Home > Uncategorized > Gary Becker’s big mistake

Gary Becker’s big mistake

from Lars Syll

The econometrician Henri Theil once said “models are to be used but not to be believed.” I use the rational actor model for thinking about marginal changes but Gary Becker really believed the model. Once, at a dinner with Becker, I remarked that extreme punishment could lead to so much poverty and hatred that it could create blowback. Becker was having none of it. For every example that I raised of blowback, he responded with a demand for yet more punishment …

1399387137298You can see the idea in his great paper, Crime and Punishment: An Economic Approach. In a famous section he argues that an optimal punishment system would combine a low probability of being punished with a high level of punishment if caught …

We have now tried that experiment and it didn’t work … Most spectacularly, the experiment with greater punishment led to more spending on crime control and many more people in prison … 

In the economic theory, crime is in a criminal’s interest … But is crime always done out of interest? The rational actor model fits burglary, pick-pocketing and insider trading but lots of crime–including vandalism, arson, bar fights and many assaults–aren’t motivated by economic gain and perhaps not by any rational interest …

The rational choice theory was pushed beyond its limits and in so doing not only was punishment pushed too far we also lost sight of alternative policies that could reduce crime without the social disruption and injustice caused by mass incarceration.

Alex Tabarrok

Interesting article, but although Becker’s belief in his model being a real picture of reality is rather gobsmacking, I’m far from convinced by Tabarrok’s instrumentalist use of the same kind of models.

straight jacketThe alarm that sets off in my brain when reading Becker is that ‘rational actor models,’ rather than being helpful for understanding real world economic issues, sounds more like an ill-advised plaidoyer for voluntarily taking on a methodological straight-jacket of unsubstantiated and known to be false assumptions.

The assumptions that Becker’s theory builds on are, as Tabarrok and almost all empirical testing of it has shown, totally unrealistic. That is, they are empirically false.

That said, one could indeed wonder why on earth anyone should be interested in applying that kind of theory to real world situations. As so many other mainstream mathematical models taught to economics students today, it has next to nothing to do  with the real world.

From a methodological point of view one can, of course, also wonder, how we are supposed to evaluate tests of a theories and models building on known to be false assumptions. What is the point of such tests? What can those tests possibly teach us? From falsehoods anything logically follows.

Modern expected utility theory is a good example of this. Leaving the specification of preferences without almost any restrictions whatsoever, every imaginable evidence is safely made compatible with the all-embracing ‘theory’ — and a theory without informational content never risks being empirically tested and found falsified. Used in mainstream economics ‘thought experimental’ activities, it may of course be very ‘handy’, but totally void of any empirical value.

Utility theory has like so many other economic theories morphed into an empty theory of everything. And a theory of everything explains nothing — just as Gary Becker’s ‘economics of everything’ it only makes nonsense out of economic science.

Using false assumptions, mainstream modelers can derive whatever conclusions they want. Wanting to show that ‘all economists consider austerity to be the right policy,’ just e.g. assume ‘all economists are from Chicago’ and ‘all economists from Chicago consider austerity to be the right policy.’  The conclusions follows by deduction — but is of course factually totally wrong. Models and theories building on that kind of reasoning is nothing but a pointless waste of time — of which Gary Becker’s ‘rational actor model’ is a superb example.

  1. May 9, 2020 at 6:30 pm

    Dostoevsky Versus Becker — who wins the match? A literature buff could provide an interesting analysis

    • Meta Capitalism
      May 10, 2020 at 3:39 am

      Dostoevsky Versus Becker — who wins the match? A literature buff could provide an interesting analysis (Asad Zaman, RWER, 5/9/2020)

      .
      Not long ago I read a wonderful work by two authors, one an professor of economics the other professor of arts and humanities. The too contrast Gary Becker with Leo Tolstoy, Fyodor Dostoevsky, George Eliot, Jane Austen, Henry James, and the other great realists.
      .
      Spotting the Spoof is a very important skill for citizens today.

      • Meta Capitalism
        May 10, 2020 at 6:45 am

        too to two ;-)

  2. Ken Zimmerman
    May 25, 2020 at 4:53 pm

    I know little of Gary S. Becker. I have heard his name a few times. Mostly from colleagues who work with more economists in actual research situations that do I. When his name has come up it has generally been followed by such words as moron, clown, and charlatan. I do not know if any of these are apt descriptions of Becker or his work. But to give you a little perspective that goes beyond what I have read in this short paper you distributed, I want to summarize what anthropologists and sociologists say about crime.

    Our cultures exert a powerful influence on our conduct, often without our even being aware of it. However, to assert that culture influences our behavior is hardly the same as asserting that it determines our behavior. Deviance from the cultural norms is found in all societies. Because individual members of any society maintain, to varying degrees, a free will, they have the freedom (if not always the awareness) to say no to cultural expectations. Unlike the honeybee, which behaves according to its genetic programming, humans can make a range of behavioral choices. Of course, choosing an alternative may result in unpleasant consequences, but all people have the option (again, if they are aware of the option) of doing things differently from what is culturally expected. Crime is one such deviation.

    People sometimes choose to go against cultural conventions for several reasons. In some cases where adherence to a social norm involves a hardship, people may justify their noncompliance by stretching the meaning of the norm. Or sometimes people flout a social norm or custom to make a social statement. And sometimes people defy social norms out of emotional tensions. While at other times defiance of social norms is the result of poverty or political or social persecution. Whatever the reasons, the fact remains that social norms rarely, if ever, receive total compliance. For this reason, cultural anthropologists distinguish between ideal behavior (what people are expected to do) and real behavior (what people do in actual situations). But most people in any given society abide by the norms most of the time.

    The situation is made more complex as social norms take several different forms, ranging from etiquette to formal laws. Economic laws are found all along this spectrum. From the etiquette of a purchase and sale situation to the expectations of behaviors by Wall Street traders in everyday actions to the crimes of insider trading and armed robbery. Some norms are taken more seriously than others. On one hand, all societies have certain social expectations of what is proper, but such behavior is not rigidly enforced. For example, while it is customary in the United States for people to shake hands when introduced, refusal to shake hands does not constitute a serious violation of social norms. The person who does not follow this rule of etiquette might be considered rude but would not be arrested or executed. On the other hand, some social norms (such as those against grand larceny or murder) are taken seriously because they are considered necessary and vital for the survival of the society. Prohibitions on oligarchic economic arrangements (e.g. trusts) supposedly fall into this category. Though enforcement of this norm (criminally and in civil courts) is sporadic at best today.

    The relativity of deviance adds another form of complexity. What people in one culture consider to be deviant is not necessarily considered deviant in other cultures. In other words, it is not the act itself but rather how people define the act that determines whether it is deviant. To illustrate, suicide among middle-class North Americans is judged unacceptable under any conditions. In traditional Japan, however, the practice of hara-kiri, committing ritual suicide by disembowelment, was considered in traditional times the honorable thing to do for a disgraced nobleman. Thus, whereas ritual suicide was normative for the Japanese nobleman, it is considered deviant for a businessperson in Toronto or Tampa.

    Adding further to the complexity of deviance is sanctions. All social norms, whether trivial or serious, are sanctioned; that is, societies develop patterned or institutionalized ways of encouraging people to conform to the norms. These sanctions are both positive and negative because people are rewarded for behaving in socially acceptable ways and punished for violating the norms. Positive sanctions range from a smile of approval to being awarded the Congressional Medal of Honor. Negative sanctions include everything from a frown of disapproval to the death penalty. Social sanctions may also be formal or informal, depending on whether a formal law (legal statute) has been violated. The process of “bringing a member into society and its norms” is called socialization. The busiest period of socialization in the world of today is childhood and adolescence. But socialization continues throughout one’s life. Even as in the small hunter-gatherer groups of the earliest Sapiens, the only options for socialization failures in our societies today are still ostracization and death.

    Finally, the complexity on the side of deviation from societal norms is repeated on the side of the communal construction of the societal norms from which societal members may deviate.

    It is my view that Becker glimpses little of this complexity and understands even less than he glimpses. In terms of this lack of awareness, his work seems to me a man building a boat in a bottle. With no knowledge or understanding of how an actual boat operates and no desire to learn anything about these operations. I frankly cannot see any redeeming value for Becker’s work. But It has great potential for harm on many fronts in my view.

  3. May 25, 2020 at 9:50 pm

    Asad says “Dostoevsky Versus Becker — who wins the match? A literature buff could provide an interesting analysis”.

    Knowing very little about either, I looked them up, and it seems they agree that socialism (democratic or otherwise) is doomed to failure.

    https://digitalrepository.trincoll.edu/cgi/viewcontent.cgi?article=1020&context=theses

    From the conclusion: “”Although he accepted suffering as a metaphysical truth, Dostoevsky could not ignore it. He sought answers in the teachings of his religion, and in the philosophies of his revolutionary companions. But neither could appease his need for an explanation. Russian Orthodoxy blindly relied on the mystery of hidden harmony, and put too much faith in each man’s ability to use his free will to properly transform himself. The principles of Socialism incorrectly allocated the existence of suffering to man’s environment, and thus mistakenly advised that society should change to eradicate that suffering. Furthermore, neither doctrine sufficiently addressed the most tormented sufferers of Dostoevsky’s novels: psychological sufferers”.

    By contrast, this last is where I hear Chesterton’s humorous Latin “Orthodoxy” does help.

  4. Robert Locke
    May 27, 2020 at 12:25 pm

    I first encountered Becker when I studied the development of Education as a factor in the transformation of economies from the first into the 2nd industrial revolution (The End of Practical Man, 1984, Management and Higher Education Since 1940, 1989). I objected to his comments on education because he did not distinguish between education that was detrimental to economic development and that which was beneficial. Economist don’t even recognize the human capital factor. I do in Appreciating mental capital, donei in 2016.

    • Robert Locke
      May 27, 2020 at 1:21 pm

      The superior biography of Dostoyevsky (in any language) is the still incomplete multivolume study by JOSEPH FRANK, Dostoevsky: The Seeds of Revolt, 1821–1849 (1976), Dostoevsky: The Years of Ordeal, 1850–1859 (1983), Dostoevsky: The Stir of Liberation, 1860–1865 (1986), and Dostoevsky: The Miraculous Years, 1865–1871 (1995); these volumes also offer excellent portraits of the Russian intellectual milieu and illuminating readings of Dostoyevsky’s works. I (LOcke( read a condensed version, 1000 pa.

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