Home > New vs. Old Paradigm > The microfoundationalist cyborg dream

The microfoundationalist cyborg dream

from Lars Syll 

blog_robot_overlordsAre macro-economists doomed to always “fight the last war”? Are they doomed to always be explaining the last problem we had, even as a completely different problem is building on the horizon? Well, maybe. But I think the hope is that microfoundations might prevent this. If you can really figure out some timeless rules that describe the behavior of consumers, firms, financial markets, governments, etc., then you might be able to predict problems before they happen. So far, that dream has not been realized. But maybe the current round of “financial friction macro” will produce something more timeless. I hope so.

Noah Smith

So there we have it! This is nothing but the age-old machine dream of neoclassical economics — an epistemologically founded cyborg dream that disregards the fundamental ontological fact that economies and societies are open — not closed — systems. If we are going to be able to show that the mechanisms or causes that we isolate and handle in our models are stable in the sense that they do not change when we “export” them to our “target systems,” they do only hold under ceteris paribus conditions and are a fortiori of limited value for understanding, explaining or predicting real economic systems. Or as the always eminently quotable Keynes wrote in Treatise on Probability(1921):

The kind of fundamental assumption about the character of material laws, on which scientists appear commonly to act, seems to me to be [that] the system of the material universe must consist of bodies … such that each of them exercises its own separate, independent, and invariable effect, a change of the total state being compounded of a number of separate changes each of which is solely due to a separate portion of the preceding state … Yet there might well be quite different laws for wholes of different degrees of complexity, and laws of connection between complexes which could not be stated in terms of laws connecting individual parts … If different wholes were subject to different laws qua wholes and not simply on account of and in proportion to the differences of their parts, knowledge of a part could not lead, it would seem, even to presumptive or probable knowledge as to its association with other parts … These considerations do not show us a way by which we can justify induction … No one supposes that a good induction can be arrived at merely by counting cases. The business of strengthening the argument chiefly consists in determining whether the alleged association is stable, when accompanying conditions are varied … In my judgment, the practical usefulness of those modes of inference … on which the boasted knowledge of modern science depends, can only exist … if the universe of phenomena does in fact present those peculiar characteristics of atomism and limited variety which appears more and more clearly as the ultimate result to which material science is tending.

  1. bruceedmonds
    August 2, 2015 at 10:41 am

    The lack of understanding how people behave (and behave in the presence of others), is indeed the weakness of microeconomics. Behavioural economics is making small steps in this direction, but (in my view) is still hampered by the universalist assumptions of utility comparison mechanisms etc. The sheer variety of how people behave in different kinds of situations is vastly underestimated.

    Dreams that much of this variety can be treated as “noise” clustered around central tendencies (when you consider the actions of many) seek to retrieve the universalist view in the face of obvious human variety. Sometimes I think microeconomists were influenced by Isaac Asmimov’s sci-fi “Foundation” series with its vision of “Psycho-history”*…

    (Asimov 1962, page 7): “Psycho-history dealt not with man, but with man-masses. It was the science of mobs; mobs in their billions … The reaction of one man could be forecast by no known mathematics; the reaction of a billion is something else again”

    However, complexity science is now littered with systems where apparent “noise” (i.e. unexplained variation) does not cancel out, but combines in self-organised meso-strutures to have a significant (and often unexpected) impact on the outcomes. Techniques such as agent-based modelling, do offer the chance of exploring some of this variety, both at the micro-level and looking at how it may combine into significant aggregate effects, but it requires an honest approach to the variety (and context-dependency) of human behaviour.

    * Or Maybe Asimov was too much influenced by microeconomists

  2. August 5, 2015 at 1:19 pm

    I view Thomas Schelling as one of the originators of ‘agent based modeling’ (as discussed in JASSS) or what could be and is called ‘social physics’–we already to an extent live in the era of ‘psycho-history’ as well. There is a large overlap, but physicists also developed models purely mathematical though largely intractable with ‘heterogeneous agents’ (or ones which have homogeneous agents which have similar ’emergent’ properties—eg spin glasses, or via nonequilibrium mechanisms—turing model of morphogenesis). . These are no panacea—Schelling is also viewed as being one of the academic strategists for the US’s war on Vietnam (and he worked with aumann as well).

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