Friday, December 28, 2012

Science and a State of Mind


I was a bit puzzled by one of your comments in your latest post, Economics as a State of Mind, but was too busy gorging on pecan pie and cookies to respond. In particular this statement I found curious:

When you write about responding to incentives, what is implicit in your argument is a belief in the character, mind set, psychology of those who are responding. But lots of people clearly don't respond in the way you describe, or see the world through your eyes. The same of course, is true for me.

What is particularly odd is this statement coming from a doctor. In the Cliff Notes version, Doctors tell patients, "don't smoke, don't drink, exercise, lower your cholesterol or bad consequences will occur." But we know that's a short hand version of saying, statistically a human body is more likely to respond negatively to drinking, smoking, lack of exercise and the common tendency of those negative reactions are liver damage, heart disease and diabetes. We certainly don't dismiss all of medicine because "lots of people clearly don't respond" in the way doctors warn. That's what the bell curve is all about. I'm highly confident you don't expect every body to react the exact same way to a stimulus under any circumstance. It would be similarly unwise to have the same expectations for Economics.

Contrary to what you state, I don't have a "belief in the character, mind set, psychology of those who are responding." Rather I start with a theory, test with observations, refine the theory. Lather, rinse, repeat. For instance, we start with a theory that lower prices results in higher demand. This seems to work across all markets. However we notice this demand response differs by, for instance, wealth, age, gender, education. We revise the theory to include these factors. You are correct, some people respond to incentives in different ways. But no one I know is arguing differently.

As far as philosophy driving economics, I'm in partial agreement. Milton Friedman was a strong advocate of free markets. He was also a brilliant economist. Did his advocacy of free markets drive his economic conclusions or did his economic conclusions drive his free market advocacy? Probably both. But I don't think economists are unique in this respect. Rachel Carson's "Silent Spring," was science in the service of politics. Much of today's global warming jeremiads are politically driven. I'm sure there are plenty of examples both near and far. Scientists are just as susceptible to incentives everyone else.


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