My name is Patrick Julius. I have a bachelor’s degree in cognitive science from the University of Michigan at Ann Arbor and a master’s degree in economics from California State University at Long Beach. Fitting this mix of degrees, I specialize in the new subfield of cognitive economics. This makes me in one sense heterodox; I disagree adamantly with most things that typical neoclassical economists say. But in another sense, I am actually quite orthodox. All I’m doing is bringing the insights of psychology, sociology, history, and political science—not to mention ethics—to the study of economics. The problem is simply that economists have divorced themselves so far from the rest of social science.
This blog, which I update every weekend, is about the current state of economics, both as it is and how economists imagine it to be. One of my central points is that these two are quite far apart, which has exacerbated if not caused the majority of economic problems in the world today. (Economists didn’t invent world hunger, but for over a decade now we’ve had the power to end it and haven’t done so. You’d be amazed how cheap it would be; we’re talking about 1% of First World GDP at most.)
The reason I call it “human economics” is that I want to emphasized that economics is about real human beings, not abstract idealized agents. Real human beings behave quite differently from idealized models–and quite differently from one another. Real human beings care about each other and value things outside themselves. Real human beings seek meaning and purpose in their lives, not simply ever more acquisition of wealth.
I contrast this with what I call “infinite identical psychopaths” (which used to be the name of the blog, but I decided it was a bit too confrontational), because this is what neoclassical economists appear to believe human beings are, at least if we judge by the models they use. These are the typical assumptions of a neoclassical economic model:
- Perfect information: All individuals know everything they need to know about the state of the world and the actions of other individuals.
- Rational expectations: Predictions about the future can only be wrong within a normal distribution, and in the long run are on average correct.
- Representative agents: All individuals are identical and interchangeable; a single type represents them all.
- Perfect competition: There are infinitely many agents in the market, and none of them ever collude with one another.
- “Economic rationality”: Individuals act according to a monotonic increasing utility function that is only dependent upon their own present and future consumption of goods.
I put the last one in scare quotes because it is the worst of the bunch. What economists call “rationality” has only a distant relation to actual rationality, either as understood by common usage or by formal philosophical terminology.
Don’t be scared by the terminology; a “utility function” is just a formal model of the things you care about when you make decisions. Things you want have positive utility; things you don’t want have negative utility. Larger numbers reflect stronger feelings: a bar of chocolate has much less positive utility than a decade of happy marriage; a pinched finger has much less negative utility than a year of continual torture. Utility maximization just means that you try to get the things you want and avoid the things you don’t. By talking about expected utility, we make some allowance for an uncertain future—but not much, because we have so-called “rational expectations”.
Since any action taken by an “economically rational” agent maximizes expected utility, it is impossible for such an agent to ever make a mistake in the usual sense. Whatever they do is always the best idea at the time. This is already an extremely strong assumption that doesn’t make a whole lot of sense applied to human beings; who among us can honestly say they’ve never done anything they later regretted?
The worst part, however, is the assumption that an individual’s utility function depends only upon their own consumption. What this means is that the only thing anyone cares about is how much stuff they have; considerations like family, loyalty, justice, honesty, and fairness cannot factor into their decisions. The “monotonic increasing” part means that more stuff is always better; if they already have twelve private jets, they’d still want a thirteenth; and even if children had to starve for it, they’d be just fine with that. They are, in other words, psychopaths..
I think “identical” is rather self-explanatory; by using representative agent models, neoclassicists effectively assume that there is no variation between human beings whatsoever. They all have the same desires, the same goals, the same capabilities, the same resources. Implicit in this assumption is the notion that there is no such thing as poverty or wealth inequality, not to mention diversity, disability, or even differences in taste. (One wonders why you’d even bother with economics if that were the case.)
As for “infinite”, that comes from the assumptions of perfect information and perfect competition. In order to really have perfect information, one would need a brain with enough storage capacity to contain the state of every particle in the visible universe. Maybe not quite infinite, but pretty darn close. Likewise, in order to have true perfect competition, there must be infinitely many individuals in the economy, all of whom are poised to instantly take any opportunity offered that allows them to make even the tiniest profit.
If we continue to think about economics in terms of these infinite identical psychopaths, we will keep getting wrong answers, and potentially destroy the lives of millions of people. But we can do better; we can build a new economics to understand real human beings.