Saturday, November 09, 2013

Mainstream And Non-Mainstream Economics: Research Areas Transgressing The Boundaries

1.0 Introduction

Mainstream and non-mainstream economics can be read as sociological categories, defined by what conferences economists attend, in which journals they publish, and through patterns of referencing. One might expect the intellectual content of the theories put forth by mainstream and non-mainstream economists to cluster, too. In some sense, non-mainstream economists are also automatically heterodox, where heterodoxy refers to the content of theories. For example, heterodox economists tend to prefer theories in which agents are socially embedded and constituted, in some sense, by society (instead of being pre-existing, asocial monads).

The point of this post, though, is to illustrate that the boundary between mainstream and non-mainstream economists is not hard and fast, at least as far as ideas go. I point out two-and-a-half areas where both categories of economists are developing similar ideas.

2.0 Complex Economic Dynamics

Economic models are available which exhibit complex, non-linear dynamics, including chaos. Richard Goodwin, Steve Keen, and Paul Ormerod are some self-consciously non-mainstream heterodox economists who have developed such models. Jess Benhabib and John Geanakoplos are some authoritative mainstream economists on certain models of this type. I also want to mention some researchers who I do not feel comfortable putting in either category. As I understand it, J. Barkley Rosser, Jr. makes an effort to talk to both mainstream and non-mainstream economists. I do not know enough about, for example, Anna Agliari to say what she would say about these categories. And Donald G. Saari is a mathematician interested in social science; so I am not sure how these categories would apply to him, if at all.

3.0 Multiple Selves

I have previously commented on theories of multiple selves, also known as Faustian agents. I particularly like the conclusion, from the Arrow impossibility theorem, that an agent's preferences cannot necessarily be characterized by a utility function, given a theory of modular minds.

I do not think I know enough about these theories to talk authoritatively on this subject. Specifically, I have some dim awareness that a large literature exists here about time (in)consistency of decisions. But I am aware that this is a topic of research among both non-mainstream and mainstream economists. I cite John B. Davis, Ian Steedman, and Ulrich Krause as non-mainstream, heterodox economists with literature in this area. And I cite E. Glen Weyl as a mainstream economist also with literature here.

4.0 Choice Under Uncertainty

Keynes distinguished between risk and uncertainty. Post Keynesian economists have famously developed this theme. Works seen as part of mainstream economics in their time also distinguish between risk and uncertainty, for example:

"...Let us suppose that a choice must be made between two actions. We shall say that we are in the realm of decision making under:

  • Certainty if each action is known to lead invariably to a specific outcome...
  • Risk if each action leads to one of a set of possible outcomes, each outcome occurring with a known probability. The probabilities are assumed known to the decision maker...
  • Uncertainty if either action or both has as its consequences a set of possible specific outcomes, but where the probabilities of these outcomes are completely unknown or are not even meaningful."

-- R. Duncan Luce and Howard Raiffa, Games and Decisions, Harvard University (1957): p. 13.

I only feel entitled to count this as half an example. I find that other literature on the foundations of decision theory is also clear on assumptions about known outcomes and probabilities necessary to characterize a situation of risk. But I do not know of contemporary mainstream economists researching choice under uncertainty (as opposed to risk). I think elements of Chapter 13 of Luce and Raiffa, on decision making under uncertainty, has entered the teaching of business schools targeted towards, for example, corporate managers.

5.0 Reflections

I do not think that this post has demonstrated an openness in mainstream economics. Further work would need to show an awareness among mainstream researchers of parallel work by non-mainstream economists, a willingness to critically engage that work, and a willingness to cite it in mainstream literature. Furthermore, one would like to show that the implications of such work is transitioning into the teaching of economists at all levels. I have seen some economists verbally affirm that economies are complex dynamic systems and then ignore the implications of such a claim. Some economists - for example, Yanis Varoufakis - have expressed skepticism that cutting edge mainstream economics research, in which unique deterministic outcomes do not obtain, can be successfully transitioned. Nevertheless, I find the parallel research noted above to be intriguing.


Anonymous said...

"But I do not know of contemporary mainstream economists researching choice under uncertainty (as opposed to risk)."

This is an extremely active research are amongst mainstream economists.

A good place to begin might be the Journal of Risk and Uncertainty.

Some of the "bigger" names in this area, who regularly publish in top general interest journals (i.e. Econometrica, AER etc.) include Itzhak Gilboa, David Schmeidler and Larry Epstein.

There is a huge array of experimental work on ambiguity aversion, as well as a large number of applications to finance.

Robert Vienneau said...

Thanks for the pointers. I find I've actually blogged on Daniel Ellsberg work before.