This is a version of a University of Bradford. Department of
Social and Economic Studies Research Paper issued in January
1996.
WHITHER PSYCHOLOGICAL ECONOMICS?
I. INTRODUCTION.
"The borderlands of Economics are the happy hunting-ground of the
charlatan and the quack, and, in these ambiguous regions, in
recent years, endless time has been devoted to the acquisition of
cheap notoriety by attacks on the alleged psychological
assumptions of Economic Science. Psychology, it is said,
advances very rapidly. If,therefore, Economics rests upon
particular psychological doctrines, there is no task more ready
at hand for the intellectually sterile, than every five years or
so to write sharp polemics showing that since psychology has
changed its fashion, Economics needs 'rewriting from the
foundations upwards'. Professional economists,absorbed in the
exciting task of discovering new truth, have usually disdained to
reply .." [Lionel Robbins(1932) p.84]
"Economics is sometimes accused of being sterile,unrealistic and
inhumane. We are often charged with ignoring psychological and
institutional issues that may have most of the explanatory power.
This stereotype has had some truths but it is becoming less
accurate". [Eward P.Lazear(1991) p.108]
Thus did Lionel Robbins seek to reject any attempt to
widen economics beyond the basic constrained maximization
approach. Things are not so different today;Maital(1982) and
Earl(1990a) provide an introduction to the current crop of those
who Robbins would dub quacks and charlatans. The quote from
Lazear might suggest that things ARE different but it will become
apparent that there is not a fundamental shift in the use of
pscyhology in economics.
The basic position espoused by Robbins is that 'new truths'
are found by working out the implications of a homo economicus
conception of the individual. This conception itself is not to
be challenged as it is an eternal verity. As a consequence of
this the maximization principle was treated as apodictic in the
formation of modern micro theory. It was seen as the current
psychological doctrine by the early marginal utility theorists
in the late nineteenth century. Their research agenda could in
principle allow for a recasting of economic theory in the light
of advances in psychology. One of the most basic facts about
Jevons work [Black 1970] is that, in modern terms, it was an
attempt to complete the research program of Jeremy Bentham
through mathematical formalization. An inevitable consequence of
mathematical formalization is that certain subtleties and
philosophical niceties get lost in the process [see
Mirowski(1991)]. There is a narrowing down of the image of
humankind. The hardening of economics, in imitation of the
physical sciences, has rested on the idea of a homogeneous
economic man. One implication of this is that, holding price and
income factors constant, the behaviour of individuals will be the
same apart from random variability in tastes. This has defined
the research program of modern economics as evidenced in the
manifesto of Becker & Stigler (1977). Problematic phenomena have
been dealt with by expanding the range of price and income
factors. The most potent tool in this process has been human
capital. The work of Becker and his students consists almost
entirely of unfolding the ramifications of human capital. Thus
has economics advanced into the analysis of all areas of human
activity. Crime,sucide, religion divorce etc. have been examined
without any apparent need for moral deliberation or specialist
knowledge beyond the fundamentals of constrained optimization and
interpretation of regression package output. In essence, the
same psychological theory adopted by Jevons and endorsed by
Robbins still holds sway in the core of economics.
II. PSCHOLOGICAL ECONOMICS OR ECONOMIC PSYCHOLOGY.
A quack or charlatan in Robbins definition would presumably
call their work pscyhological economics. This is not a term
readily found and there is no school of psychological economics.
There are mavericks (like Peter Earl) who do this work but they
are forced into bed with 'economic psychology' for example
Earl(1990) is the only economist who wants to put Kelly's
personal construct psychology at the centre of economics and his
publication of it is in a product of an economic psychology
conference. He titles the last section of his survey (1990A)
'Toward a Normal Science of Psychological Economics' and sees no
hard and fast distinction between economic psychology and
psychological economics.
It is time to say a little bit about economic psychology.
Economic Psychology has a high profile through IAREP(Internationl
Association for research in economic psychology) and its Journal
of Economic Psychology , a recent ESRC funded, in the U.K.,
research program and textbooks such as Furnham et al.(1994).
There is no such background of Psychological Economics although
textbooks do exist [Maital(1982). IAREP is dominated by
psychological work on economics such as an exploration of the
beliefs people attach to money. The psychological economist
would, in contrast, still focus on prices and quantities albeit
with psychological input. Prices and quantities are of little
concern to economic psychology as can readily be seen in Furnham
et al.(1994) and earlier textbooks in the field. I am suggesting
in the above that there is little discourse between psychology
and economics rather there are economists who borrow some
psychological theory and psychologists who do psychological
things with 'economics' topics
We want to consider in this paper the nature of a
paradigmatic discourse involving psychology and economics.
Coats(1976) did just this for psychological economics. My paper
will consder the validity of his position then and now. One
potentially useful by-product of this is that we might find a
means of categorising or schematicising the various schools of
economics which dare to be different from the neoclassical
hegemony.
Economic psychology can be viewed as 'normal science'.
Routine empirical testing is carried out. There is a well-defined
agenda, for example spending patterns, money and debt problems
are frequently researched whilst there appears to be no work by a
psychological economist on crime despite the fact that this is a
frequent research topic in both economics and psychology. There
is also a glaring absence of interest in psychological factors
in the difference in national growth rates. The book by
McClelland(1961) is the only empirical work on this topic. At its
most basic psychological economics would involve bolting on some
psychological measures to a standard economic model.[see e.g.
Starkey(1991), Bartlett(1990), Hudson & Jones(1994) Earl(1990a)
Cameron(1991)].
III. Historical backgound
Given the wide range of his comments on the motives for
human behaviour it is probably fair to call Adam Smith a
psychological economist. In classical economics the core of the
discipline was given a sharper focus. Economists like the Mills
believed that they were adopting state of the art psychology. It
is notable that Marx attacks many aspects of classsical
economics but seems to retain enthusiasm for homo economicus.
The first serious assault came with the antagonism of historical
(or social) economists in the latter part of the nineteenth
century when Marshall was the major target [see Cameron(1982)].
In fairness it should be pointed out that Marshall was not a
rigorous adherent of homo economicus in his discussions although
the formal aspects of his work seem rigidly tied to homo
economicus.
In the U.S. attacks were frequent in the early decades of
the twentieth century due to the influence of instituional
econmics. The book by R.G.Tugwell(1924) is a good example of the
attack strategies. A notable chapter by Paul Douglas(1924)
goes through the history of great sientists and big entrepreneurs
to show the strength of non-economic i.e. psychological factors.
He justifies this as follows:
"We need imperatively to know more about the relative prevalence
and strength of man's desire to do a workmanlike and efficient
piece of work;of his ability to sacrifice for a principle,an
institution , or a person;and of his craving for recognition by
others. It is a serious count against the neo-classical school
that they ahave either denied or minimized the existence of such
motives, or have brushed them aside with the statement that, for
the sake of simplicity any consideration of them may be excluded"
{ibid.p.155)
By 1930, the attempt to infuse economics with pscyhology
was soundly beaten. Latsis says of this: "the adoption of
anti-psychologism as a heuristic canon is not only unnecesssary
but, by restricting permissible types of explanatory
generalization, may halt progress in microeconomics " [Latsis
1972 p.229] Latsis is perhaps a little naive about the ideology
of economists. Welfare economics and general equilibrium are
seen as the highest pinnacles of the economist's art and
psychological or behavioral intrusions may pose a great threat to
the nice results obtained by the mathematically over-endowed. For
example, economic psychologists Maital & Maital (1994) dare to
suggest the adoption of a model in which indifference curves
intersect.
Coats(1976) shows how the neo-classicals beat off the
challenge. Coats argues that the debate was useful to
neoclassical economists as ".. the hard core of economics was not
merely preserved intact; it was also reinforced, as its key terms
were more careully specified. Moreover the protective belt of
auxiliary hypotheses was strenghtened by the elimination of
unnecessary and suspect propositions. The perfection of this
approach came in 1948 with Samuelson's foundations. From the late
1960's there have been dissenting voices ranged against
neoclassical orthodoxy in the form of post-Keynesianism,
radicals, the continuance of social economics and
institutionalism and now with feminist economics. None of these
disciplines has a strong agreed core conception of the person at
the base of their research program.
IV. PSYCHOLOGY AND ECONOMICS SINCE 1976
As mentioned earlier we need to distinguish between
economic psychology and psychological economics. It is also
necessary to distinguish 'add-on' psychological economics from
fundamental recasting of the microeconomic base. The quote from
Lazear in the quote at the head of this paper implies that
normal science economics can embrace the add-on approach. It is
easy to see why this happens as there is no threat to the
citadel of welfare economics. Put bluntly, Robbins had no need to
get so worried. Worry might persist if there is fear of a hard
drugs/soft drugs model whereby dabblers with add on variables
might succumb to fundamental recasting which makes economics
'soft' and unmanly.
The distinguishing feature of modern economics is the
attempt to maintain a unified field theory. Model predictions are
seen as, in a broad sense, universal. They are not regarded as
entirely accurate as sources of error and randomness are
admitted. There are thus certain qualifications attached. However
a qualification of the form 'It depends on whether the agent is a
Type X or a Type Y Person ' whether a change in an exogenous
variable will induce a positive/negative/no change in the level
of a related activity would, not so long ago,not typically be
found in the mouth of an economist. Rather, 'it depends' would
be followed by a statment about the structure of the utility
function.
The above typological prescription would have been seen as
a weakening or softening of the scientific status of the
discipline. It is my contention that this sort of prescription
would follow from an opening up of economics to allow for the
dimensions of human personality. Avoidance of such typologically
qualified prescription could be justified on the grounds that
diverse behavioural responses can be explained without modifying
the unified economic man approach. This is the substance of the
attack by Brennan(1989) on recent attempts to bifurcate the
objective function of economic agents. To take a simple
illustration the finding that some people respond positively,
others negatively and some not at all to the same policy change
could be explained in terms of income and substitution effects
which operate in opposite directions. This kind of explanation
allows divergent directional responses without invoking any 'type
of person' arguments. A more sophisticated example of this kind
of thing can be found in rational choice explanations of drug
addiction which eschew any reference to traditional clinical
notions of an 'addictive' personality [e.g. Becker &
Murphy(1988)].
Good examples of the one dimensional perspective of
mainstream economics can be found in the treatment of household
debt and AIDS. The experience of AIDS raises certain problems for
orthodox micro theory. It has swept through society with amazing
speed. From 1985 to 1989 deaths from AIDS, in the U.S., rose from
8,183 in the year to 35,328 [Hellinger(1990)]. As death from AIDS
is avoidable the recent experience is hardly Pareto optimal from
the stance of conventional welfare economics. The standard
response would fall into two parts. Firstly some deaths are due
to information failure; i.e. some have died because they were
ignorant of the true risks. Second, behaviour can be controlled
through the price mechanism. If too many people are dying this is
because the risky activity is underpriced. It follows that we
should tax AIDS creating activities in order to reduce their
supply. Notwithstanding the serious threat the latter poses to
democracy it has been suggested by LLoyd(1988). The willingness
to risk long run health for short run excitement can only be
discussed in neo-classical economics in terms of a rate of time
preference or risk preference. Finding out why people have these
tastes are not part of the agenda. Purity of discipline is
maintained by dismmissing such tastes as pathological with the
usual policy conclusion being that people who have such tastes
deserve all they get. This is precisely the thinking that emerges
when the standard economist applies his mind to the problem of
household debt.
Alec Chrystal seems to think that people are high powered
rational expectations type utility maximizers in their approach
to money management.(Let it not be forgotten that many of those
who have problem servicing their debt have little education and
are poor). He says:
"There may be individuals who simply cannot be trusted with a
credit line, or indeed with money. They are incapable of making
rational allocations of the resources at their disposal. This is
not a very common occurrence. It is a problem mainly in the eyes
of some sectors of the media ..."
[Chrystal(1991), p.17]
A welcome, recent atypical paper by Lawrence Ausubel(1991)
does adopt a typological approach in explaining certain facts
about credit card interest rates. Whilst it is exciting that this
paper occurs in the paramount organ of economics it is a little
galling that Ausubel's explanation relies on a class of
'irrational' consumers, who are only dragged in because the usual
approach does not work, without there being any reference to
relevant literature on economic psyschology. His 'irrational
consumers' are those who think that they will pay off their card
debt but somehow fail to get round to it. No model is provided to
explain why they fail in this way!
Mainstream economics is bereft of any systematic concept
of the person. The economic agent is a maximizing machine serving
as an atom in the competitive process. Individual choice is not
itself seen as a process; ostensibly it is just another black
box. Micro theory focuses on end states usually the long run
equilibrium solution to given data . This is not an analysis of
choice in the sense that choice is a form of behaviour; it does
not inquire into the evolution of the ultimate choice. According
to Buchanan, [1969, p.47 in 1979 reprint] "The motivational
postulate, the behaviour of homo economicus , effectively converts
the purely logical theory of choice into a science of behaviour".
So, elementary calculus (the purely logical theory of choice)
becomes a science of behaviour when we add the assumption of
maximization of a utility function subject to restrictions. This
rather gives away the game so vigorously defended by Robbins. The
neoclassical treatment might be a science of behaviour but there
is no guarantee that it should be the science of behaviour. It
is surely the epitome of being non-scientific to assume that one
assumption is better than others when there is no conlusive test
that rejects rival positions. Such a position may be influenced
by criteria such as elegance and minimal assumptive content which
come to have a higher relevance than truth.
As emphasized by Frank Knight(1948) choice comes from
beginnings which are but dimly glimpsed by the choosing agents.
The focus on end states gives an analysis only of what is chosen.
This is not the same thing as analysing choice. The object of
the theory is to explain the chosen, i.e. long run equilibria,
not the act of choosing. Given this beginning we are ineluctably
drawn into the problem of tautology as is shown in the cases of
household debt and AIDS. Any solution can be explained with
reference to some original objective function that could have
generated it. In philosophical and mathematical terms the
approach is deterministic. The notion that individuals have free
will is excluded by the desire to erect an unfalsifiable citadel
of core concepts.
An important factor behind the unified approach in economic
theory is the direction imparted to the research program by its
origins in a world of perfect certainty. The Walrasian general
equilibrium model was worked out without allowance for
uncertainty. This lead to well known problems with integrating
money into the analysis. This has been seized on persistently in
Post Keynesian critiques [see e.g. Eichner(1979)]. These have
failed to see the implications of a proper treatment of
uncertainty for the concept of a person adopted by the economist.
Uncertainty in mainstream economics has been equated with risk
and analysed using the subjective expected utility (SEU) model
which has been subject to considerable criticism. Notwithstanding
this the proposed alternatives have stayed within the same
paradigm of finding ways of weighting outcomes with known
probability distributions [see e.g.Machina(1989)]. Characterizing
risk environments in this way poses few problems for the economic
man; all that has happened is that there are some new price
variables, the known probabilities to be ground through the
maximization routine. If one argues that uncertainty and risk
are not coterminous and that uncertainty has the property of not
being reducible to unique objectively determined quantities then
we are left with a vacuum. Some principle of action is needed to
render decision-making determinate. Post-Keynesians have
responded to this with the notion of 'animal spirits'
[Kopl(1991)]. The use of animal spirits looks suspiciously like
another 'balck box'. Its status could be greatly strengthened if
it was tied to some prior determinant such as the structure of
personality.
If we go foward with the idea that there are different
personalities we must either decide on a schema or taxonomy of
these personae or identify characteristics which define
personality if rigour of analysis is to be maintained. If all
persons were unique in terms of characteristics, relevant to
economic behaviour, then systematic analysis would not be
possible. The only type of research would be case studies. If we
work with 'types' of agent people must be grouped into a
sufficiently small number of types to make analysis manageable.
One would also expect to build on pyschological work, of some
kind, to justify a specific taxonomic undergirding.
Here we enter the interesting problem of choosing a
taxonomy or a bundle of characteristics approach. There are a
number of contenders which have emerged from two basic routes.
One is empirically assessed dimensions of personality as found in
mainstream social psychological research e.g. Cattell(1967). The
other is moral or humanistic as in the work of Fromm(1949) or
Maslow(1971). The empirical approach derives from a hard-nosed
positivism every bit as rigid as that espoused by neoclassical
economists. The basic premise is that personality can be measured
in terms of a series of traits. These can then be used to predict
behaviour in a variety of spheres of activity. The traits are
constructed by combining questionnaire responses into indices
through the use of factor analysis. Factor scores can then be
further correlated with measures of behaviour. The traits
themselves are things like introversion,extroversion,
neuroticism, obssesiveness, compulsiveness. The personality
approach in psychology shares with mainstream economics the
assumption that motivation is not an important explanatory
factor. In both cases the justification for this is that
behaviours to be studied elicit similar levels of motivation from
all individuals. In economics the motivation is of course utility
maximization. It is obvious that only a small degree of
eclecticism would be needed for an economist to wander into this
field. All that is needed is that personality is introduced as an
explanatory variable which was previously regarded as given under
the rubric of 'tastes'. The economist could then go to one of the
manuals containing an extensive battery of test instruments such
as American Psychiatric Association (1987). The most suggestive
area for this is labour economics. In practice, what has happened
is that economists use crude proxies for personality rather than
performing psychological measurements; see, for example, cp.
Bartlett et al. (1990) use study of executive compensation. The
use of psychometric tests in personnel selection is well known.
If firms behave efficiently then this must imply that
productivity is functionally related to personality and that
psychometric test scores should be included in the traditional
MIncerian human capital earnings function.
A strongly neo-classical economist might baulk at the above
position but there are plenty of workers in applied fields such
as labour e.g.Lazear whose lesser preoccupation with general
equilibrium and welfare economics who should prove amenable.
The notion of personality does not appear in economics as a
rule. It is indicative of the contortions that will be gone
through, in the mainstream,to preseve a unified model that
Lazear(1991,p.107) refers to the personality of groups of people
in the form of a firm in a section of his paper titled 'Applying
Psychology to Economics' but nowhere refers to individual
personality! Outside of the mainstream the post-Keynesians,
radicals and institutionalists have consistently attacked the
'one dimensional man' aspect of economics. However, they have not
done a huge amount, other than emphasize habits, to bring forth a
personality laden economics.
I should provide some outline of the state of psychology as
I am blatantly going against Robbins at the risk of being called
a quack or charlatan. The mainstream in psychology focuses on
measuring such things as attitudes using scales derived from
questionnaires. The model of man is basically one of stimulus and
response. It is quite easy to view necoclassical economics in
these terms IF we leave out the utility maximization postulate,
and by implication welfare economics, as price changes can be
seen as a stimulus and quantity cahanges as a response.
In the last five years, a 'new' psychology, discursive
psychology has arisen. [Harre & Gillett(1994)] If psychological
economics is to become a convincing alternative paradigm then a
coherent social psychological foundation is needed. To date
efforts in this direction have been dissappointingly piecemeal
and limited tending to focus on hierarchy of needs ideas or dual
preference models. something which they can slot in to an ongoing
research program.
The overall thrust is that Cartesian mind/body
dualism must be abandoned. This is seen at its extreme on p.81
of Harre & Gillett where it is claimed that "social influences
shape brain function". The essence of a discursive approach is
that individuals construct their self or identity through various
types of skills including that of manipulating symbols of which
language forms an important category. In economic terms the
argument would become one that preferences are determined through
social interaction rather than being exogenously given by a
personality 'type' as in some forms of the 'old' psychology.
Again this threatens conventional welfare economics. Choice is
seen as a process whereby individuals make their own
reality/identity as opposed to being a product of a pre-defined
identity. Human cognition, it is argued, does not follow simple
fixed rules in response to unambiguously perceived cues for
action. A satisfactory cognitive model should have an "adequate
representation of the rules of discursive activity" (p.79).
Clearly price changes, in neoclassical economics, are
unambiguously perceived cues for action. There is here
considerable opposition to a neoclassical approach at the
fundamental level. One might expect that the significance of
regression based research would be severely reduced.
The authors give emphasis to the intrinsically moral
nature of discourse. On p.104 they say, "I am located in
a network of mutual obligations and commands to a manifold of
other people and even to some animals" and on p.117 "I structure
my activity in the light of prescriptive norms or discursive
validations, which tell me how I ought to respond if I wish to be
understood in this or that way". In economists' terms we are now
facing the proposition that tastes are imbued with normative
content as a consequence of their social construction through
interaction with the moral universe of symbols and their
interpretation by others.
Recent work by economists on akrasia {self conctrol} has
stayed within the utilitarian cast of neo-classical economics by
positing two sets of preferences one of which is prefered to the
other. Within such a schema, welfare improvements can be brought
by the agent, or an external body, imposing a prior quantity
constraint or additional price mechanism on the choice
environment. Harre and Gillett do not directly discuss this
although their position can be gleaned from the following :
"Rationally structured content used in recommending or validating
the preferred course of action is not what the incontinent agent
needs. The problem can not be solved merely by adding rational or
causal weight on the right side of the scales." (p.119) This
implies that weakness of the will can not be managed by the
methods advocated by economists. How it can be managed is
described somewhat verbosely: "We would say overcoming akrasia
involves a discursively learned skill of regulating one's
behavior so that it conforms to the rule-governed significations
one endorses in a given context" (p.119). One masters "the
structurings of one's activity according to one's own discursive
positionings"
The revealed form of personality is personal identity
which is essentially subjective as it is forged from interaction
with others. It is subject to disruption from forces in the
subconscious etc.; according to Berger & Luckmann (1971,p.118:
"The 'sane' apprehension of oneself as possessor of a definite,
stable and socially recognized identity is continually threatened
by the 'surrealistic' metamorphoses of dreams and fantasies
(....). Identity is ultimately legitimated by placing it within
the context of a symbolic universe"
For an examination of consumer behaviour consistent with
the thinking of Harre & Gillett and Berger & Luckmann see
Douglas & Isherwood (1978). For a 'type of person' approach see
the study of management styles by Kets de Vries and Miller(1988)
who look at schizoid, paranoid, depressive and compulsive
organizations. This is in great contrast to neoclassical
industrial organization which sees success or failure as due to
market conditions, entrepreneurship and transactions cost.
The only thinking about managers is in terms of agency where the
relevant question is whether or not managers appropriate
substantial
V. APPLICATIONS.
In the text I have at times referred to particular topic
areas where the differences between psychological economics with
add ons, fundamentally recast psychological economics and
neoclassical economics. However it is easier to see the claims of
a personality laden economics when some concrete questions are
considered. Accordingly I give some topic areas where economics
and psychology are in some degree of, or possibility of,
discourse.
ARE EXPECTATIONS RATIONAL ?
Pschological literature and literature on decision-making
[e.g.Chan(1982). ] emphasizes certain in built tendencies against
rational expectations. Under prediction may have a different
meaning from over-prediction or vice versa depending on what is
being forecast. In general, people tend to be over-optimistic
[Weinstein(1980) in expecting favourable life events.
Chan(1982) gives the example of diagnosing mental illness from a
group which contains normal people but no prior evidence is given
on which are which; experts over predict the number of mentally
ill.
Ito(1990) analyzes panel data of biweekly surveys on the
yen/dollar exchange rate expectations of 44 institutions for 2
years. He finds as follows:
(i) there are significant 'individual effects in expectation
formation
(ii) the individual effects show 'wishful thinking' exporters
expect yen depreciation and vice-versa.
(iii) many violate the rational expectations hypothesis
(iv) forecasts with long horizons showed less yen appreciation
than those with short horizons.
If anything casts doubt on the necolassical model then
surely this does. A researcher sympathetic to rational
expectations using data from individuals we would most expect to
be rational decision-makers finds substantial departures from the
model. This should not surprise perusers of psychological
journals. This shows frequent findings that individuals
generalize from uncharacteristic and ludicrously small samples of
data; in the extreme case one observation. It is also found that
academics qualified in the appropriate lore fails to obey the
postulates of subjective expected utility model.
DOES CAPITAL PUNISHMENT DETER?
This is an area into which economists have moved with
dramatic impact. No modification of the Chicagoan economic man
approach has taken place in the process [see Cameron(1989)]. The
assumption of utility maximization under stable preferences has
been rigidly maintained. As punishment is assumed to,being
painful, lower utility it is expected that increasing punishment
associated with an activity to the level of death will greatly
reduce that activity. It would follow, as recognised in research
on labour economics, that carrots would work as well as sticks.
There would be obvious difficulties in giving specific bonuses
for not murdering people. This does not rule out the fact that
the conventional model implies that giving resources to certain
groups of the population would decrease the murder rate. The
driving focus of economic research in this area has thus been a
predisposition toward the existence of a deterrent effect
[Cameron (1988)].
Psychological theories have tended to go beyond this into a
more dynamic concept of personality [see e.g. Eysenck(1970)]. One
can find an argument for the efficacy of capital punishment
within the psychological paradigm in that the exercise of
punishment may condition a moral conscience. However punishment
will not be a universal preventative. The response of
individuals depends on whether they are extroverts or introverts.
The former respond poorly to conditioning whilst the latter
respond well. All types of punishment run the risk of being too
severe for the easily conditioned. As Eysenck says(1970,p.169)
"the attempts of society to treat both types alike probably means
sitting between two stools and getting the worst of all worlds" .
Clearly this points in the direction of adding on a personality
measurement. Policy is made more complicated as increasing the
entry price of crime {i.e. the level of punishment)does not
guarantee the required deterrence. Perverse i.e. positive
relationships may be found without recourse to an income and
substitution effect or something even more elaborate involving
risk attitudes and/or portfolio theory.
CAN MARGINAL PRODUCT BE NEGATIVE?
The usual restrictions on the production function would
dictate the impossibility of negative marginal products. Taking
up the insight of Leibenstein(1982) we can offer a variations in
X inefficiency story that is consistent with negative marginal
products. In Cameron(1991a) the regression results for the
police production function shows a zone of negative marginal
product. Adding policemen may lead to a fall in clearance rates
because there is more 'shirking'. Individuals may reduce their
own effort supply because they perceive that there is less need
for it as there is a greater sum of effort to be expected from
others when the need of others is increased. Increasing the
number of individuals in a workplace may also provide scope for
opportunistic behavior. In concrete terms workers may be
allocated to duties which have a higher personal consumption and
lower investment element. In police force terms larger forces may
mean that special units can be formed to do work which is more
interesting and stimulating to officers even though its ultimate
payoff may be slight or non existent. Problems remain in
explaining the up turn in the relationship at higher levels of
policing. A Leibenstein type explanation of this would focus on
the degree of departure from maximizing behavior exhibited by
police force managers. Leibenstein's 1982 paper offers a three
stage process description of behavior. Firstly, individuals
behave according to habit or convention rather than seeking to
maximize. Second, if pressure on them mounts they adopt a more
deliberative form of behavior and finally if a high degree of
pressure is felt they become completely calculative. The up turn
here could be seen as the response to a high degree of pressure.
ARE DRUG ADDICTS RATIONAL?
There have been recent moves to treat addiction, which
would traditionally have been regarded as non-rational problem
behaviour, as a case of rational choice [see e.g. Becker &
Murphy(1988), Becker(1992)]. Becker defines an addiction as
"simply a strong habit" [Becker(1992),p.329] where a habit is
defined as a dependency of consumption on past levels. This is
"harmful or 'bad' if greater present consumption lowers future
utility " [ibid.p328] p.328]. An individual with a strong bad
habit/ addiction is thus someone prone to make cognitive errors
who may therefore have an incentive to seek to correct these or
even sign themselves into an institution for a period of
short-run disutility. If the indidividual has the extreme
rationality of Becker models then they can manage their addiction
without recourse to such corrections. Akerlofian cognitive
dissonance can be deployed to bridge over this gap. If we took it
to its logical conclusion then we would end up viewing insanity
as the end product of a rational choice process where the mind
has lapsed permanently into a created world because dealing with
the 'real' world would threaten the existence of the body. This
would arise where the cognitive filter breaks down totally and
the individual is no longer able to juggle the multiple states of
mind in which they exist. It is at this point that a cure, such
as formal therapy, may be sought. For cases of incongruity of
behaviour with stated meta preferences then the same argument
applies but the indidivual merely faces less psychic strain of
reconciling the two states of the world.
It is interesting that Becker's discussion of
addiction treats it as differing from habit only in degree rather
than kind. This is an entirely correct and logical deduction if
one holds to mainstream economic theory as the suitable model of
human behaviour. Attempts to widen this model in terms of self
control, dual preferences, Akerlofian cognitive dissonance etc.
do nothing to change the essence of Becker's position as they are
still an "an only slightly-modified utilitarianism".
[McCain(1990a,p.78)]. This is why multiple utility is seen as
futile by some microeconomists [e.g.Levy(1988)] as it merely
introduces complicating detail into the standard model.
Humanistic psychologist Eric Fromm treats addiction as
derivative of neurotic cravings:
"To crave that which is harmful is the very essence of mental
sickness. Every neurosis thus confirms the fact that pleasure can
be in contradiction to man's real interest" (Fromm,1944,p.180)
This is a difference of kind rather than degree as needs or wants
are viewed as non-homogeneous. Neurotic cravings are seen as
different from 'normal' tastes. Becker ignores the process
leading to cravings treating them as a by-product of a standard
rational choice process. In mainstream economics it does not make
sense to say that pleasure is in contradiction to one's real
interest as one's real interest is the pursuit of pleasure.
Some therapists [see e.g. Mahony & Waller(1992,pp.173-175]
regard addiction as emanating from a narcissistic disorder.
Narcissistic conflicts arise where an individuual blocks or
internalizes aggressive impulses towards love objects under
pressure from a frustrating environment. Such feeelings are
trapped in the non-verbal stage of development and may require
non-verbal (arts therapeutic) regression to the stage of fixation
in order that they be explored. In terms of multiple preference
models, such individuals in normal cirumstances are not able to
be overtly conscious of the self which is associated with the
ideal set of preferences. Their experience is one of conflict
between actual preferences and the knowledge that they are not
the preferred state. A cycle of addiction is here different from
in the Becker model. It would represent a build up of tension and
aggression spilling over into frustration at inability to
discover and enforce 'true meta-preferences'.
It should be apparent that a therapeutic approach to
addiction or a Hare & Gillett approach does not readily tell you
which variables to put in your regression. This arises because of
a fundamental shift in the self or personality. My earlier
examples fit in to the bolt on psychological variant of
psychological economics. I would contest that a piece of story
telling such as the therapeutic approach to drug taking should
not be rejected in favour of the supposed neutral scientific
objectivity of a regression. A regression is just as much a
story as the conclusions drawn are backed up by rhetoric [see
e.g.McClelland ( 1985) and very often the methodology specified
is not used [Darnell(1989)].
VII. CONCLUSION.
This paper has explored the issue of 'psychologizing'
economics. Past attempts have been considered with the conclusion
that a type of psyhchological economics which bolts on a
pscyhological variable or two will prove acceptable to the modern
neoclassical who will not be as histrionic as Robbins. Fundamental
recasting is not so likely to be accepted not least because it
seems to involve learning new skills and a shrinkage in the
applicability of the old skills of calculus applied to a few
simple assumptions. Earl(1990a) is very much in favour of bolt
on approaches; he seems to be saying 'come on in the water is
lovely' whereas for a strict neoclassical worldview which
encompasses general equilibrium and welfare economics the water
may be full of sharks.
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