me) tools to predict the results of a chemical reaction or whether a building will stand?

    Economics is worthwhile not because it is truth (whatever that may be). It is worthwhile to the extent it provides tools to make more-or-less accurate predictions about the future. Whether its axioms (eg, rationality, slope of supply and demand curves, budget constraints ,,,) are true or moral is irrelevant. Does it give us tools to predict the effects of policies or actions?

    If some alternate set of axioms makes better predictions, by all means, let’s use them.

    In microeconomics, at least, color me skeptical. Financial mathematics may be an affront to progressives and radicals, but it makes good enough predictions (in non-pathological conditions) for Goldman Sachs.

    In macroeconomics, it’s hard to test theory with a controlled experiment on a macroeconomy.

    Liked by 1 person

    Family Values Lesbian

    July 30, 2015 at 3:59 am

  2. At 2008 Macro-economist have done quite a good job if compared to the macro-economic mistakes done by them before WWII, at 1929. The economists definitely improved their prediction tools since then.
    In the microeconomic level, if you mean by it the stock prices in the stock exchange, all the models on the long-time failed and will fail. The fundamental value evaluation of corporations with publically traded shares is very problematic, since it is based mainly on predictions of expected future performances. These predictions in one hand take in account the past performance of the company, but also many other more subjective factors, like management team, market share, future of the main products of the company. But above all this stands the problematic position of the top managers of the publically shared corporation, who usually are not a majority stake shareholders, but professional managers, whose interest not always stands together with the shareholders long term interests. Adding to these difficulties many times lack of enough expertise of the brokers to analyse companies, most of the active players in the stock exchange act as short term investors, who speculate on gaining in the short term profits out of fluctuation of the share price. In such a market the share price booms and slumps of the whole market are inevitable, and unpredictable. Since so, the economic models about the share prices, even if mathematical are more interested in human behaviour, than in fundamental value of the companies.

    Liked by 1 person


    July 30, 2015 at 1:35 pm

  3. Family Values Lesbian: I don’t think you summarized my argument properly. My point is much simpler: scientific paradigms survive because that have a number of desirable traits. Current economics survives because of micro and regression analysis. Alternative economics has not yet developed a collection of desirable traits that is strong enough to overturn the current paradigm. Critique is not enough.

    Liked by 1 person


    July 30, 2015 at 7:08 pm

  4. fabriorojas: I wrote poorly.

    I agree entirely with your argument. I wanted to wax philosophical (dangerous for an engineer).

    The most desirable trait in any discipline is ability to make more-or-less accurate prediction. I (as an engineer) have exceptional predictive: chemistry, physics, math. In the real world in which I work, it’s not perfect prediction; we aim for P10/P50/P90. Economics, as you say, has micro and regression analysis. While they are not as predictive as Newtonian physics, they are useful because they provide explanation and prediction. Whether the premises are “true” is irrelevant. The question is, do they do a better job of prediction and explanation than a dartboard or another model?

    Until alternative economics can provide similar explanation and prediction, as you say, it’s just a critique, and not a useful one at that.


    Family Values Lesbian

    July 31, 2015 at 1:42 am

  5. Interesting to see an intellectual movement which aims to displace economics.

    As far as the argument goes for the dominance of economics, and what it would take to “win”, well, what’s presented here is not a very sociological argument–the presumption seems to be that substance is what makes one discipline dominant. Note: Economics has weak predictive powers, and especially for the big questions we care most about. But even simple matters, e.g., the effect of increasing the minimum wage, are matters of endless dispute. So, how will a new discipline, which also deploys statistical models and applied mathematics, and which is also weak at prediction, fare against economics? My guess is that institutional path dependence will act as a powerful barrier to change, unless there is some kind of ideological crisis, e.g., another, but much larger, banking crisis.

    On the weakness of economic prediction, see:


    Jerry Springer

    July 31, 2015 at 3:42 pm

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