Saturday, June 18, 2011

Should parenting and drugs affect economic theory?

Would economic theory be different if economists were parents when initially taught it? Freakonomics-blogger Justin Wolfer says yes, because that´s what the experience of becoming a father has told him. Overcoming Bias-blogger Robin Hanson says no, and says becoming a father is like having a mystical experience on drugs: It doesn´t inform us about the real structure of the world.

I´m wondering if the difference between these two may reduce to one thing: How “religiously” they´ve believed in the “ultimate truth” of the economic model of rational decision making. If we take Wolfer at his own word, he always saw it as
the basic idea informing economics—that people are purposeful, analytic decision makers. And this idea just seemed entirely natural to me. I had always believed in the analytic self; I was rational, calculating, and tried to make smart decisions. Of course real people don’t use math, but I figured that we’re still weighing costs and benefits just as our models say. Or at least that was my understanding of the world.
In other words, he sounds like the kind of guy who believed all behavior could be explained by economic theory as optimal, even if some of it would require complex choice models that assume people take subtle feedback effects, strategic “he knows that I know that he knows that I know X” issues and complicated delayed consequences of present actions into account in an optimal “rational” manner. After having a kid, this no longer seems to describe his own experience of himself:
My feelings toward my daughter Matilda aren’t easily expressed in analytic terms. I struggle to express it, just as I struggle to understand it.

There’s something new and strange about all this. Today, I feel the powerful force of biology. It’s visceral; it’s real; it’s hormonal, and it’s not in our economic models. I’m helpless in the face of feelings that overwhelm me. Yes, I know that a twenty-something reader will cleverly point out that I just need to count kids as a good which yields utility, or perhaps we need to add a state variable to the utility function as in rational addiction models. But that’s not the point. I’m surprised by how little of this I’ve consciously chosen. While the economic framework accurately describes how I choose an apple over an orange, it has had surprisingly little to say about what has been the most important choice in my life.
Hanson, in contrast, seems to see economic models as attempts to capture some of the regularities in human behavior:
First, econ makes sense of a complex social world by leaving important things out, on purpose – that is the point of models, to be simple enough to understand. More important, econ models almost never say anything about consciousness or emotional mood – they don’t at all assume people choose via a cold calculating mindset, or even that they choose consciously. As long as choices (approximately) fit certain consistency axioms, then some utility function captures them. So how could discovering emotional and unconscious choices possibly challenge such models.
Given Hanson´s view of economic theory, there is no need to redefine everything after having a kid. People will still tend to buy less as the price rises, avoid risk, and so on. It surprises me somewhat, though, that Hanson doesn´t see that there are a number of economists with a more fundamentalist belief in the neoclassical model. I´ve met several, and I bet I´ve met fewer economists in general than Hanson. I´ll admit this is pure speculation, but I´ve wondered if some economists feel threatened by behavior that deviates from the “rational choice” model they hold. They don´t say "Well, this is a simplified model, sure there´ll be deviations, but we`re capturing some regularities and that´s what we´re aiming for. Explaining something is better than not explaining anything and we´ll never be able to explain everything.” Instead, they try to twist their brains into coming up with ad-hoc assumptions that would reveal these deviations to be full, sophisticated optimization. At times, this means that increasingly stupid and shortsighted behavior is explained as increasingly subtle and complex optimization. Maybe it´s a fear of letting non-rational explanations get a foot in the door, maybe it´s because the "welfare effects" often tacked on at the end of choice models would no longer be "valid" (not that they are valid today, but if you truly believe all choices always maximize the ultimate good of importance to the acting agents, then I guess they might seem valid to you).

Hanson concludes that
Having an emotional parenting experience is as irrelevant to the value of neoclassical econ as having a mystical drug experience is to the validity of basic physics. Your subconscious might claim otherwise, but really, you don’t have to believe it.
 I´m not sure. If a person sees economic theory as Hanson describes it, then I agree with him. But if a person thinks his way of seeing the world is the only one that is valid and possible (in the sense of consistent with past experiences), then having a child or a high dose of psilocybin in a controlled setting may both be ways of learning otherwise?

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