A Verdict on Mindless Economics
During my four years at Princeton I can’t recall anyone other than myself having the slightest interest in methodology. How the times have changed! Princeton’s Faruk Gul and Wolfgang Pesendorfer have put out a lengthy methodological tract, “The Case for Mindless Economics,” challenging Psychology & Economics in general and neuroeconomics in particular.
The best parts of this piece build on the perfectly sensible observation that if two fields are talking about totally different things, results from one cannot contradict results from another. If someone claims that a new study about the common cat disproves a theorem about prime numbers, we can dismiss his claim out of hand. Unfortunately, like many Austrian economists, Gul and Pesendorfer almost act as if economics is by definition totally different from everything else:
Contrary to the view expressed in the quoted paragraph, economics and psychology do not offer competing, all-purpose models of human nature. Nor do they offer all-purpose tools. Rather, each discipline uses specialized abstractions that have proven useful for that discipline. Not only is the word trust much less likely to come up in an economics exam than in a psychology exam, but when it does appear in an economics exam, it means something different and is associated with a different question, not just a different answer.
But in fact, there are a lot of issues where economists and psychologists are studying exactly the same thing. Take subjective probabilities. Economists make assumptions about subjective probabilities in their models. Psychologists test assumptions about subjective probabilities in their experiments. If the psychologists find that economists’ assumptions are false, then their models are built on foundations of sand. To say “That’s psychology, not economics” is to play the ostrich.
Gul and Pesendorfer are on firmer ground when they criticize neuroeconomics:
Suppose that we find that drug addicts generally satisfy the strong axiom of revealed preference in their demand behavior. Can we argue that since addicts maximize some utility function, there are no separate brain functions and conclude then that the “limbic system” does not exist? This line of reasoning is, of course, absurd because brain science takes no position on whether choices satisfy the strong axiom of revealed preference or not. The argument that evidence from brain science can falsify economic theories is equally absurd.
Gul and Pesendorfer don’t seem to see a fundamental difference between psychological evidence and neurological evidence, but I do. The difference is rooted in philosophy of mind. Both psychology and economics discuss mental states, such as subjective probabilities and willingnesses to pay. Neuroscience, in sharp contrast, tries to link mental states to physical states.
For psychologists and economists to disagree, then, they merely have to reach different conclusions about questions that both fields study. For economists and neuroscientists to disagree, however, requires one of two kinds of quackery. Either economists would have to make novel claims about the brain or related physiological processes (“Immediate fear is not traceable to the amygdala.”), or neuroscientists to make novel claims about what mental states exist. (“There’s no such thing as willingness to pay.”)
Even on neuroscience, however, Gul and Pesendorfer go too far. It’s true that neuroscience can’t contradict basic economics. But it can still help advance the details. Do people directly value money or not? Economic theory doesn’t answer. Brain scans examining whether people react to money the same way they react to immediate consumption can help.
Thus, while I’m tempted to say that economics should be “brainless, but not mindless” – open to psychology but closed to neuroscience – that’s going to far. Evidence about the mind is intrinsically relevant to economics; evidence about the brain might be relevant on a case-by-case basis.