Economics and Ethics

Two book reviews in economics and ethics from the Erasmus Journal for Philosophy and Economics

Mark D. White

Thanks to the indispensable Heterodox Economics Newsletter (latest issue here), here are two recent book reviews that may interest our readers, both from the latest issue of the Erasmus Journal for Philosophy and Economics (6/1, Spring 2013). [In the interest of full disclosure I must note that I blurbed the first book and the second was published in my "Perspectives in Social Economics" series from Palgrave Macmillan.]

Economics as Applied Ethics: Value Judgements in Welfare Economics, by Wilfred Beckerman (Palgrave Macmillan, 2011), was reviewed by our own Jonathan B. Wight, who finds it "a well-written textbook geared to advanced undergraduate or graduate students of economics, many of whom are largely and regrettably innocent of the ethical problems inherent in conventional economic analysis." After a detailed critical breakdown by chapter, Wight concludes that:

Overall, this book is highly recommended. It covers the selected topics with depth and sensitivity. The writing is generally excellent, but there are occasions of repetition and unevenness, as if the chapters were compiled separately and merged later. A student reader who is not already familiar with basic ethical theories could benefit from a primer in some places. For example, the book discusses Amartya Sen’s theory of commitment, however it does not dig very deeply to explain or defend that notion, whether from a deontological or virtue ethics approach.

The book devotes a lot of attention to questions of equality and justice, particularly on the work of economist philosophers such as John Broome, Partha Dasgupta, Ian Little, and Amartya Sen. This is
appropriate, interesting, and relevant. However, the book does not appear to address research in experimental economics, biology, and psychology that might be relevant to some of these questions, such as the work in neuroeconomics by Paul Zak, experimental work by Vernon Smith, or recent philosophical work on virtue ethics by Deirdre McCloskey. This is the normal limitation of any text that strives to be concise, yet students should understand there is much more to ethics and economics than can be conveyed in this book.

Approximating Prudence: Aristotelian Practical Wisdom and Economic Models of Choice, by Andrew Yuengert (Palgrave Macmillan, 2012), was reviewed by Ricardo F. Crespo. According to Crespo, 

Yuengert shows in this book that economic modeling undertakes only a partial analysis of economic action, because it ‘puts away’ interesting features of its subject that deserve to be taken into account. He proposes adopting the Aristotelian account of human action—more specifically, of practical wisdom—as the benchmark against which to consider economic modeling. He maintains that “economics can learn much about its limits from Aristotle, who describes aspects of choice behavior that cannot be precisely modeled” (p. 3). Thus, the aim of the book is to determine what aspects of human behavior cannot be captured by the economists’ models.

After a careful analysis of the book's structure and arguments, Crespo concludes that it

provides the useful service of identifying the characteristics of human action that economic models cannot take into account. It is useful because it explains the challenge to positive economists of trying to incorporate these characteristics into their approach, and because it highlights the features that economists must consider in their normative work. The contribution of the book lies in its originality. Economics books are not usually about what economics cannot do.

Both the author and the reviewer are Aristotelian economists, and readers benefit greatly from Crespo's detailed analysis of Yuengert's use of concepts such as eudaimonia  and contingency (the latter is comparison to Knightian uncertainty). (See Crespo's Academia.edu page for his own work on Aristotle and economics.)

Interview with Julian Reiss, author of Philosophy of Economics: A Contemporary Introduction

Mark D. White

The good people at Routledge have posted an extensive Q&A with Julian Reiss, Professor of Philosophy at Durham University, regarding his forthcoming book Philosophy of Economics: A Contemporary Introduction. From the lead-in:

Philosophers since Aristotle have asked questions and offered opinions about economics, broadly defined. But during the 20th century economics developed into a field which was, as Julian points out in the beginning of his upcoming work, “hostile to philosophical reflection.” Economics became a science: economists began to see in “the economy” a space made up of empirically observable facts interpretable by the assumptions, methods, and models familiar to students enrolled in Econ 101 classes. In recent years, though, certain economic realities—the financial crisis, e.g.—have challenged those assumptions, methods, and models. A writer for the Economist described the consequence of recent challenges to the science of economics: “OF ALL the economic bubbles that have been pricked [since 2008], few have burst more spectacularly than the reputation of economics itself.”

Julian’s book introduces readers to the field in which many of those challenges are now being articulated. Questions of ethics, of the nature of human rationality when faced with economic decision-making, of the verifiability of economic models—these questions and more are all now being asked anew about economic practices and decisions. This interview hopes to open those questions to all curious readers.

Read the entire interview here.

The Illusion of Mathyness

Mark D. White

Kevin Drum at Mother Jones recently highlighted a new paper by Kimmo Eriksson (Mälardalen University and Stockholm University) published in Judgment and Decision Making titled "The Nonsense Math Effect" (7/6, November 2012). Here's the abstract:

Mathematics is a fundamental tool of research. Although potentially applicable in every discipline, the amount of training in mathematics that students typically receive varies greatly between different disciplines. In those disciplines where most researchers do not master mathematics, the use of mathematics may be held in too much awe. To demonstrate this I conducted an online experiment with 200 participants, all of which had experience of reading research reports and a postgraduate degree (in any subject). Participants were presented with the abstracts from two published papers (one in evolutionary anthropology and one in sociology). Based on these abstracts, participants were asked to judge the quality of the research. Either one or the other of the two abstracts was manipulated through the inclusion of an extra sentence taken from a completely unrelated paper and presenting an equation that made no sense in the context. The abstract that included the meaningless mathematics tended to be judged of higher quality. However, this "nonsense math effect" was not found among participants with degrees in mathematics, science, technology or medicine.

It's a short paper and well worth the quick read (or read Drum's post, which summarizes it well). Eriksson reports that humanities/social science readers tended to be enchanted by the irrelevant equations, with 60-65% rating the adulterated abstract higher, but economists are not broken out of that very broadly defined group (which only includes 84 people as it is). Given some (most?) economists' predilection for mathyness, though, I would not be surprised at some degree of unconscious bias for research that promises greater mathematical sophistication (though I assume any such bias would melt away once the paper was read).

But I think many other economists, especially heterodox economists who are more skeptical about the benefits of mathematical modeling, might go the other way. I know that when I read an interesting abstract and then skim the paper, my eyes glaze over when I hit math--not because it doesn't add anything to support the author's thesis but because I'm afraid it will leave out many things in the interest of abstraction and simplicity, such the very nonquantitative aspects of the model that I found fascinating in the first place! Some things must be left out of a model, of course, but these factors should be omitted because they are relatively unimportant, not because they're don't fit into the modeling framework.

As Eriksson writes in his introduction to the paper,

In areas like sociology or evolutionary anthropology I found mathematics often to be used in ways that from my viewpoint were illegitimate, such as to make a point that would better be made with only simple logic, or to uncritically take properties of a mathematical model to be properties of the real world, or to include mathematics to make a paper look more impressive.

He very well could have included economics in there as well--I'm curious if his exclusion of it was intentional or random. Gee, I'll bet we could model that...

Which is "harder": social science or physical science?

Mark D. White

Yesterday, Kevin Drum at Mother Jones spoke up for social science following an editorial in Nature arguing against the NSF's proposed defunding of research in political science. Here's a bit of the op-ed:

Part of the blame must lie with the practice of labelling the social sciences as soft, which too readily translates as meaning woolly or soft-headed. Because they deal with systems that are highly complex, adaptive and not rigorously rule-bound, the social sciences are among the most difficult of disciplines, both methodologically and intellectually. They suffer because their findings do sometimes seem obvious. Yet, equally, the common-sense answer can prove to be false when subjected to scrutiny. There are countless examples of this, from economics to traffic planning. This is one reason that the social sciences probably unnerve some politicians, some of whom are used to making decisions based not on evidence but on intuition, wishful thinking and with an eye on the polls.

...As Washington Post columnist Charles Lane wrote in a recent article that called for the NSF not to fund any social science: “The 'larger' the social or political issue, the more difficult it is to illuminate definitively through the methods of 'hard science'.”

In part, this just restates the fact that political science is difficult. To conclude that hard problems are better solved by not studying them is ludicrous. Should we slash the physics budget if the problems of dark-matter and dark-energy are not solved? Lane's statement falls for the very myth it wants to attack: that political science is ruled, like physics, by precise, unique, universal rules.

And here's some of what Mr. Drum added to it:

The public commonly thinks of disciplines like physics and chemistry as hard because they rely so heavily on difficult mathematics. In fact, that's exactly what makes them easy. It's what Eugene Wigner famously called the "unreasonable effectiveness" of math in the natural sciences: the fact that, for reasons we don't understand, the natural world really does seem to operate according to strict mathematical laws. Those laws may be hard to figure out, but they aren't impossible. ...

Hari Seldon notwithstanding, the social sciences have no such luck. Human communities don't obey simple mathematical laws, though they sometimes come tantalizingly close in certain narrow ways — close enough, anyway, to provide the intermittent reinforcement necessary to keep social scientists thinking that the real answer is just around the next corner. And once in a while it is. But most of the time it's not. It's decades of hard work away. Because, unlike, physics, the social sciences are hard.

Bonus points for the Foundation mention!

(I don't have much to add; I made a similar point in this post, comparing the complexity of marcoeconomic forecasting models to meteorological weather-forecasting models.)

New book: Neuroeconomics: Hype or Hope?

Mark D. White

The special issue of Journal of Economic Methodology on neuroeconomics (highlighted here previously) is now available in book form: Neuroeconomics: Hype or Hope?, edited by Caterina Marchionni and Jack Vromen. The chapters are as follows:

1. Introduction Caterina Marchionni and Jack Vromen

2. When economics meet neuroscience: Hype and hope Uskali Mäki

3. The disunity of neuroeconomics: a methodological approach Roberto Fumagalli

4. Inductive modeling using causal studies in neuroeconomics: brains on drugs Moana Vercoe and Paul J. Zak

5. The philosopher in the scanner (or: How can neuroscience contribute to social ontology?) Francesco Guala and Tim Hodgson

6. Why neuroeconomics is relevant for economics, despite different questions, abstractions and all that Emarh Aydinonat

7. Where economics and neuroscience might meet Jack Vromen

8. The methodologies of neuroeconomics Glenn Harrison and Don Ross

9. Neuroeconomics: a radical replacement of economics? Michiru Nagatsu

10. Do neurobiological data help us to understand economic decisions better? Alessandro Antonietti

11. Explanatory relevance across disciplinary boundaries – the case of neuroeconomics Jaakko Kuorikoski and Petri Ylikoski

Positive signs regarding "The Future of Economics" from Davos

Mark D. White

As pointed out by Lynne Kiesling at Knowledge Problem, Nobel laureates Peter Diamond and Joe Stiglitz, along with (this year's ASE/ASSA keynote speaker) Robert Shiller and Brian Arthur, discussed "The Future of Economics," which moderator Martin Wolf summarizes at the Financial Times' The World blog. Kiesling condenses Wolf's summary (as reproduced below):

1. First, orthodox economics had, in the years leading up to the crisis, become more a cult than a science, particularly with the assumption that what exists in competitive markets has to be the best possible outcome, since, if it were not, it could not exist.
2. Second, let a thousand flowers of thought bloom.
3. Third, the sociology of the profession – the need to define and defend a core discipline that can be taught to students and so determines what it means to be an economist – militates against such heterodoxy.
4. Fourth, human beings are not rational calculating machines.
5. Fifth, time matters in economic processes, which are, in general, not reversible and not characterised by any sort of equilibrium.
6. Sixth, the world is not computable.
7. Seventh, being a study of complex human behaviour, in which the world is created by human understand [sic] and motivations, economics is hard.
8. Eighth, in theory it is right and proper to abstract in order to focus on a specific phenomenon. In addressing policy, this is irresponsible.
9. Ninth, even though economists get much wrong, they still have much to offer to non-economists who tend to assume that economic problems are far more simple than they actually are.
10. Tenth, there is a great danger that in rejected the most simplistic pro-market mantras, economists and policymakers will embrace even more dangerous and naïve statism.

In my opinion, these are fantastic, especially 4, 6, 7, and 9 (concerning the complexity of economics as a social science and popular misunderstandings of that), 8 (about the responsible conduct of policy analysis), and 10 (cautioning against extreme reactions to the crisis). I just hope people are listening.

Another pointed critique of mathematical modeling in finance and economics

Mark D. White

In today's Wall Street Journal, there is a book review by Burton Malkiel of Models. Behaving. Badly., a critique of excessive reliance of mathematical modeling in finance and economics, written by Emanuel Derman, a key player in developing the very techniques he now criticizes. Judging from Malkiel's review, Derman's book echoes themes which are familiar by now, but are no less welcome for that. Some excerpts from the review:

Mr. Derman's particular thesis can be stated simply: Although financial models employ the mathematics and style of physics, they are fundamentally different from the models that science produces. Physical models can provide an accurate description of reality. Financial models, despite their mathematical sophistication, can at best provide a vast oversimplification of reality. In the universe of finance, the behavior of individuals determines value—and, as he says, "people change their minds." ...

"In crises," Mr. Derman writes, "the behavior of people changes and normal models fail. While quantum electrodynamics is a genuine theory of all reality, financial models are only mediocre metaphors for a part of it." ...

The basic problem, according to Mr. Derman, is that "in physics you're playing against God, and He doesn't change His laws very often. In finance, you're playing against God's creatures." And God's creatures use "their ephemeral opinions" to value assets. Moreover, most financial models "fail to reflect the complex reality of the world around them."

And my favorite:

He sums up his key points about how to keep models from going bad by quoting excerpts from his "Financial Modeler's Manifesto" (written with Paul Wilmott), a paper he published a couple of years ago. Among its admonitions: "I will always look over my shoulder and never forget that the model is not the world"; "I will not be overly impressed with mathematics"; "I will never sacrifice reality for elegance"; "I will not give the people who use my models false comfort about their accuracy"; "I understand that my work may have enormous effects on society and the economy, many beyond my apprehension."...

Call for papers: "Economics in Society: The Ethical Dimension"

Mark D. White

As announced in issue 58 of the real world economic review (December 2011), the World Economics Assocation is hosting an online conference titled "Economics in Society: The Ethical Dimension" at this location.

There have been many comments made, both within and outside the profession, about the role of economics in the recent worldwide crisis. These comments have, by and large, focused on the content of the subject, on alternative theories, on the over emphasis on formalization, and on the recent trajectory of economic thought in general. Many non-economists have also focused on the performative nature of contemporary economics in relation to issues such as the role of finance; the impact on development and on distribution within and across countries.

In general these comments amount to a criticism of the excessive narrowing of economics in terms of methodology,; content and theoretical paradigm used;  as well as criticism of its persistence in a  naïve view of human behavior, and of its apparent ideological bias.

Thus far the profession has responded in two ways: by raising the volume within its longstanding theoretical conflicts; and by engaging in a wide-ranging conversation about the ethical questions that the crisis has raised.

See the conference site for complete details.

Interview with Daniel Hausman (and more) in Erasmus Journal for Philosophy and Economics

Mark D. White

In the latest issue of Erasmus Journal for Philosophy and Economics (4/1, Spring 2011), there is an interview with Daniel Hausman, in which he discusses his views on methodology (with a particular focus on Mill) and his upcoming book on preferences (of which his recent paper "Mistakes about Preferences in the Social Sciences" is apparently a preview). He also describes the path he took to studying the philosophy of economics and his early background--very interesting. (I also strongly recommend another recent paper of Dan's, "Hedonism and Welfare Economics," in which he critiques the use happiness as a measure of well-being.)

Also in the journal you'll find an exchange on critical realism between Simon Deichsel, Uskali Mäki, and Tony Lawson; Irene van Staveren's review of Economic Pluralism, edited by Robert Garnett (a contributor to Accepting the Invisible Hand), Erik Olsen, and (guest blogger) Martha Starr; and a review of Debra Satz’s Why Some Things Should Not Be for Sale: The Moral Limits of Markets by Joseph Heath (a contributor to The Thief of Time).

Methodology in Philosophical Bioethics (in the Cambridge Quarterly of Healthcare Ethics)

Mark D. White

The latest issue of the Cambridge Quarterly of Healthcare Ethics (20/2, April 2011) contains two fascinating symposia, the first on methodology in philosophical bioethics and the second on global bioethics. Here are the chapter titles (and links to abstracts and paper)in the first, all of which use Matti Häyry's book Rationality and the Genetic Challenge: Making People Better? as a starting point for discussion. (I'll post on the global ethics symposium later.)

• Guest Editorial: On Method and Resolution in Philosophical Bioethics, JOHN COGGON
• Classification and Normativity: Some Thoughts on Different Ways of Carving Up the Field of Bioethics, SØREN HOLM
• Vorsprung durch Technik: On Biotechnology, Bioethics, and Its Beneficiaries, NICKY PRIAULX
• Bays, Beaches, and Bioethical Barkings, JAN HELGE SOLBAKK
• Eugenics and the Genetic Challenge, Again: All Dressed Up and Just Everywhere to Go, TOM KOCH
• The Challenge of Nonconfrontational Ethics, JOHN HARRIS
• Confronting Rationality, RONALD M. GREEN
• Nonconfrontational Rationality or Critical Reasoning, VILHJÁLMUR ÁRNASON
• Are All Rational Moralities Equivalent? DARRYL GUNSON
• Genetic Enhancement in Sports: The Role of Reason and Private Rationalities in the Public Arena, SILVIA CAMPORESI and PAOLO MAUGERI
• Reasons, Rationalities, and Procreative Beneficence: Need Häyry Stand Politely By While Savulescu and Herissone-Kelly Disagree? PETER HERISSONE-KELLY
• Balancing Procreative Autonomy and Parental Responsibility, TOM BULLER and STEPHANIE BAUER