On individual human behaviour

9780199390632“There is a great difference between studying how people actually behave and positing how they should behave. When we wish to know how and why people behave as they do, we turn to behavioral economics, anthropology, sociology, political science, neurobiology, business studies and evolutionary theory. We discover that evolutionary roots, cultural heritages, hierarchical structures, and personal histories all influence our behavior: we are socially constructed beings, within the limits of our evolutionary heritage. There is a large body of evidence which shows that we do not consistently order preferences, we are poor judges of probabilities, we do not address risk in a “rational” manner, we regularly commit a wide variety of reasoning errors, and we generally base our behavior on habits and rules of thumb. In the end, we are not “noble in reason, not infinite in faculty.” On the contrary,  we are “rather weak in apprehension…[and subject to] forces we largely fail to comprehend”. And as any advertiser could tell us, our preferences are easily manipulated, our responses quite predictable.

Despite all of this evidence, neoclassical economics stubbornly insists on portraying individuals as egoistic calculating machines, noble in reason, infinite in faculty, and largely immune to outside influences. The introduction of risk, uncertainty and information costs changes the constraints faced but not the basic model of behavior. I will call this the doctrine of “hyper-rationality” so as to distinguish it from a more general notion of “rationality”, which refers to the belief or principle that actions or opinions should be based on reason. The point here is to avoid the neoclassical habit of portraying hyper-rationality as perfect and actual behavior as imperfect. It is a topsy-turvy world indeed when all that is real is deemed irrational.

The question is not whether economic incentives matter, but rather how they matter.”

Anwar Shaikh (2016), Capitalism – Competition, Conflict, Crises, Oxford University Press, p.78-9.

3 thoughts on “On individual human behaviour

  1. I think the emphasis on evolution is slightly odd. Postmodern education and media have a profound impact on the way we see the world. These things have not evolved in the conventional sense of the word: they have been developed. The key may be to put the (changing) state back into the equation. In the same way, that the industrial policy you have succinctly summarised is state-influenced, so is the economic behaviour of individuals and social groups. And we can all appreciate that understanding macroeconomics is never a panacea to the problem of making prudent financial choices- I believe that the share dealing of Keynes was not lucrative in a linear way. My argument is that comprehending Keynes or Marx is not really a competitive advantage for individuals, not should it be- knowledge is a thing-for-itself, and it is the neo-liberal commodification of education which makes people underestimate human potential. Many people can only be persuaded easily by advertising when they have surplus resources at their disposal: selling books of authentic quality is much less straightforward than it appears, for example. It may be unnecessary to have a sophisticated understanding of political economy to write or sell books on the subject because the postmodern marketplace does not necessarily value sophistication:

    “Milton produced Paradise Lost in the way that a silkworm produces silk, as the expression of his own nature. Later on he sold the product for £5 and to that extent became a dealer in a commodity. But the Leipzig literary proletarian who produces books, e.g. compendia on political economy, at the instructions of his publisher is roughly speaking a productive worker, in so far as his production is subsumed under capital and only takes place for the purpose of the latter’s valorisation.”

    Karl Marx

    • Thanks for your comment. Regarding evolution, it has to be part of the equation. Society and the economy can be seen as emergent from but not reducible to, psychology, and thence (similarly) to biology, to chemistry and then to physics. This does not mean abandoning the study of models/theories produced by everything except physics at all. But these ‘lower’ levels of reality, constrain and shape the ‘upper’ levels. The upper levels can also be seen as able to downwardly influence the lower levels. Maybe this vertical way of seeing things is a little contrived, and I’m no quantum physicist so I will leave speculations about the relations between the ‘hard’ and social sciences there.

      I agree that education and the media have a big impact, as does the state, and that these have been developed as you say. But perhaps developing these things is a form of evolution, just an apparently more conscious one, with certain human goals in mind.

      I think I agree with the rest of what you say re understanding political economy, but am not sure how it relates to the quote from Shaikh’s book. He does in the end make the case for robust microfoundations for macroeconomics, but argues for macro patterns that are emergent from the micro but irreducible to them, in contrast to mainstream neoclassical theory. The whole is indeed greater than the sum of its parts! For me at least, that conclusion leads to greater explanatory power, and the potential to influence the economy on the part of the state and other institutions, rather than just the individual, narrowly conceived.

      • I suppose I see the theory of evolution as accounting for gradual changes in which species adapt to survive etc., but I view physics as appropriate for studying the laws of the universe. Quantum physics is as you say incredibly complex, but the theory of evolution is not so hard to grasp. The problem with studying economics through an evolutionary perspective is primarily ideological. It is too easy to assume that what currently exists is positive if it has evolved from something less complex. The school strike yesterday was a reminder that humanity may have gone down quite the wrong path. Evolution could be misinterpreted if it subtly leads people other than yourself to assume that what has survived is better than what has not. In short, I am clumsily arguing that the dynamics of international capitalism are best understood by students of political economy- in other words, arguing that there should be an academic division of labour (which is not opposed to work across disciplines) because what are ultimately philosophical questions cannot be plausibly addressed by biologists or physicists who have not studied the social sciences in sufficient depth…

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