Thursday, October 24, 2013

'Max U' v Behavioural Economics

Jason Brennan writes (23 October) “Extreme Austrian Apriorism as the No True Scotsman Fallacy” [Allegedly the practice of wearing a kilt without undergarments”!!] (attracting 31 comments) on Bleeding Heart Libertarians  HERE 
Brennan writes:
“I was at a conference a few years ago on Austrian vs. Chicago-school economics. Here’s a conversation I had with an Austrian economist, whom I won’t name here. I’ll just call my interlocutor “Austrian Dude”.
Brennan: “What do you think of behavioral economics that purports to show people often act irrationally in the market?”
Austrian Dude: “That doesn’t pose a problem for economics. Economics is a priori.”
Brennan: “But doesn’t it show that people don’t often act in the way your theory describes?”
Austrian Dude: “No. You see, there’s a difference between behavior and action. Action is defined as…[insert a summary of Mises's “Human Action” here]. But what Frank and others are describing is behavior, not action. Economics tells us how human beings act, but behavioral economics is just describing behavior.”
Brennan: “… But this doesn’t save you from behavioral econ. Instead, it leaves open, as an empirical question, whether actual human beings in the real world are better described by your a priori theory of human action or by behavioral economics. If your theory doesn’t account for actual human behavior very well, then it’s impotent to defend real life markets, and you shouldn’t advocate libertarianism in the real world on the basis of your Austrian economics.”
In short, extreme apriorism ends up being a version of the No True Scotsman Fallacy.
PS: I’m not here defending behavioral economics, nor am I taking a stance on what follows from behavioral economics. (In fact, I think behavioral economists tend to jump to policy implications in an intellectually lazy way. See Frank’s embarrassingly bad book The Darwin Economy for a collection of nonsequiturs.)
I cannot comment on the subtleties of Austrian Economics, parts of which I agree with, other parts I do not, but it seems to me that “Austrian Dude” makes much of a distinction without a difference and from the 31 comments to the original post nothing much is clearer.
The basic issue is whether ‘action’ as described in the rational economist’s model/ theory/ or whatever, represent the reality of what happens in an economy. I remain suspicious that it does not.  It matters because an “ought’ is not an ‘is’, and therefore expecting the rational economist’s model to explain what is going on, as opposed to what is supposed to happen in a ‘Max U-world’ is surely a triumph of hope over experience.  Worse, betting real money on it - especially when it the money and livelihoods of other mostly innocent people – is a recipe for a series of failures waiting to happen.
Also I can only endorse Jason Brennan’s comment on Frank H. Roberts “The Darwin Economy: Liberty, Competition, and the Common Good, Princeton University Press. Though I would focus on Frank's its criticism of Adam Smith, mainly for his interpretations of Smith’s actual political economy, especially in respect of Smithian ‘self-interest’ and perhaps for not fully appreciating his moral philosophy, but also for not really appreciating Darwinian evolution evidenced in his parallel between social evolution of human behaviour and the far longer time-scale of biological evolution of species (see HERE and HERE  etc.,)


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