July 10, 2013

Not a science of behavior

Comment on 'Dr. X'

Blog-Reference

You say that trust is important for the functioning of the market system. I agree. So does standard economics. To verify this, please go to Google Scholar and enter ‘trust’ and ‘transaction costs.’

Standard economics will tell you that trust lowers transaction costs and therefore makes a significant contribution to profit maximization. You and neoclassical economics are in full harmony.

It is not the task of theoretical economics to see how religious or civic communities function. This is the task of sociology and psychology. It is the task of theoretical economics to explain how the economic system works. This is something quite different. As Hudik put it:
“The purpose of this paper is to criticise the notion that economics is a science of behaviour or that a science of behaviour is fundamental to economics. This plausible and, as I believe, mistaken idea has sometimes been called (methodological) psychologism, and I follow here this terminology. In opposition to psychologism I put forward the notion of economics as a study of spontaneous order independent of any behavioural science. My argument is based on the important contributions of Hayek and Popper. If it is correct, then all the attempts to derive an adequate model of economic behaviour (as practised, for example, by the representatives of ‘behavioural’ or ‘psychological economics’) are misconceived.” (2011, p. 147)

Egmont Kakarot-Handtke


References
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.