Transcript One Equation to Rule Them All? Experimental Economics and

One Equation to Rule Them All?
Experimental Economics and the Quest for
Unity of Human Behavioural Science
World Meeting of
Economic Science Association (ESA) 2007
Berly Martawardaya
Universita’ di Siena (Italy)
Ethics
Biology
Politics
Economics
Sociolog
y
Philosophy
Psychology
Cognitive Science
Why can’t we get along?
Distinct and incompatible model of human
behavior (Gintis, 2006)
The Family of Science (Britannica)
• Sociology
Science of society, social institutions, and social
relationships, and specifically the systematic
study of the development, structure, interaction,
and collective behaviour of organized human
groups.
• Antropology
Science of humanity in aspects ranging from the
biology and evolutionary history of Homo
sapiens to the features of society and culture
that decisively distinguish humans from other
animal species.
The Family of Science (Britannica)
• Cognitive Science
studies the cognitive processes of humans in
terms of the manipulation of symbols using
computational rules.
• Psychology
studies mental processes and behaviour in
humans and other animals. focuses on both
individual and group behaviour.
• Economics
studies the consequences of choices made
concerning scarce productive resources. How
individuals and societies choose to employ
those resources: what goods and services will
be produced, how they will be produced, and
how they will be distributed among the
members of society
Deductive vs inductive
• Aristotle’s deduction
All men are mortal - universal rule
Socrates is a man - case
ergo
Socrates is mortal - result
• The syllogism – moving from the
universal to the particular
• But how to get to universal?
Induction Through the Ages
• Aristotle:
from the particular to the universal
explaining observed facts
• Hume: reasoning about unobserved facts
• Jevons: the inverse of deduction
• Carnap: estimating the logical strength
between premises and conclusion
• Peirce: experimental research
What is experiments ?
• “Experiment, An action or operation
undertaken in order to discover something
unknown, to test a hypothesis or establish
or illustrate some known truth”
(Oxford English Dictionary)
No experiment….
“Economics… can not perform the controlled
experiments of chemist or biologist because (it)
can not easily control other important factors. Like
astronomers or meteorologist, economist must be
content largely to observe”
(Samuelson and Nordhaus, 1985)
…or experiment?
“Economics has also been regarded as a non-experimental
science, where researchers – as in astronomy or
meteorology – have had to rely exclusively on field data,
that is, direct observations of the real world. During the last
two decades, however, these views have undergone a
transformation. Controlled laboratory experiments have
emerged as a vital component of economic research and,
in certain instances, experimental results have shown that
basic postulates in economic theory should be modified.”
(The Bank of Sweden Prize in Economic Sciences in
Memory of Alfred Nobel 2002 for Daniel Kahnemann &
Vernon L. Smith)
From Anomalies of Theory to Theory of Anomalies
Cost and External Validity
• Cost of setting up experiment
- not all economic topic can be experimented
- number of people, stake involved, topics, etc
- co-exist with modelling & simulation
• External validity
“..much of economic theory can be called ‘ecclesiastical
theory.’ It is accepted (or rejected) on the basis of authority,
tradition or opinion about assumption rather than surviving a
rigourous falsification process that can be replicated”
Vernon Smith (1987)
If you have to experiment, experiment often!
Neoclassic
Behavioral Economics’
assumptions
Generalization
Outcome regarding
Process regarding preferences
preferences
Self regarding
Other regarding preferences
preferences
(other people, community, etc.)
Exogenous preferences Endogenous Preferences
(constructed, discovered,
learned or adapted)
Preferences is stable
Preferences changes over time
Reference/context
Reference/context dependent
independent
Source: Rabin (2004) and Gintis (1998)
Sub-concious decisions
• Lakoff and Johnson (1999):
The embodied mind
• Biological
Biological process and neuronomics
(Zak et al, 2005), (Kosfeld et al 2005)
• Environment
Human as part of ecosystem
Bellemare and Shearer (2007)
We should collaborate with marketing scientist
Selfish, social and sub-concious
• The 3 S as the building block of human
behaviour
• Complex and interelated relations
• Will there be one equation?
• What about risk/uncertainty &
intertemporal decision?
Do we have free will?
• “… The object of study in social science is
our own selves, and in order to be
science, social science must look for
eternal laws that apply to humanity. But
stripped of the freedom to act, and subject
to such laws, there is no humanity.”
Sunder (2006).
Know Thyself