Tuesday, April 22, 2014
Economics And Cognitive Science
A highly respected economist made a graduation speech in 2007 that extolled some of eternal verities of economics. It has received a lot of attention from economists who praise it and from some who dislike all, or parts of the speech. This article goes to the heart of the matter. Some the eternal verities in the speech are simply common sense. For example, everyone knows that we frequently face trade offs. If we do one thing, we may not be able to do another thing. At a deeper level, most of our economic models make multiple assumptions about the thought processes that humans make when they make decisions, or when they make projections about the future. Of course, they qualify this by assuming bounded rationality, or by assuming a typical agent, but the implication is that economics is a branch of cognitive psychology. With few exceptions, however, there is little contact between economic theorizing and cognitive theory. The psychology implicit in economic theory is hundreds of years old. The profession hangs on to it, however, because without the implicit psychology it might be regarded as philosophical speculation, and it would be difficult to quantify.