Economics now = Freudian psychology in the 1950s: More on the incoherence of “economics exceptionalism”

What follows is a long response to a comment on someone else’s blog. The quote is, “Thinking like an economist simply means that you scientifically approach human social behavior. . . .”

I’ll give the context in a bit, but first let me say that I thought this topic might be worth one more discussion because I suspect that the sort of economics exceptionalism that I will discuss is widely disseminated in college econ courses as well as in books such as the Freakonomics series.

It’s great to have pride in human achievements but at some point too much group self-regard can be distorting.

My best analogy to economics exceptionalism is Freudianism in the 1950s: Back then, Freudian psychiatrists were on the top of the world. Not only were they well paid, well respected, and secure in their theoretical foundations, they were also at the center of many important conversations. Even those people who disagreed with them felt the need to explain why the Freudians were wrong. Freudian ideas were essential, leaders in that field were national authorities, and students of Freudian theory and methods could feel that they were initiates in a grand tradition, a priesthood if you will. Freudians felt that, unlike just about everybody else, they treated human beings scientifically and dispassionately. What’s more, Freudians prided themselves on their boldness, their willingness to go beyond taboos to get to the essential truths of human nature. Sound familiar?


Last year I wrote about a disconnect in economics thinking, or at least in pop-economics writing:

Pop economists (or, at least, pop micro-economists) are often making one of two arguments:

1. People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.

2. People are irrational and they need economists, with their open minds, to show them how to be rational and efficient.

Argument 1 is associated with “why do they do that?” sorts of puzzles. Why do they charge so much for candy at the movie theater, why are airline ticket prices such a mess, why are people drug addicts, etc. The usual answer is that there’s some rational reason for what seems like silly or self-destructive behavior.

Argument 2 is associated with “we can do better” claims such as why we should fire 80% of public-schools teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.

This had been bugging me for awhile, and I resolved the contradiction as follows:

A simple division of the world into good and bad things:

– Good: economists, rationality, efficiency, thinking the unthinkable, believing in “circumstances”

– Bad: anthropologists, sociologists, public-health officials, irrationality, being deterred by repugnant ideas, believing in “culture”

Good is entrepreneurs, bad is bureaucrats. At some point this breaks down. For example, if Levitt is hired by a city government to help reform its school system, is he a rational, taboo-busting entrepreneur (a good thing) or a culture-loving bureaucrat who thinks he knows better than everybody else (a bad thing)? As a logical structure, the division into Good and Bad has holes. But as emotionally-laden categories (“fuzzy sets,” if you will), I think it works pretty well.

I illustrated this thinking via a quote from Levitt protoge Emily Oster:

anthropologists, sociologists, and public-health officials . . . believe that cultural differences—differences in how entire groups of people think and act—account for broader social and regional trends. AIDS became a disaster in Africa, the thinking goes, because Africans didn’t know how to deal with it.

Economists like me [Oster] don’t trust that argument. We assume everyone is fundamentally alike; we believe circumstances, not culture, drive people’s decisions, including decisions about sex and disease.

I love this quote for its twisted logic. It’s Russell’s paradox all over again. Economists are different from everybody else, because . . . economists “assume everyone is fundamentally alike”! But if everyone is fundamentally alike, how is it that economists are different “from almost anyone else in society”? All we can say for sure is that it’s “circumstances, not culture.” It’s certainly not “differences in how entire groups of people think and act”—er, unless these groups are economists, anthropologists, etc.

The recent debate

I thought about all this recently after following a blog discussion linked from Mark Palko.

Here’s the quick summary:

1. Talk-radio provocateur Rush Limbaugh did some provoking. This time he went a bit too far and reminded a bunch of non-Limbaugh fans that he’s rude.

3. Economist and provocateur Steven Landsburg riffed off Limbaugh to do some provoking of his own. This time he went a bit too far and reminded a bunch of economists that he’s rude. Econblogger Noah Smith points out some flaws in Landsburg’s arguments and writes:

Just because good economics may require flouting of norms does not mean that flouting norms automatically makes your economic ideas better! You cannot add rationality to your analysis simply by injecting it with a dollop of offensiveness.

I’d just like to point out that Landsburg is flouting the norms of most Americans (including Noah Smith, Mark Palko, and I expect most of the readers of this blog) but he’s completely consistent with the norms of a substantial minority (including Rick Santorum, Michael Kinsley, and millions of Limbaugh fans). Landsburg’s “job” (in some sense) is to flout the norms of people like Noah Smith more than to flout the norms of the Rick Santorums and Michael Kinsleys of the world.

4. To continue our story, the next step is that econblogger Daniel Kuehn, in the context of criticizing Landsburg, wrote:

A lot of people don’t get “thinking like an economist” when they see it, and what I [Kuehn] think Landsburg is doing here is “thinking like an economist”, not being a jerk . . . Thinking like an economist simply means that you scientifically approach human social behavior – which means that you approach them like any other species of animal. Nobody judges animals when they behave in ways that we would consider horrendous in other humans. They’re just . . . animals. And that’s what you really need for good social science. You need to look at your fellow humans as “just animals”. Astonishing, wondrous animals to be sure – but just animals . . .

To me, that sounds like a description of biology or psychology, not economics! Humans have things like wampum, M1, and M2; animals got . . . hmmm, dogs collect bones and squirrels connect nuts, I suppose.

The contradictions of economics exceptionalism

What grabbed me about Kuehn’s quote, though, was its sense of “economics exceptionalism,” the idea that economists are special, as Oster put it in the above quote, for the paradoxical reason that they “assume everyone is fundamentally alike.”

In his blog, Palko linked to my post on the two contradictory ideas of pop-economists. Kuehn followed up with this comment:

On the Gelman post that you link – I remember when he wrote that. My reaction is that anyone who makes argument 1 probably has a pretty good sense of what they’re talking about. Anyone who makes argument 2 probably doesn’t. Judging from my personal experience, I don’t know many economists who insist on number 2. I’m not sure where Gelman is getting that.

To answer the question, just scroll up. The examples I gave were “claims such as why we should fire 80% of public-schools teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.” Another example would be the claim made by many economists that the ordinary investor would be better off investing in index funds rather than day trading. Or even the most basic financial advice that your best investment by far is to pay off your credit card debt.

And, indeed, rational thinking can work wonders, and it can be useful to have an outside perspective. Even those who think the “Moneyball” story was oversold tend to agree that there were overvalued and undervalued baseball players out there who could be identified by Bill James-style analysis. Bill James is not an economist, but he could be. Or, to put it another way, economists can do (some version of) what Bill James does. All that stuff about identification, that’s what it’s really all about.


“Thinking like an economist” can be extremely useful. I often think like an economist myself. But I don’t think it helps to oversimplify what this means, and I think it’s silly and lacking in historical insight to not recognize the complementary relevance of other social sciences.

It’s fine to sometimes study situations where people act rationally and other times study ways of helping people improve their behavior. Both these modes of thinking can even be applied in the same problem! It can just be helpful to recognize that these are two different arguments.

P.S. Kuehn (and others) reply in the comments below. And I reply to the replies, etc.

73 thoughts on “Economics now = Freudian psychology in the 1950s: More on the incoherence of “economics exceptionalism”

  1. I appreciate you recognizing me as a critic of Landsburg. A lot of people have taken that post to be a defense of Landsburg and Limbaugh.

    This point of yours was interesting to me: “To me, that sounds like a description of biology or psychology, not economics!”. I agree completely, and I think it should sound like that. Something I argue a lot is that we really need to think of psychology and economics both as sub-disciplines of biology. When someone scientifically studies the social behavior of apes, they are associated with biological science. But – being humans – we have this aversion to doing the same thing with the scientific study of more highly evolved apes like human beings. That leads to some unfortunate mixing of philosophy and ideology with economic science. Ultimately, we are studying the social behavior of a highly evolved species of primate, and the more we keep that in view the less likely we’ll be to let ideology and things like that seep in.

    That’s tough of course, since we are human beings. We’re not a disinterested party here! “Thinking like an economist”, to economists, usually means taking on a semi-detached perspective to study these things free of normative judgements (normative judgements, I should add, that are perfectly fine for us to entertain – just not to mix with the science).

    My point about Landsburg is that (1.) he seems a little different from Limbaugh in that he was trying to do this, but (2.) he really wasn’t doing this successfully – he was using a semi-structured economicsesque argument to make a really offensive normative assertion.

  2. Ultimately we may be talking about something close to the same thing. I don’t see financial advice or policy advice as economic science.

    That’s taking what we learn from science and using it in our daily lives – and the advice can be variously good or bad.

    I’m interested in how you came to think this: “What grabbed me about Kuehn’s quote, though, was its sense of “economics exceptionalism,” the idea that economists are special”, because I actually don’t think “economists are special”. I think any good social science is going to be able to detach themselves from their subject, that’s true. But I don’t think there’s anything unique about economists in this regard, and I think when natural scientists look at social science questions they often have the same instincts and are equally good (there are lots of examples of physicists turning to economics). That’s a scientific mindset thing. There’s nothing special about economists.

    Economists call that sort of approach “thinking like an economist”, but it’s hardly an exclusive club. Anyone who set about to carefully study human society is going to figure out that that sort of detachment is necessary.

    • Daniel:

      To me, it would sound less like economics exceptionalism if you were to write “thinking like a social scientist” rather than “thinking like an economist”!

      • Perhaps, but I didn’t make up the term.

        I double-majored in sociology and economics way back when. Our sociology professors talked about Mills’s “sociological imagination”, which basically got at the same thing – you’ve got to extract yourself from the way we normally experience the world if you’re going to study the human species.

        I never took that to be an argument for “sociological exceptionism”. I think it’s more just different emphases of the same basic point about social science. I’m sure there are analogs in political science, but I only took one political science class so I couldn’t really say.

  3. I’d also be careful about picking specific statements to talk about this sort of thing. Take Oster’s quote above. Economist’s don’t think culture is important? That’s news to me! Culture deeply informs preferences if nothing else, but there’s an enormous literature (and several Nobel prizes!) on institutional structure and its role in economic outcomes too.

    If we want to strip down “economics” to some bare shell of what’s actually done by economists, of course there are a lot of things that can be criticized. But I’m not sure such criticisms are legitimate.

    • Daniel:

      I agree that Oster is just one person. Nonetheless, she is a celebrated economist, and that she would make such a statement suggests to me that she absorbed some economics exceptionalism during her education as an economist.

  4. I think if you use the actual definition of rationality, it doesn’t become such a contradiction (regarding the “disconnect”). You can use just about any of these definitions:

    Your definition of rational seems to be “perfectly rational” rather than something along the lines of “using reason to make decisions, given one’s limited time, intelligence, knowledge, and information.” Someone can act rationally and still make non-optimal decisions. This is where economists think they can improve on current outcomes.

    But I agree that to the extent other social sciences help us understand why people do not use reason to make decisions, economists should pay attention and embrace their work.

    • Dave,

      I agree when you frame my item 2 above as “Someone can act rationally and still make non-optimal decisions. This is where economists think they can improve on current outcomes.” But then my problem is with item 1, where (some) economists will (sometimes) take some wacky-seeming behavior and insist that it’s actually rational—and this time in the strong sense of the word “rational,” that it’s close to optimal in some reasonable sense. The disconnect is that sometimes we’ll see argument 1 and sometimes argument 2, but in either case, there’s not always much of a recognition that the other argument might be possible. If a pop-economist is making argument 1, he or she typically seems to ignore the possibility that the decision in question could be improved. If the pop-economist is making argument 2, he or she typically seems to ignore the possibility that the decision or preference might be there for a good reason.

      I certainly don’t think all economists think this way, but I do think it’s an important thread within the field, analogous in some ways to Freudians’ notorious ability to explain any action within their theory.

      • The author of “A Random Walk Down Wall Street” advocates that people put their money in index funds, and also said that he does some individual stock picking himself. But he says he’s aware that such stock-picking is just gambling for entertainment purposes, so it would be compatible with a model of rational utility-maximizers!

        • Wonks:

          I was aware of this sort of reasoning but I don’t think anyone would argue that would apply to investors in general. One could similarly argue that a person with $10K in a savings account (getting 1% interest) and $10K of unpaid credit-card debt (at a 16% interest rate) is actually making the rational decision to bankrupt him/herself, etc. But this sort of reasoning stretches the definition of rationality to the point of tautology, in which case we’re back to a model which makes no predictions and can never be rejected.

  5. I think this pet peeve of yours is actually a case of misplaced concreteness. “Experts” like to use their “expertise” to justify whatever position they’ve decided to take. I contend that the base rate of this behavior among doctors, physicists, and statisticians is approximately equal to that of economists. Some proportion of each group can always be found making contradictory or unsubstantiated claims while appealing to their authority within their profession.

    You should probably not make the mistake of overgeneralizing about economics as a subject matter from this rather common behavior.

    • Kevin:

      I agree. But I think that mainstream economists’ explanations are central to our culture today in the way that Freudian psychologists’ were in the 1950s.

      To consider political science and statistics (the fields with which I’m the most familiar) as “control groups”: Yes, poli sci and stat students are taught about the glorious history, exciting present, and boundless future of their fields, and they are also taught something about how to think like a political scientist or how to think like a statistician. So I guess you’re right. The big difference does not so much seem to be within the fields, so much as the role played by the different academic fields in the wider culture.

      One other point of similarity between mainstream economists today and Freudians in the 1950s: a shared pride in not being bound by taboos. I don’t see that so much in political science or statistics.

      • Well, I’d certainly agree that there is a Freakonomics fad just like there was a Freudian fad. But this seems like it is driven by sensationalism in general. Think “cold fusion” in physics, “global warming” in environmental science, or “obesity” in public health. All science-based fads, the latter two arguably with more impact on the average American than anything in economics or psychology.

        Fads always seem more important when you’re in the middle of them and the closer they are to your own field.

        • The cold fusion/global warming/obesity triad is amusing to me. Cold fusion was a red herring and was recognized as such from the very start by physicists, but global warming and obesity really are problems. I think it’s fair (more than fair) to call the “news” about cold fusion “sensationalism”, but I don’t think that term applies to news that is roughly appropriate to the facts.

        • Yes, the original degree of truth in cold fusion is vastly less than for global warming and obesity. But that’s precisely my point.

          Our “culture”, as Andrew puts it, tends to magnify sensational scientific claims regardless of the degree of truth. So the sensationalization of economics tells us precisely nothing about the degree of truth in economics.

          I am quite sure that many of the claims one finds about global warming and obesity in popular culture are not in fact justified by rigorous science and you can in fact find accredited scientists in those fields fanning the flames of that overreaching for either personal aggrandizement or monetary gain.

  6. I’m reminded of Feynman talking about counter-intuitive things about physics that most people wouldn’t automatically assume.

    Now what makes more sense, Andrew – talking about how Feynman is advocating “physicist exceptionalism”? Or saying that he’s remarking on the fact that the world isn’t always what it first appears and you have to step out of the way we usually think about and perceive things?

    I think the latter is the better way to see him. I don’t think there’s a lot of exceptionalism going on here.

    • Daniel:

      Sure, but Feynman was talking about counterintuitive ideas within physics. People like Landsberg want to use economic principles to make counterintuitive statements about the world at large. If Landsberg wants to argue for the Laffer curve or wants to argue that shifting the tax burden from the middle class to the rich actually hurts the middle class, fine. Those are two counterintuitive claims within economics. But when Levitt argues that drunk driving is safer than drunk walking, or when Oster makes a claim about variation in the sex ratio of births: no, these are not claims about economics. These are claims about public health, and economists look pretty foolish to me when they start touting their general expertise, their very special clearheadedness, that allows them to think they can overrule the experts in these areas. Feynman had lots of speculation too, but I don’t recall him claiming that his physics training gave him any special authority to make pronouncements on psychology, politics, etc.

      • And of course, Feynman had witty banter on just that topic. When asked what he did at the Nobel Prize dinner, he said physics, and the asker said, “oh, we can’t discuss that at dinner. Nobody here knows anything about it!”

        To which he replied:
        “On the contrary, it’s because someone knows something about it that we can’t talk about physics. It’s the things that nobody knows about that we can discuss. We can talk about the weather; we can talk about social problems; we can talk about psychology; we can talk about international finance… so it’s the subject that nobody knows anything about that we can all talk about!”

      • If the point is just that economists are best placed to talk about economics, I agree with you wholeheartedly. I wouldn’t be too strict on this, though. I’m working with a sociologist right now on a couple of projects on labor market adjustment issues. He’s fantastic to work with. We usually think of labor market adjustment as being an “economics” thing, but I think there ought to be some leeway within the social sciences. These boundaries are pretty blurry. Part of the reason why you have economists bleeding into other disciplines is some methodological comparative advantages. A century or a century ago the opposite was the case you had a lot of great sociologists expounding on economics. A century before that moral and political philosophers expounded on economics (despite the fact that “experts in the field” like the mercantilists had been writing about economics long before the late 18th century moral philosophers made their market). Different groups are going to have different strengths at different times, so you’re going to see some of this “disciplinary imperialism”. Generally speaking I imagine that cross-pollination is a good thing, not a bad thing.

        • Not sure if this is an interesting contrast but these rough quotes.

          Ferdinand de Saussure (26 November 1857 – 22 February 1913): “Economics is the study of how people make choices, and if you discuss this with them, you will change the way they make choices. So I will change fields (to linguistics).

          Sigmund Freud (6 May 1856 – 23 September 1939): “A scientific phycology will not be possible in my lifetime, but I have no intention of changing fields!” [Project for Scientific Psychology, ed. K. Primbram].

          One definition of science that I remember from my days in social science was “A science is something one cannot become an expert in – in three months. [J Ellul?]”

          Economics (and psychoanalysis ) does have that!

    • Daniel,

      I agree with Prof. Gelman. Economists will confidently claim that we ought/ought not care about inequality. They make claims that we ought/ought not to adopt free trade policies which have obvious consequences on real people’s real well-being. They argue about the best way to raise welfare in poor countries (e.g. don’t send them money since they won’t use it wisely). They make these arguments on the basis of their specifically “economic” expertise, but it’s clear that more than mere “economic science” is often playing a role in their positions. If I am reading you correctly, you think it’s a mistake for economists to think their purely economic expertise justifies these sorts of normative claims. Perhaps (who else should we turn to?), but it can’t be denied that it happens A LOT and that it is a more important issue than physicists or chemists offering policy advice on the basis of their expertise in physics or chemistry. Economists’ voices are markedly loud and persuasive on these issues.

      • Steve –
        Right… I would hope “ought/ought not” statements are open to everyone, even economists! The problem isn’t making “ought/ought not” statements. The problem is confusing “is/is not and “ought/ought not”. Some people obviously do this, but as someone said above that’s just part of being human – you’ll find that in all fields (and it should be pushed back against in all fields).

        re: “If I am reading you correctly, you think it’s a mistake for economists to think their purely economic expertise justifies these sorts of normative claims.”

        I suppose that’s one way of putting it. I don’t think it ever makes sense to talk about positive science “justifying” normative views. If that were possible they wouldn’t be normative views – they’d be positive views! I think it’s wrong for economists to cite their expertise as any special reason why their normative views should be widely adopted. I do think it probably gives them scope to insist that people take their positive views seriously.

        • So what is the ceiling of an economic paper? Seems to me that they are somewhat useful, but even the most applied paper won’t provide us with a definitive answer of what society should do. Of course you will have the occasional economist making normative claims.

          Sure we can model human behavior (with pretty detrimental constraints), but if I can’t make a policy recommendation with a normative view, what is the purpose of economics? Note, I am not saying economics is useless. Positive theory is extremely useful but its applications are bounded.

          My ultimate question is should we be more concerned with the economist making the normative claim, or the economist making the positive theoretical claim, that might have no application. What is more beneficial?

        • “The problem is confusing “is/is not and “ought/ought not”.”

          Or is the problem that economists still assume there is clear distinction between the two? Do you accept Hume’s ought/is distinction and the logical positivists further development of this into the positive/normative dichotomy? If so, you disagree with Wittgenstein’s refutation of logical positivism and with Quine’s refutations of positivism and empiricism (the two dogmas). Hilary Putnam has an interesting take on how the these arguments apply to economic theory in “The Collapse of the Fact/Value Dichotomy.”

          I suspect a lot of this problem pertains to the fact that economists still utilize the positivist vocabulary and the prejudice which treats physics as the paradigmatic scientific endeavor. This leads to a very constrained vocabulary when attempting to explain what human “rationality” is.

  7. Freudianism was one of Popper’s archetypal “pseudosciences.” Other was Marxism. The reason was that they availed themselves of too many analytical escape hatches from empirical disproof. The problem wasn’t merely that their premises couldn’t be falsified — it was that the theories had so many opposing parts, and the theorists who used them so little commitment to disciplining constraints on explanation, that any observation seemingly incompatible with one part of the theory could be saved by (even treated as confirmation of) some other.

    Is economics like that?

    Yes, in the hands of those who use it to engage in story-telling — the opportunistic sifting, sorting, combining of general mechanisms & particular findings to construct faux empirical “proofs” in support of tendentious positions.

    But that sort of abuse can be inflicted on *any* decent form of social science. Indeed, it is rife today in decision science — a discipline that came into being to as psychologists and psychology minded economists resorted to experimental methods to *puncture* the just-so story-telling underwritten by the “rational actor” model of neoclassical economics. Well, today we are assaulted by polemicists who deftly invoke “system 1/2,” “availability cascade,” “endowment effect,” “probability neglect,” “hyperbolic discounting,” “neuro-” this & that in whatever combination is necessary to convince themselves and others that their *irrational actor* just-so stories are based on real “science.”

    The question shouldn’t be whether a theoretical framework for making sense of human behavior admits of this sort of boorish, anti-scientific mode of analysis — b/c they all do.

    It should be whether they are *capable* of grounding genuinely empirical investigation disciplined by the principles and norms of science.

    Freudianism (and Marxism) fail that test.

    I don’t think economics — of the sort that reflects the orthodox tenets of rational actor model of human behavior — fails that test. It just fails — I think — to deliver the empirical proof necessary to warrant treating its key premises as true (or close enough to true for purposes of explaining, predicting, prescribing in a host of real-world settings).

    For what it’s worth, I don’t think Popper thought neoclassical microeconomics was a pseudoscience. He dedicated Conjectures & Refutations to Hayek, after all.

    • Dan:

      I agree with you about these differences. But I think that mainstream economics today and Freudian psychology in the 1950s have some key similarities regarding their place in the culture and in the way that their practitioners are trained to see themselves as part of an elite group of fearless truth-tellers.

      • Fearless truth telling is fine. What appears to be lacking is accountability in cases where an economist’s expertise results in implementation of policy that has disastrous consequences.

    • Yes, economics is just like psychoanalysis and Marxism. And the fact that in this it is no better than any other social “science” is a very weak defense. It’s a classic Vodoo science.

  8. Economics is NOT a science of “behavior”.

    Economics explains a problem raising pattern in our experience — i.e. undesigned plan-like order or coordination between individual plans.

    Economic science offers a contingent causal mechanism to explain this problem-raising design-like pattern: learning and changes in judgment in the context of changing local knowledge and changing relative prices.

    BOTCH the explanatory strategy of economics, and you turn your attention to debating non-sense and confusion.

    • Maybe I’m confused, Greg, but if you’re explaining something like coordination between individual plans (which I agree with you is a big part of economics), isn’t that explaining a type of behavior? If you’re talking about learning and changes in judgement in the context of changing prices isn’t that a specific type of behavior you’re talking about?

      I guess I’m not seeing why you would then say it’s not a science of behavior, or why that would lead us into debating “nonsense and confusion” if the very things that you’re suggesting are themselves different behaviors.

      And if there’s some nuanced implication of the word “behavior” that I’m missing, the consequences certainly don’t seem like they should be as dire as you make them out to be.

  9. While I agree with your general point that economists need more humility and respect for other social sciences, I feel I should defend my profession:
    – assuming that either [1) people are rational] or [2) people are irrational] is true, but not both, seems strange. There are different kinds of problems and people are just not equally good in tackling these different kinds. You can claim both 1) and 2) (in different situations!) and still be coherent. It also is often the case that what seems like irrational behavior is rational while you find out about all the incentives.
    – Emily Oster quote: isn’t it possible that while economists are fundamentally like other social scientists, they face different incentives? It doesn’t help your career in cultural studies if you claim that culture has little to do with AIDS prevalence in Africa and vice versa for economists. If your training teaches you to see things in a specific way, then, while identical to your colleagues from sociology department, you may look at things differently.
    – the claim that ‘we should fire 80% of public-schools teachers’ is in no way example that ‘People are irrational and they need economists’. I haven’t seen anyone claim that the problem is in the irrationality of the people who make the decision. First, it is sensible to claim that people rational but still haven’t figured out the best way to organize things, if only for their lack of knowledge of statistical methods. Second, the people who are capable of making such decision are often not motivated to seek any difference from status quo. And even if they are, there are other people who are well motivated to stop them.

    Again, I see your criticism of economics as much needed, but your post seems to me too much ‘economics is wrong’ themed.

    • Tom:

      I agree that it would be possible to use reasoning 1 in some settings and reasoning 2 in others, and still be coherent. In practice, though, I feel that pop-economists tend to choose 1 or 2 on ideological grounds, or without even realizing they’re making a choice. To me it would make more sense to use both 1 and 2 together.

      Regarding Oster: as I wrote in the linked post:

      My impression is that these quotes come from a simple division of the world into good and bad things:

      – Good: economists, rationality, efficiency, thinking the unthinkable, believing in “circumstances”

      – Bad: anthropologists, sociologists, public-health officials, irrationality, being deterred by repugnant ideas, believing in “culture”

      Good is entrepreneurs, bad is bureaucrats. At some point this breaks down. For example, if Levitt is hired by a city government to help reform its school system, is he a rational, taboo-busting entrepreneur (a good thing) or a culture-loving bureaucrat who thinks he knows better than everybody else (a bad thing)? As a logical structure, the division into Good and Bad has holes. But as emotionally-laden categories (“fuzzy sets,” if you will), I think it works pretty well.

  10. Anyone who thinks people are rational should examine race relations in the US (Time on the Cross or The Bell Curve doesn’t count–both stunning contributions of economic analysis to social conditions). What I find interesting about the above is the Krugman has essentially called the vast majority of economist frauds yet this is not mentioned (unless I missed this somewhere). His rationale is the economic “advice” offered by most economists over the last few years. Since Feynman was mentioned, it might be remarked that his criteria for a scientist (and by extension scientific inquiry) is that the scientist bends over backwards to disprove his own work (“the easiest person to fool is yourself”). Feynman doesn’t put this in terms of incentives though its obvious that an individual only gains from publishing something that is incorrect but is widely accepted–the social science literature is rife with one falsehood after another (not even implications–I mean falsity in a mathematical sense) yet the people who commit this are rewarded and those who bend over backwards…well, they go into fields where that is useful–they don’t last very long in the social sciences. Economists, to put it mildly, don’t critique their own work and attempt to suppress viewpoints other than their own (Krugman’s comment from some Chicago-type in the early 80’s saying how once a presenter starts talking about Keynes, the entire audience tunes out). I’ll bet Obama wishes he could throttle Summers about now–I don’t expect him to lose his cool and do that, however (talk about Freudian repression!).

  11. The two arguments are linked to the desire simultaneously to be both positive and normative. Argument 1 is positive: economics provides an explanation for human behavior. People are rational, thus their behavior is rational, and we merely need to reconstruct the constraints under which they operate. Argument 2 is normative: economics tells us what to do in order to be rational and achieve optimal outcomes. Economists are major purveyors of policy advice and probably the most successful social engineers, but this is simultaneously dependent on the importance of incentive compatibility for successful intervention (the presumption of argument 1) and the reality that the world at any moment is suboptimal or in disequilibrium (argument 2).

    This disjuncture between positive and normative can be found in other fields as well. The international relations version is that the national interest explains what states do (argument 1), but that the national interest should guide what states do and political leaders can be criticized for not pursuing the national interest (argument 2).

    Something akin to this exists in two different views of the rules of logic. Do the rules of logic simply reflect what people do as logical beings, or are the rules of logic a tool created for the use of human beings to be more logical than they otherwise would be?

  12. “Thinking like an economist simply means that you scientifically approach human social behavior”
    I hate to wonder into this fray of uber-smart people whose toilets I am not even qualified to scrub. However, one of the central problems I have with “pop econ” writing and “pop econ” blogging is it acts as if other social sciences do not exist and, if they do, offers crude characterizations like the Oster quote.
    The “big 5” social sciences (econ, soc, poli sci, psych and anthro) have a tremendous degree of within discipline diversity and, to varying degrees, are organized into subfields along substantive or methodological grounds. So its not terribly useful to talk about “thinking like an economist”. Its a misleading pop econ statement that cannot possible capture the heterogeneity of the actual world of academic economics. Unfortunately, I hear this notion fairly regularly on conservative or libertarian blogs (or something like “you support XYZ policy! You don’t understand economics!”). Its much better to talk about “thinking like an institutionalist” or “thinking like an Austrian” or “thinking like a neoclassical” etc.
    If only economists “scientifically approach human social behavior” than what are the legions of non-economist social scientists doing? How do we determine who is “doing economics” and therefore “scientifically studying social behavior”? Does the person have to publish in a journal with “economics” in the title? Do they have to have a PhD in economics? Or could a political scientist “do economics” in one paper then go back to “doing poli sci” (which is inherently non-scientific because its not called “economics”).
    The recent hubbub in the political and economic blogosphere over Charles Murray’s new book is an excellent example of the danger of deligitimizing non-economics social science. There is a mountain of research, mostly from sociology, about changing family structures, employment and the like. With the exception of one Krugman blog post this vast, empirically grounded literature is nearly completely ignored and, in my view, could inform the debate much better than speculative posts from people who have not engaged the literature.
    Thanks for reading my post. I promise that your toilets will be spotless.

  13. As for economists place in the culture. On the one hand it is true that 1) they are deferred to in many domains, and 2) that they are intellectual imperialists who have deployed their analytic tools far from home (e.g., fertility, crime). On the other hand, they have endured frontal assaults and have had to incorporate the arguments of others. The most famous example is the attack by cognitive psychologists resulting in the economics turn to experiments and behavioral economics. The recent emergence of neuroeconomics is only the latest examples of the recognition of the mediating function of the human brain and this opens the door to many influences.

  14. andrew, daniel,

    couple of months back, i e-mailed andrew a question about daron acemoglu’s definition of external validity.
    hers’s the link:
    say what you will but doesn’t it come down to that same question:

    1. economist set up models and test them empirically to confirm the prediction of the model and derive forecasts from the (empirically confirmed) structural parameters of the model.

    2. Other social scientists perform similiarily proceedings, but the main difference is (at least in my opinion): social scientis x sets up a model and tests it empirically to confirm the prediction of the model with regards to reality (!). External validity equates “social reality”, as Gigerenzer would call it. In the end, the economist always has his/her odel in mind, and the strucutral parameters, while all other human scientists apply models as well, but do not exagerate its empirical interpretation.

    The point is: economist may apply folk psychology to generalize in an odd way, but they do it because they relate they generalizations to parameters, not reality.

    So difference between econs and non-econs comes down to: should you derive forecasts from the (empirically confirmed) structural parameters of the model, or from careful testing and replication.

    PS: Bonus Question – How much responsibility should we give to swedish national bank forthe economic exceptionalism by only granting one non “Nobel” prize to economists – why is there no alternative to this prestigous award that kicks economist of the victory podium the sciences.

  15. If you want to see a clear-cut example of economic exceptionalism, read Ed Lazear’s paper “Economic Imperialism,” which opens with: “Economics is not only a social science, it is a genuine science.” Lazear was chief economic advisor to Bush during most of his second term.

    I may as well quote the rest of the abstract:

    Like the physical sciences, economics uses a methodology that produces refutable implications and tests these implications using solid statistical techniques. In particular, economics stresses three factors that distinguish it from other social sciences. Economists use the construct of rational individuals who engage in maximizing behavior. Economic models adhere strictly to the importance of equilibrium as part of any theory. Finally, a focus on efficiency leads economists to ask questions that other social sciences ignore. These ingredients have allowed economics to invade intellectual territory that was previously deemed to be outside the discipline’s realm.

    This is classic: what makes eocnomics a true science is not the commitment to empiricism (which fails to distinguish it from other social sciences) but the reliance on particular assumptions (optimization, equilibrium) regardless of their relationship to reality.

  16. @Popeye

    “This is classic: what makes eocnomics a true science is not the commitment to empiricism (which fails to distinguish it from other social sciences) but the reliance on particular assumptions (optimization, equilibrium) regardless of their relationship to reality.”

    the post says it all: Distinguishing is more important than progress of knowledge and what goes on in the real world does not mind the true economist, despite the fact that the concetption of exernal validiy differs to the ine embraced by most other (natural) sciences to some degree (not entirely, I guess the guys from the physics departements would disagree with me. That is why the famous German sociologist Hans Albert once claimed “economists share a physics-jealousy).

    Lets get a true alternative nobel prize in the social sciences going. The wzb (social science research center) in berlin has a half million euro bi-annual prize for social scientists, any other alternatives? suggestions? Start campaigning anyway…

  17. This is a broader question that I pose to the readers. What discipline can replace what economics does? I agree with many of the arguments posited above, but we need some sort of an alternative. If we agree that economics has serious drawbacks (which it clearly does), who fills the vacuum? Essentially policy schools are trying to reach the normative portion of economic theory, but they don’t draw nearly as much funding or interest. However they serve their position well, since they are reporting the impact of policies that are grounded in economic theory (presumably). Should the focus be of merging multiple fields together? Or should there be a schism in the field of economics. A clean break where positive economists are STRICTLY THEORY and normative economists are STRICTLY APPLIED. Or the former, where you could combine theorists across fields into a Theoretical Behavior Science (psychology, political science, economics, neuroscience, etc.) and an Applied Behavior Science. Not to discount the former, but there is too much of a disconnect between what the two fields are doing currently. Only the top economists really are able to link the two, and even then we aren’t really “answering” the question. Similarly it seems from my perspective that the two are getting muddled together, and only now identification is being considered. Of course like how Andrew said earlier if identification is done correctly we have a strong bridge between theory and applied studies, but that is not what is happening right now. However I think this has to be a more of an all or nothing type thing (similar to macro and micro). I doubt this could ever happen, but again I am curious what the field thinks is the alternative. Since there really is no valid one as of yet.

    • If we agree that economics has serious drawbacks (which it clearly does), who fills the vacuum?

      Does the vacuum need to be filled? Is academic economics really useful to the society? Correct me if it’s wrong but my impression that there are very few economics papers published by Japanese. Very unlike physics, chemistry and biotech! They seem to be surviving okay without know-all economics experts – just the same as they managed to survive without ever buying into Freud crapola.

  18. Regarding your invocation of my post on Limbaugh:

    The key point of that post is that pointing to the benefits of birth control (or anything) can never be an argument for subsidizing birth control (or anything). Nobody believes that all good things should be subsidized, so observing that something is good is not, by itself an argument for subsidization.

    This has nothing to do with economic exceptionalism; it has nothing to do with any special economist’s way of seeing the world. Instead, it’s a matter of elementary logic. I do not believe that economists are unique in their insistence that arguments ought to make sense; I certainly hope we’re not.

    As for my failure to flout the norms of Rick Santorum, I can only conclude that you haven’t been paying attention.

    • Steven:

      1. I agree that nobody believes that all good things should be subsidized. I think the criticism of Limbaugh is with his rudeness rather than his disagreement with laws constraining health plans. And the meta-debate over whether it’s appropriate to criticize Limbaugh is about the place of this rudeness in the larger political culture, and the place of traditional anti-woman expressions in conversations and political debate.

      2. Good point; I altered the offending sentence. My sense is that you might feel that the aspects of Rick Santorum’s norms with which you disagree are so obviously wrong that you see no need to argue them in detail, whereas the aspects of Noah Smith’s norms with which you disagree are more subtle and instructive, hence this might be where you focus your efforts.

      • Andrew: Thanks for this reply. It does seem to me that while we’re condemning rudeness in the larger political culture, we might take out a minute or two to condemn illogic. That’s all I was aiming to do.

      • I agree, the reason for the outrage about Limbaugh (and, among some of his readers, Landsburg) is at least 85% based on the rudeness, not the content.

        In the future, Landsburg — who I assume from (his?) first name is male — would perhaps be better served by criticizing a man rather than a woman in making his point about subsidies. As many people have pointed out, health plans, including government plans, cover (i.e. subsidize) a wide array of treatments aimed at enhancing a man’s sexual pleasure: most of the men who get penile implants, pumps, erectile dysfunction pills, etc., are using them recreationally rather than for procreation.

        The last two paragraphs of Landsburg’s post are absolutely hilarious. I particularly like the part where he figures out exactly what _kind_ of awful person Sandra Fluke is. She enjoys having sex, so she’s a slut, that much is clear from the start. Of course Limbaugh is mistaken in saying she’s a prostitute, because she’s not demanding to be paid. But she is demanding that someone pay for her contraception, so she’s an extortionist. But in any case why on earth should someone be offended by Limbaugh calling her a slut, since she is a slut? Hahahahaha! I love it!

        I’m tempted to write a similar paragraph or two about Landsburg — asshole, prick, or scumbag? — but I know that Andrew is trying to elevate the debate, not drag it farther into the gutter.

        For what it’s worth, Landsburg’s book “The Armchair Economist” is excellent, and I highly recommend it to people who would like an introduction to how economists think about their profession; I think it’s much better than Freakonomics for that purpose. It also provides a good introduction to the sort of libertarian political views espoused by many economists; I particularly recall Landsburg saying he would be ashamed of his daughter if she recycles, since no one is paying her to do so and therefore it would be irrational (and thus shameful) for her to do it. (A, P, or S?)

    • You called the women an extortionist. You are a prick, as simple as that. Stop trying to justify your vile comments.

  19. Economics reflects the current state of “science” in the sense that it becoming less and less delineated from other disciplines. Economists have evolved quite a bit from the study of decisions with scarce resources. It has evolved into an academic practice (to please to science and nobel freaks, I avoid science here) with people doing very diverse things. Often these have a hard time communicating to each other. Economists rarely are able to master it all. Below I mention some things which are all considered to be economics.
    I feel that people single out certain pieces of economics and ignore the others.

    Some things are close to what other social sciences do, but others (auction theory, mechanism design etc) are not -although some compsci people are doing related things.

    I do not think that there is an issue with physics envy, But many people with strong mathematics and physics backgrounds are drawn to some economics subfields as their ability to develop highly sophisticated tools is welcomed. If you would look at the young guns in economics these days, you would see guys with multiple IMO gold medals venturing into economics (some names I can think of on the spot: Mihai Manea, Yuliy Sannikov, Gabriel Carroll, Alp Simsek, Michael Ostrovsky, … the list is probably pretty long). As far as I know this happens much less in sociology, antropology etc. Physics envy, I don’t know, I just see guys with physics backgrounds (e.g. a phd string theory stanford this year looking for an academic econ job) entering in economics.
    I assume that this is because these guys feel that their strong analytical abilities will allow them to contribute to the hard endeavour economics is. The modest progress convinces me that some parts of economics are just very hard. (Probably you could say the same for a bunch of other disciplines).

    Economics (the academic variant) comprises:
    -Game theory: those pursuing pure theory are doing something which is fairly close to mathematics. Starting from some abstract axioms they derive implications through formal logic. No reality in here. In this sense, this is as much science as mathematics (not at all acoording to Kuhn I guess).
    example: Equilibrium points in n-point games. Nash

    -Auction theory: here the economist tries to develop a ‘design’ for an auction (the rules of the game) so that the auction will have certain characteristics which seem desirable to the auctioneer.
    example: Auction theory: a guide to the literate. Klemperer.

    -Policy evaluation: the economist here tries to evaluate a policy. The goal is to determine whether a certain policy “works” and to provide recommendations on the basis of the analysis. This is pretty important in current empirical work. This may be imperialistic sometimes. A main idea here is that “identification” is very important.
    example: pick your favorie Heckman article

    -Time series analysis: the economist here is fairly close to the statistician. The goal is often to characterize the data in a succint way: a statistical model and to use for forecasting exercise. The main difference is that the economist often focuses on economics-related data.
    example: stuff by Engle

    -Macro economic model building: The economist here makes a highly stylized description of the economy. The idea is that the economist can investigate how changes in parameter values affect outcomes in the stylized environment. To the extent that the model captures important dimensions of reality this may become useful. This is pretty hard. This approach has been hammered a lot the last years (within the economic profession and outside). But, this is potentially very useful so may be worth the trouble. Sometimes this models are to stylized (too simple) or rely on to heavy assumptions (rational expectations is often subject of critique). However the assumptions are not in all cases equally constraining (even rational expectations) and often merely serve as an analytical device.
    example: stuff by Lucas

    -Mechanism design: close to auction theory and game theory. Here economists try to device mechanisms that are likely to enforce good market outcomes.
    example: The Boston public school match, Roth, Pathak et al.

    – ….

    I could go on a bit but I hope the point is clear.

  20. Good note, but.
    1. People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.
    2. People are NOT irrational and IF they need economists, with their “open minds” (!!!!!), IT´S to show them how TO CHANGE INCENTIVES.
    I think it´s all about institutional design

    Second (I agree with you)
    “economists “assume everyone is fundamentally alike”! But if everyone is fundamentally alike, how is it that economists are different “from almost anyone else in society”?”. They are not, they fundamentatally alike, it´s only another manifestation of illusory superriority bias (


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  22. Thanks. Good analogy to Freudianism in 1950.

    On the other hand, economists do have some advantages. For example:

    A. They make more money on average than do other Ph.D.s, and talent flows toward money.

    B. They are slightly less shackled by political correctness on average than other academics.

    On the downsides,

    A. They are much less worldly than they think they are. They tend to attract personalities on the autism spectrum and they are constantly congratulating each other for reasoning their way to some insight that could have been picked up simply by asking a person in the business they are theorizing about.

    B. There is a sizable problem with corruption, as pointed out in Charles Ferguson’s documentary “Inside Job.”

    • Years ago there was a debate on the Marginal Revolution blog about why some food store down the road was giving way paper cups that cost less than 1 cent. The debate was full of Utilities, Game Theory, and Preferences. I suggested in the comments that while Physicists aren’t able to interrogate Electrons, Economists could just walk down the street and ask the owner why they did it.

      No one liked the suggestion. I think Economics are more likely to believe the results of their models than the answers given the owner.

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  24. I fear that this thread is a veiled attack by leftist on free speech. I would think otherwise if the authors were as quick to condemn the equally appealing personal attacks made by left wing thinkers. But I do not see that from our friend Andrew. Cast dispersions if you must but do not hide your intolerance in “objective” observation. It is not.

  25. I think a lot of the problem is that the definition of “rationality” in pop economics (and to some extent in real economics) is slippery. Here is what I think of as the standard definition of rationality in economics:

    A person is rational if he uses the available resources to achieve his goals in the most efficient way possible.

    The slippage here is in the definition of “possible”. This is what generates the disconnect between the answers to questions in your arguments 1 and 2. Sometimes “possible” means “possible given the material constraints” and sometimes it means “possible given a person’s current state of knowledge”. This is what allows economists to sometimes talk as though everyone acts rationally (in the sense of doing the best possible given their current knowledge) and sometimes to talk as though people are acting irrationally (in the sense that they do not do the best that is materially possible). When people are acting rationally in the first sense but not in the second sense, there is room for economists to give advice that could change people’s behavior. Thus, in your Moneyball example, it was physically possible for the New York Yankees to copy the Oakland A’s drafting strategy, but it was not possible given the state of knowledge of the Yankees management, since they did not have a good enough understanding of statistics. So an economist could come in and give the Yankees advice about how to improve their operations, while at the same time claiming that both the A’s and the Yankees were always acting rationally.

    • I support this idea, but decided to refrain myself because I wanted to see Andrew Gelman’s reaction to this comment. The fact that there were none compelled me to post to try and get Andrew Gelman to respond.

    • OK, since two people asked . . .

      I gave Moneyball as an example of a type 2 argument. If the Moneyball story had been presented as a type 1 argument, we could’ve heard a story about how naive paternalistic outsiders such as Bill James don’t understand the real story, and if we show full respect for the rationality of the old-school baseball professionals, we’ll realize that they pick pretty-boy singles hitters and trade away ugly-looking walk-getters for good reasons. Then there could be a complicated, delightfully counterintuitive and paradoxical story about how some dude with a batting average of .300 and a secondary average of .010 is actually helping his team, or saving money, or depreciates less, or whatever.

      Another example, which particularly irritates me, is when some economists dismiss or mock voter turnout as irrational (a type 2 argument) rather than reflecting on an activity that 90% of affluent well-educated Americans do, that maybe there’s a good reason for it (a type 1 argument).

      I assume that everybody is doing his or her best (or, if there is active self-sabotage, that just changes their meaning of “best”). But that statement is not economics; it’s too empty to take us anywhere. The type 1 argument gets traction by taking as a given that some group of people is actually making something close to an optimal decision (for an extreme example, see the “rational addiction” argument). The type 2 argument takes the opposite tack, assuming some objective measure of success and then going from there.

      Either way, what I’m objecting to is when someone comes from the outside and chooses 1 or 2 without even reflecting on the choice involved in making these assumptions. As is said of Freudian psychology, you can explain anything and come to any conclusion this way. You even get to start out ahead of time and choose type 1 arguments for behaviors of which you approve (or which, for shock value, you’d like to support) and choose type 2 arguments for behaviors that you don’t like or which you’d like to mock. Nice work if you can get it.

      • “Nice work if you can get it.” and I think that was what Freud understood and was surprizingly honest about in that quote I gave above.

      • I think I understand what you mean now. Rationality can turn into a slippy concept that cannot be disproven. Everyone does his or her best ‘ispo facto’ and thus everyone is rational, but because no person’s knowledge is infinite, it cannot be expected that he knows what action is the best, and thus everyone is irrational.

        Rationality needs to be carefully defined, limited, and falsifiable (that’s the key part) if it is to be useful as a tool for studying behavior. But I don’t really know how to do that…

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  27. I can see a few reasons for not making both arguments. 1) Not being able to come up with an argument sufficiently plausible or believable or clever, leaving a mystery, 2) Being able to argue such but not being able or willing to work to justify or dismiss such an argument, empirically or rationally, so unwilling to delve into it at all rather than become two handed without conclusion, 3) Being able to argue such but not believing or liking the argument, its result or implications. There is a lot we don’t know why is rational but should always be skeptical is not.

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  30. I’m shocked someone hasn’t brought up Bryan Caplan’s work (and his out-of-hand dismissal of Arthur Lupia’s research, among others’) as a more-or-less perfect distillation of #2.

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