Wednesday, September 20, 2006

Does Studying Mainstream Economics Make You A Bad Person?

(I had the title and the next three paragraphs written before Radek's comments today.)

Experimental evidence on the topic suggests a disquieting affirmative answer. Specifically, I refer to "Does Studying Economics Inhibit Cooperation", by Robert H. Frank, Thomas Gilovich, and Dennis T. Regan (Journal of Economic Perspectives, V. 7, N. 2 (Spring 1993): 159-171)

I believe that more up-to-date work exists in this vein. I was able to quickly locate a reference to "Does Studying Economics Discourage Cooperation? Watch What We Do Not What We Say or How We Play", by Yetzer, Goldfarb, and Poppen (Journal of Economic Perspectives, V. 10, N. 1 (1996): 177-186). (I haven't read this.)

But look at the URL for that copy of the Frank, Gilovich, and Regan paper. Why should Richard Stallman want more people to know of their findings? What does this have to do with open-source and free (as in "freedom") software?

Perhaps if I browsed around the proceedings of one of the Wizard of OS conferences, I would see some connection between advocating open source and being anti-mainstream economics. Given the interests of at least one of my readers, I want to note that Lawrence Lessig is the keynote speaker for this year's conference, which just ended.

18 comments:

James said...

If the studies you cite are to be believed, they only show that the study of mainstream economics is associated with a decreased willingness to cooperate with others. This is not nearly the same thing as being a bad person as you imply.

So far as I can tell, cooperation is neither good nor bad in and of itself. Most of the cooperation that I observe is cooperation by some against others. I have a hard time seeing how the unwillingness to participate in that sort of thing is characteristic of a "bad person."

AaronSw said...

The FSF supports things that make the production of free software seem reasonable. This means it's pro-cooperation and also pro-intrinsic-motivation (as seen in its endorsement of Alfie Kohn's work on psychology).

radek said...

James beat me to it but yeah, when normal folks think "cooperation" they think of a bunch of hippies sitting in a drum circle or holding hands and singing songs about love. When economists think "cooperation" they think "collusion" and "monopoly prices"

h.economicus said...

Check out Rubinstein's "Dilemmas of An Economic Theorist". He talks about the attitudes that economic teaching seems to encourage, along with expressing his own misgivings.

Anonymous said...

"Overall, I am left with the impression that in the best case the formal exercises we assign to our students make the study of economics less interesting; in the worst case, they contribute to the shaping of a rather unpleasant 'economics man'".
-Ariel Rubinstein

radek said...

Here's link to the relevant Rubinstein paper (I didn't post that comment):

http://arielrubinstein.tau.ac.il/papers/73.pdf

h. econonicus said...

The link for the paper I mentioned is at:

http://arielrubinstein.tau.ac.il/papers/74.pdf

The paper that Radek has linked is clearly related.

radek said...

I say that while Robert's away we turn this site into a neo-classical, neo-liberal, free-markets for every man women and child, stomping ground. After all he gave us permission.

On that note, I'd like to mention that after reading Rubinstein's paper (one I linked to) I had the opposite feeling from the author. A manager of a firm SHOULD act to maximize profits (unless of course doing so would start WW3, cause Hitler to become resurected in a body of a WWF pro wrestler or cause someone somewhere to purposely not brush their teeth that morning). And if he doesn't, not only should he be fired, but he is also behaving unethically. After all he was hired by the owners of the firm to run the firm as efficiently as possible and by failing to uphold his end of the contract he has pretty much lied to them and caused them to suffer financial loss.

I mean if it was the owner of the firm rather than the manager then yeah, fine.

Having said that I would like to add that I was quite disappointed by the performance of the Philosophy students in the simulation since you'd figure these folks would know a bit or two about ethics and the subtleties involved.

So maybe an economic education does make for better citizens, just not in a way you'da thunk.

dsquared said...

but what does "maximise profits" really mean? Clearly not "maximise accounting profits in the current period". I guess that the final resting point for neoclassical theory would be "maximise the present value of expected future cash flows". But since we are post-Keynesians here, we have to accept that this expectation might not even exist!

I think it's too predictable to turn this into a neoclassical blog. It would be far more subtly subversive to turn it into a High Church Post Keynesian blog; all further comments will be reviewed by a Commission For The Promotion of Virtue and Suppression of Vice and checked for vulgar deviationism

h. economicus said...

Rubinstein's scenario strikes me as somewhat pointless, in so far as that we have no idea what other factors individuals are weighing in when responding.

A manager may well have an obligation to maximize shareholder value. However, the exercise in question places individuals in the manager's shoes for an isolated decision, with a limited set of specified consequences (layoffs are related to profitability). Presumably if your were unwilling to make tough choices, you wouldn't be a manager in the first place. A failure to make the right decision may also have implications for the manager's future employment or bonuses, but these are not stipulated. How the subjects of the experiment think about these related issues, if at all, is unclear.

It's also unclear to me that Radek's assertion that by being more likely to choice profit maximization (and thus fulfill shareholder mandate), that those with economic training are better citizens. This again supposes that the individual has accepted the responsibility of profit-maximization. A number of people are presumably making decisions on the notion that the shareholders are better positioned to absorbed the costs of the reccession. This is obviously a decision based on different values than the ones that Radek is endorsing.

radek said...

but what does "maximise profits" really mean?

In the context of the relavant article it means firing the right number of people. If you think that the folks in the experiment where trying to do something else then take it up with Ariel. It would mean that his study does not say what he purports it says.

I think though that one possible diff between the econs and nonecons in the study could be due to the fact that in econ you get taught, over and over, to think of a problem, change, etc., with "other things constant" which is probably what the econ folks did in the experiment. The nonecon folks probably engaged in what I call "novelizing the question". I get it a lot in my principles classes. Rather than just taking the question/problem at face value they think of all the possible crazy and non crazy things which could happen - they think they're being "creative" - and answer a simple question as if it was an essay writing contest held by the ADD Association of Wanna Be Kerouacs. That kind of thought process could account for the differences, particularly with the fool'o'sophy folks.

As far as what a manager should do, some caveats aside, she should maximize profits in whatever sense she and the shareholders think this should be done. Present value of the stream, myopic current revenue, whatever. This may not be possible in a strict sense cuz of expectations but it's what the job description says.

radek said...

Also I don't think this as an ethical dilemma is particular to a firm in a capitalist society. The same kind of a problem would come up for a factory manager/planner in a centrally planned economy (though the relevant margin might be slashing payment to workers rather than layoffs). Gotta hit the targets for the five year plan comrades Stakhanovites! Your empty bellies grumble only with the death dirge of bourgeoise reaction!

Presuming of course that central planners care about productive efficiency, which they usually do (as opposed to other types of efficiency). In fact lots of econ works has been developed exactly for that reason.

Anyway, it's Friday afternoon and I just got done with my last class. So let's just all head to the pub and raise a toast to the those special marxists - the Slutskys, the Lerners, the Langes -that made present day neoclassical economics possible.

(Oh yeah and I think this picture proves that not all social realist art is crap: http://en.wikipedia.org/wiki/Image:Stakhanov.jpg)

Gabriel Mihalache said...

No, I don't want to pay for public goods because I don't "believe" in them. So shoot me ;-)

The open source movement has put out some pretty bizarre ideas but this is getting personal.

In which case I'd venture and say that it's better to be a selfish economist than a resentful, politically-naive, virgin server administrator who lives in a basement.

Now seriously, maybe it's reverse causation... maybe we chose economics because we are the kind of people who don't give their hard-earned money to leftist feel-good programmes.

h. economicus said...

(Radek comments on productive efficiency and, for no obvious reason, centrally planned economies.)

Rubinstein states clearly in the example that the firm has lost business as a result of an ongoing recession (a feature, that if I recall correctly, cannot be accounted for in the Arrow-Debreau model, which establishes the so-called Welfare Theorems). It's not clear that productive efficiency is a concept of any relevance in this case; the fired workers may well sit idle for the duration of the recession and then be rehired by the same firm. Invoking productive effficieny as the decisive criteria requires its own novelization of the problem.

That hard choices have to made in many contexts is not a revelation. The question is what considerations influence those tough decisions. Rubinstein's point is that economists systematically use different criteria than the rest of us.

radek said...

I brought up productive efficiency just to make the point that a similar dilemma exists regardless of the type of economic organization of society. To someone named h. economicus this may not be a revaltion but to many others (including probably quite a few who participated in the survey)it probably is. Or haven't you been on a college campus recently?

If you think profit maximization, outside some particular cases, leads to productive efficiency, and efficiency is good, then it's silly to turn around and say 'oh no look at how selfish these profit maximizing econ students are'. In other words, even if Rubinstein's study is valid (which I doubt), I disagree with the conclusions he draws from it.

Oh yeah, and I keep meaning to recommend Rubinstein's great book on Bounded Rationality as an aside, since this blog might be read by type of folks who are into that type of perversion but my messages always end up way to long.
So there. Good book. And it's freakin' free:
http://arielrubinstein.tau.ac.il/book-br.html

h. economicus said...

I'm impressed. You've taken a behavoural assumption (profit maximization) and turned it into a virtue. The economists I know don't say that firms should maximize profits. They say that to a good approximate firms *do* maximize profits. The conclusion that markets lead to efficient outcomes requires a series of further assumptions to be satisfied.

But rather than lecturing you on material you no doubt already know, let's try a variant of Rubinstein's example:

"You are managing a chemical plant in a third world country, where legal protection for workers is almost non-existent. Your workers are unknowingly being exposed to carginogenic chemicals. You could voluntarily provide them with safety gear that would comply with Western standards, but this would greatly reduce the profitability of the plant."

"At the next shareholder's meeting, you recommend..."

Let me suggest that the virtues of profit-maximization can indeed be evaluated on a case by case basis.

For my part, I would like to plug the Rubinstein article that I linked. In it, Rubinstein recaps the results of the paper that Radek has posted. He also tries to answer the question of *what* economic theory is.

Anonymous said...

"You are managing a chemical plant in a third world country,...

Like I said, managers should maximize profits, provided that there are no overriding ethical concerns. The keyword in your example is "unknowingly" - which means that it represents a breach of a (at least implicit) contract.

And I didn't say that profit maximizing itself was a virtue. Fullfilling your obligation, to which you agreed when hired, to your employers however is a virtue (again, provided...)

A firm is not a charity organization. Charities are great and wonderful things but there's no strong reason why the institutions of production and altruism should be confounded.

(And note that in the example the manager's 'altruism' is, at least partly, coming out of the pocket of other people, the shareholders, hence it's not really 'altruism')

h. economicus said...

That's the point, isn't it? There are ethical considerations that trump profit maximization. Many people view some obligation to the workers as one of those considerations, though economists are seemingly less likely to do so.

I wouldn't view the manager as being altruistic, but rather (as I indicated earlier in the thread) as making an ethical decision about how the costs of the recession are to be borne.