Economics benefitsf rom the insights of other subjects

January 10, 2019 Behavioral economics

In the 18th century, before writing The Wealth of Nations, a fundamental text for the study of economics, Adam Smith published a remarkable book on ethics and philosophy called The Theory of Moral Sentiments. Like other Enlightenment thinkers, Smith studied human behaviour without distinguishing between different social sciences.

It was only later that various human activities became objects of study for distinct scientific disciplines. This is partly a consequence of the necessary specialisation that occurs in any field when knowledge progresses. Yet the social sciences study the same individuals and the same social groups.

Economics, for example, built its identity in the 20th century through an emphasis on statistical and quantitative methods, on one hand, and the concept of homo economicus on the other. Homo economicus is supposed rationally to defend his or her interests, given the available information.

This approach highlights differences between individual and collective rationality: what is good for an economic actor is not necessarily good for society. For example, an individual, a company or an administration may choose to pollute or adopt environmentally friendly practices; a company or a bank may abuse its monopoly power or take excessive risks; a politician may choose popular policies which go against the common good. In such cases, economists can identify “market or political failures” and recommend solutions.

The homo economicus abstraction has proved very useful, yet it has its limits. We do not always behave rationally, and we have complex objectives. Our choices can be driven by mood, the desire Opinion Behavioural economics to project a good image, levels of empathy, or stress. Take our tendency to maximise our present wellbeing to the detriment of our future happiness. This can reduce our overall welfare: we smoke, drink, eat and look at screens too much; we don’t invest enough in exercise, savings or human relations. That our impulsive behaviour does not promote our best interest is reflected in policies that encourage saving for old age or tax unhealthy consumption.

Other social sciences have encouraged economists to consider the effect on our behaviour of psychology, evolution and historical context. The influence on economics of these other disciplines has grown rapidly since the 1980s. It is a trend reflected in the three Nobel Prizes awarded for work in behavioural economics (by Daniel Kahneman, Robert Shiller and Richard Thaler) and one for political science (Elinor Ostrom). Homo economicus has been replaced by a more complex, but also more realistic, being.

This vision of disciplinary cross-fertilisation led, for example, to the founding of the Institute for Advanced Study in Toulouse in 2011, with the aim of fostering research involving those working in different disciplines. Researchers there publish papers on issues such as the ethics of self-driving cars, age-related diseases, biases in judges’ decision-making and co-operation in indigenous communities in the Amazon.

Working in a truly inter-disciplinary way is challenging, as it is never easy to question one’s theoretical assumptions, nor to study other disciplines while at the same time keeping up to date with developments in one’s own field. It can mean carrying out a research project in one discipline with limited influence from another. Such crossovers are an excellent start, but we need to go further. The practice of crossing and mixing disciplines needs to be learnt as early as possible on the academic path.

I am confident, however, that with time and effort scientific communities will be able to re-enact the wisdom of the thinkers of the Enlightenment. This is the key to a better understanding of the multiple forces shaping human behaviour today.

This article has been published in the Financial Times. (Copyright ©)