(Roughly) Daily

Posts Tagged ‘Milton Friedman

“Wouldn’t economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?”*…

Behavioral economics aims to accomplish exactly that. Its approach has been to catalogue the dozens of cognitive biases that stop us from acting “rationally.” Jason Collins argues that instead of building up a messier and messier picture of human behavior, we need a new model…

From the time of Aristotle through to the 1500s, the dominant model of the universe had the sun, planets, and stars orbiting around the Earth.

This simple model, however, did not match what could be seen in the skies. Venus appears in the evening or morning. It never crosses the night sky as we would expect if it were orbiting the Earth. Jupiter moves across the night sky but will abruptly turn around and go back the other way.

To deal with these ‘anomalies’, Greek astronomers developed a model with planets orbiting around two spheres. A large sphere called the deferent is centered on the Earth, providing the classic geocentric orbit. The smaller spheres, called epicycles, are centered on the rim of the larger sphere. The planets orbit those epicycles on the rim. This combination of two orbits allowed planets to shift back and forth across the sky.

But epicycles were still not enough to describe what could be observed. Earth needed to be offset from the center of the deferent to generate the uneven length of seasons. The deferent had to rotate at varying speeds to capture the observed planetary orbits. And so on. The result was a complicated pattern of deviations and fixes to this model of the sun, planets, and stars orbiting around the Earth.

Instead of this model of deviations and epicycles, what about an alternative model? What about a model where the Earth and the planets travel in elliptical orbits around the sun?

By adopting this new model of the solar system, a large collection of deviations was shaped into a coherent model. The retrograde movements of the planets were given a simple explanation. The act of prediction became easier as a model that otherwise allowed astronomers to muddle through became more closely linked to the reality it was trying to describe.

Behavioral economics today is famous for its increasingly large collection of deviations from rationality, or, as they are often called, “biases.” While useful in applied work, it is time to shift our focus from collecting deviations from a model of rationality that we know is not true. Rather, we need to develop new theories of human decision to progress behavioral economics as a science. We need heliocentrism… 

For a thoughtful critique of current thinking and a set of four “features” that might inform a new approach: “We don’t have a hundred biases, we have the wrong model,” from @jasonacollins.

* Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions


As we dwell on decisions, we might spare a thought for someone who would probably have had little patience for ideas like these, Rose Friedman; she died on this date in 2009. A free-market economist, she was the wife and intellectual partner of Milton Friedman– a father of the “Chicago School” of neoclassical economic thought that underlies the neoliberlism so dominant of late [see here], of which behavioral economics is a corrective/critique– with whom she co-wrote papers and books (e.g., Free to Choose and Capitalism and Freedom) and co-founded EdChoice (formerly the Milton and Rose D. Friedman Foundation), with the aim of promoting the use of school vouchers and “freedom of choice” in education.

When her husband received his Medal of Freedom in 1988, President Ronald Reagan joked that Rose was known for being the only person to ever have won an argument against Milton.


“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist”*…


The tenth anniversary of the start of the Great Recession was the occasion for an elegant essay by the Nobel laureate economist Paul Krugman, who noted how little the debate about the causes and consequences of the crisis have changed over the last decade. Whereas the Great Depression of the 1930s produced Keynesian economics, and the stagflation of the 1970s produced Milton Friedman’s monetarism, the Great Recession has produced no similar intellectual shift…

Robert Skidelsky explains why at: “How Economics Survived the Economic Crisis.”

* John Maynard Keynes


As we delve into the dismal, we might spare a thought for Robert Burton; he died on this date in 1640.  An Oxford scholar, he is best known for his classic The Anatomy of Melancholy, an odd mix of wide-ranging scholarship, humor, linguistic skill, and creative (if highly approximate) insights– a favorite of scholars and authors from Samuel Johnson to Anthony Burgess.



Written by (Roughly) Daily

January 25, 2018 at 1:01 am

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