Reflexive Economics — Freak-Freakonomics

Special thanks to Matze for pointing me to the first ever (even though humorous) example of something I have been asking and looking for for a long time: In allusion to the „Reflexive Social Psychology“ I had the pleasure to attend with Heiner Keupp in Munich I’d like to call it „Reflexive Economics“.

The idea is to, as a social scientist, be aware of the impact of one’s theorizing in the „object“ studied, and also of the fact that you are subject and object of your theories at the same time, because as a social (and in our times also unavoidably economical) being you are always also explaining your own behavior. Let’s have more of that, and more serious!

But this is a good start. The topic chosen as a humorous exercise in the article by Ariel Rubinstein titled „Freak-Freakonomics“, published in Economists’ Voice in 2006, is the hugely popular 2005 book „Freakonomics“ by Levitt and Dubner, which I partly read and (I think like Rubinstein) both enjoyed and felt a little uneasy about.

Let’s start with his definition of the problem of lacking reflexivity:

The book gives expression to the economic worldview that sees people as “economic agents,” responding to mainly material incentives (though in keeping with the new behavioral economic approach, the book also recognizes the existence of additional
psychological motives). This worldview seeks a simple explanation for the behavior of human beings that is consistent with their aspirations to attain a goal, attributing high importance to money and status and low importance to moral values. All human beings are seen as economic agents, except for one group of angels looking down at the world from above: the economists.

So, what happens if you look at this profession, that likes to comment on economic dealings from above, through their own glasses? Among readable detours, you can find a sting like this in Rubinstein’s text — why do economists earn more than mathematicians?

The chapter is inspired by Freakonomics’ discussion of the question of why “the typical prostitute earns more than the typical architect” (106). The comparison between architects and prostitutes can be applied to mathematicians and economists: the former are more skilled, highly educated and intelligent. Moreover, just as Levitt has never encountered a girl who dreams of being a prostitute, I have never met a child who dreams of being an economist. Like prostitutes, the skill required of economists is “not necessarily ‘specialized’” (106), so why do economists earn so much more than mathematicians?

Here, I offer a new explanation for the salary gap between mathematicians and economists: many economists are hired to justify a viewpoint. In contrast, I have never heard of mathematicians who proved a theorem to satisfy their masters.

Ouch! But I can’t help seeing a certain truth in this satire. And another example for what can go wrong in (economic) science, looked at as an economic activity:

Chapter 4: what do grocers and economists have in common? The title of this chapter competes with “What Do Schoolteachers and Sumo Wrestlers Have in Common?” (19). The chapter will begin with the findings of the study I will conduct on my grocer’s invoices. Eight out of fifty will be erroneous, including seven in the grocer’s favor and one (with a trivial error) in my favor.

I do not agree with Levitt, who asks “Who cheats?” and responds: “Well, just about anyone, if the stakes are right” (24). My grocer is not a cheater. But grocers, like economists, make mistakes, even without being aware of them, with a tendency to favor their own interests. The grocer wages a struggle for survival against the big supermarket chains and hopes for a large bill. The economist struggles for his professional advancement and wants his findings to confirm his hypothesis. In economics, there is no tradition of checking data and repeating experiments. In the few cases in which I conducted experimental research, I myself felt the pressure not to search further at a stage in which the experimental results went in my favor and to check findings seven times when they appeared not to support the assumptions I was sure were correct. All this should convince me to place no greater faith in an economist’s findings than in my grocer’s tally.

I very much appreciate the open relating of personal experience on top of the (convincing) economic argument. And there are very good examples of (probably, if not assumed to be consciously misleading) exactly that happening to the Freakonomics authors in the article. Pretty blunt mistakes revealed through simple re-analysis by Rubinstein.

Another, final, argument about experts turned on the „other“ expert — himself:

Levitt writes: “The typical expert … is prone to sound exceedingly sure of himself. An expert doesn’t so much argue the various sides of an issue … That’s because an expert whose argument reeks of restraint or nuance often doesn’t get much attention. An expert must be bold if he hopes to alchemize his homespun theory into conventional wisdom” (148). It is possible to suspect that this paragraph refers to Levitt: an expert, who is sure of himself, who presents a view other than his own only to disprove it, and who is brave enough to touch upon a subject like the right to abortion. But this paragraph is written in the book in disparagement of other experts (in “parental sciences”).

I wish somebody did that for every economic (and, of course, psychological, where this virtue is known more in theory than practice) publication. And I wish it would become common practice to reflect on your own perspective, motivations and resulting limitations for your results.

To finish with a „real-world“ (as opposed to the mostly for-entertainment character of Freakonomics) example of the topic which I’ve found particularly striking for a long time now: Milton Friedman. He proclaims a very general distrust for people caring about something else than their own interest. In the economic sphere this is popularized by his „four ways to spend money“ (from a Fox News interview in 2004, also somewhere on youtube):

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.

Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.

Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!

Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40 percent of our national income.

In the political sphere, he is famous for arguments for a very very small government (military and law enforcement), arguing for instance like this (from the introduction to his 1962 book „Capitalism and Freedom“, via Wikiquote)

Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp.

Now, in this deep distrust for people’s willingness and/or ability (usually rather the willingness, called „incentive“) to further somebody else’s good, we are still for some reason to believe that the person putting forward these arguments, Milton E. Friedman, has the common good in mind, rather than his own or maybe that of a circle of friends. How does that make sense?

Not to me. Pretty much amounts to a logical contradiction. Either his argument is flawed, as in at least himself has to be excluded from the general assumption of self-interest. Or his argument cannot be trusted, for it is self-interested…

And in any case, I very much belief that his radical free-market arguments benefit some people and disadvantage others. And he (and people emotionally or financially relevant to him) would certainly be on the „right“ side of this.

Datum: Dienstag, 24. Mai 2011 19:56
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