Saturday, March 17, 2012

Ethics and the Economist

Thanks to the Rock Ethics Institute at Penn State, I was privileged to attend a seminar a couple of days ago on "Feminist Economics and Climate Change", where the visiting speaker was Julie Nelson from Boston University (picture left is from her website), who is the author of a book with the encouraging title Economics for Humans.

We were given a couple of papers to read in advance including this one: Ethics and the Economist - What Climate Change Demands of Us.  Dr. Nelson spoke for about twenty minutes and there was then an extensive discussion which was still proceeding apace when I had to leave an hour later.

Dr Nelson critiques the economics profession for confusing the kind of things that (neoclassical) models let you see with unavoidable features of economic life.  Thus, for example, the neoclassical picture of economic agents as "rational utility maximizers" who communicate through market signals leads one to see the economy is a heartless place where greed must ultimately prevail.  Interestingly, she points out, this picture is shared both by champions and critics of "marketization", and this despite evidence that it has a rather poor fit with the behavior of real people in the actual economy. 

Mathematics often comes in for a bad rap in these kinds of discussions, though I think it is more the (ab)use of mathematics as a rhetorical device - "Look at all these equations.  No soft subjectivity there!" - than mathematics itself that is really being critiqued.  It's worth remembering Alfred Marshall's famous advice on the use of mathematics in economics: "(1) Use mathematics as shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This I do often."

A particular case that came up in the discussion was that of optimization.  Classical economics assumes that we are all out to maximize something ("utility") and it devotes considerable effort to showing that economic systems can attain equilibria which where nobody can increase their utility "for free" (Pareto optimality). This idea that ones decision-making trajectory can be guided by a maximization principle is a direct import from physics (Lagrangian mechanics, Fermat's principle in optics, etc); in turn,I think these physical ideas were popular because of their apparent connection with a "best of all possible worlds" teleology.  But studies apparently show that in many cases, we do not do a good job of optimization - the more information we have, and the more options we consider, the worse decisions we make.  Such considerations have led some economists (I think Dr. Nelson may be among them, from a remark at the seminar) to work with the notion of "satisficing" rather than "optimizing" - getting a "good enough" outcome, or at least avoiding the "worst possible". Where climate change is concerned, she argues, trying to find the "optimum" may be a recipe for delay and indecision, whereas it is much clearer how to avoid the "worst possible" outcome.

This was a very interesting discussion to be part of and I hope to be able to follow up on it.

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