Rationality Revisited

By Sean Carroll | September 17, 2007 11:41 am

Speaking about how someone with a physics background might approach economics, you might prefer intimidatingly-informed commentary over my unfettered-by-knowledge noodling. In that case, you should zip over to Cosma Shalizi’s blog, where he offers a thoroughly-hyperlinked meditation on the state of econophysics. Full of good stuff along the lines of:

So then: why oh why don’t we have better econophysics?

The first reason which occurs to me, now that I’m a dues-paying, card-carrying statistician, is that almost all econophysicists are theoretical physicists, and moreover statistical physicists. (I’m one myself, or at least was through my Ph.D.) Modern physics began, in the 17th century, by fusing mathematical
theorizing
and artisanal craft, but one result of our progress has been to impose a specialized division of labor, sharply separating theory and experiment; Fermi was probably the last physicist to be both a great theorist and a great experimenter. (Perhaps this is connected to his invention of Monte Carlo?) This means that it is very rare for a theoretical physicist to analyze actual empirical data (say, measurements of magnetic susceptibility), which is what the experimentalists do. Theorists instead deal with experimental results (say, that the susceptibility depends on temperature in such-and-such a way). In high energy physics, theorists are actually so remote from contact with experimentalists that a separate guild of interface specialists (“phenomenologists”) has arisen to mediate between them. As a natural consequence of this division of labor, theorists receive no instruction at all in data analysis, let alone statistical inference.

There is much more. Jim Cronin once loaned me some videotapes of old news shows from the 1940’s that featured interviews with Enrico Fermi. He was an amazing guy, the kind who would kill time on a free afternoon by coming up with an explanation for the origin of cosmic rays. It’s too bad that, in the popular or semi-popular imagination, his name doesn’t immediately pop up on the list of the demigods of 20th-century physics. You could make a solid case that he should be number two after Einstein.

Crooked Timber links to Cosma’s post, and also features a post by John Quiggin that follows up on mine. He notes that most of my suggestions are well-incorporated into economics, which is no surprise. The part that is judged interesting is the idea that social scientists would be well-served to distinguish between descriptive notions of what people do and prescriptive notions of what is considered “rational.” A blog at The Economist (the magazine they like to call a newspaper) makes a similar point, so maybe there is something there. Indeed, we are informed that this kind of reasoning keeps popping up despite the fact that Joseph Butler demolished it 300 years ago, so there must be something attractive about it. (Hey, David Hume demolished the argument from design before William Paley even popularized it, but you don’t see it fading away, do you?)

CATEGORIZED UNDER: Academia, Science
ADVERTISEMENT
  • http://backreaction.blogspot.com/ B

    Well, he makes a couple of interesting points there, thanks for the pointer! I too tend to think if one has a model (he calls it a theory) it is crucial to be aware of its limitations, or one can produce all kind of nonsense. Sadly, economical reasoning itself is very often applied outside its range of validity, be that time scales, or aspects of our lives. That is to say, though I find the topic very interesting and I think one can understand and possibly predict certain behaviors of systems which can be very useful, the idea of econophysics itself is fundamentally flawed, since there is no aspect of our societies that can really be reduced to economy.

    the repertoire of ideas taken from physics is very impoverished.

    Overall seen, I think that the use of theoretical physics in social sciences is an area that will grow in importance during the next decades. Sadly, it’s one that isn’t yet payed very much attention to – esp. outside economics. One can’t just reduced the whole field to complex systems/networks or thermodynamics. This isn’t going to get us anywhere – most importantly because analysing a system isn’t sufficient to actually find out how to change it in practice.

    I definitely do think that the understanding of how theoretical models apply to all aspects of our life, how progress affects our society, and vice versa is beneficial for both, natural and social sciences. And on the long run – our world getting more and more complex every day – it will become increasingly important to understand these relations.

    See also: Lightcone Institute.

    Best,

    B.

  • spyder

    Gosh, maybe i could be an economenologist???; although i am more aligned with Negri and Marcuse in these matters.

  • http://www.smudgefinny.wordpress.com Smudge Finny

    Why would a serious physicist get involved with a quack science, like economics?
    I think phrenology has a greater success rate!

  • Elliot
  • http://tsm2.blogspot.com wolfgang

    > how someone with a physics background might approach economics

    I hope that politicians would learn from the recent “quant finance crisis” that it is cheaper to fund the next super-accelerator and unlimited numbers of NSF grants for string theorists etc., than to let physicists work in finance 😎

  • Ken Muldrew

    I would have thought that the first question a physicist would ask about economics would be to have the conservation laws enumerated. If there are no conservation laws, then there are no symmetries, and not much room for a physicist to show her chops. Are there such laws in economics?

  • onymous

    In high energy physics, theorists are actually so remote from contact with experimentalists that a separate guild of interface specialists (“phenomenologists”) has arisen to mediate between them.

    That’s a fairly irritating characterization, which makes me wonder how the hep-th crowd pulled off the trick of getting to keep the name ‘theorists’ while the rest of us theorists got labeled ‘phenomenologists.’ I propose we now have hep-th (formerly hep-ph), where theorists (formerly ‘phenomenologists’) post their work, and hep-no, where noumenologists (formerly ‘theorists’) post theirs.

  • http://blogs.discovermagazine.com/cosmicvariance/sean/ Sean

    If phenomenologists had been the ones to think up the arxiv, they could have kept hep-th for themselves, and set up hep-st as the string theory spinoff. But they didn’t.

  • Simon DeDeo

    My philosophy friends find the physics use of the word “phenomenology” utterly hilarious, since for them it conjures up Heidegger & co.

  • nouimprovedmenon

    Hi, surely you know that QUANTUM FINANCE exists, in at least two forms!!

    http://www.amazon.com/Quantum-Finance-Integrals-Hamiltonians-Interest/dp/0521840457

    http://www.porkpie.demon.co.uk/quantum.htm

    I was particularly impressed by Schroedinger’s Bank Account.

  • Lord

    Fundamentally, I think we have to face all action, other than by the mentally incapacitated, is rational by definition, and the lack of our ability to explain it as such points up not the shortcomings of rationality, but of our understanding of it. Emotions themselves are rational in contributing to our survival. Describing something as irrational merely means we don’t understand the reasoning behind it. Prescribing ‘rational’ behavior presumes our reasoning is superior to the facts and existing beliefs, a dubious but possible proposition. Still, as some are more suited to survival, some are probably more rational, or at least more informed, than others. It is, however, easy to be captured by our own mistaken beliefs and reasoning, especially when they conform to our pre-existing biases.

  • Jason Dick

    Lord,

    No, this is not the case in the least. Advertisers found out long ago that enumerating the benefits of products in advertisements is hardly effective at all. The more effective advertisement strategy is to attempt to show how a person will benefit socially from the product in question (e.g. beer commercials with beautiful people having fun together).

  • Thomas Larsson

    You could make a solid case that he [Fermi] should be number two after Einstein.

    Perhaps Fermi didn’t like being number two. From Physics Today:
    “He was totally secure in his own physics talent and almost never displayed jealousy of another scientist. The only exception was Einstein. More than once, Fermi expressed annoyance at the attention Einstein received from the press. “

  • http://smudgefinny.wordpress.com/ Smudge Finny
  • http://backreaction.blogspot.com/ B

    Jason: I think what Lord meant to express is that making decisions based on emotions should not be understood as more or less rational than basing them on careful consideration of possible pros and cons. It depends on how you understand ‘rationality’. E.g. I recall some survey results (will see if I can find a reference) according to which people who take into account many facts and are very careful with their decisions are usually less happy with the outcome than people who make faster ‘gut-feeling’ decisions. Now you can ask whether it’s irrational to make a decision such that you’ll be happy about it, even if that implies not looking right and left and knowing you could have made a ‘better’ choice? Best,

    B.

  • Lord

    God knows benefiting from a product socially could hardly be considered a rational desire. 😉

  • Jason Dick

    The irrationality comes when the advertisement itself generates the social status of a product, such as has happened with diamonds and McDonald’s.

  • Dan S.
  • Lord

    Irrational believing it to be so, or acting to make it so? Is it more rational to not act on mistaken beliefs or to act on them? Is it more rational to look more at the past or the future? Is it more rational to look more distantly or closely? Does rational exist prospectively or only retrospectively? If our information or our judgment was wrong does that make it irrational or merely mistaken? Every animal seeks survival even though none do. Does that make them irrational?

  • http://magicdragon.com Jonathan Vos Post

    The suggestion that there are foundational problems with meaningfully axiomatizing Economics (which is a Science, since its first Great Book, “Waelth of Nations”, Adam Smith, 1776) is:

    Q: Can you give a nontrivial non-circular answer to the question: “Why should I be Rational?”

  • http://notsneaky.blogspot.com notsneaky

    “Why should I be Rational?”

    I don’t know. Should you? You’re asking the wrong question.

  • Ike Solem

    Maybe econo-physics should try applying the far simpler notion of mass-energy balance to their models. These come out of fluid dynamics models, radiation transfer models, and the like.

    The argument economists have is that they don’t need to worry about such things because we live in an age of plenty, so physical limitations don’t really matter.

    Unless I’m wrong, economists seem to assume that human wants and desires will allow them to overcome physical limitations via technological innovations. The fact that a drought can wipe out an agricultural crop can be overcome by say, mining groundwater or piping water from a large distant river.

    However, this assumes a never-ending supply of energy and a never-ending supply of arable land for an ever-increasing human population. Such assumptions are hardly justified.

    As proof of this, the econometric models used by many economists to justify NAFTA predicted a net rise in pay on either side of the US-Mexico border due to increased efficiencies on both sides. The actual result was the opposite, and no economist has ever been able to explain why their models failed so miserably – in fact, they don’t even talk about it.

  • Ike Solem

    Fermions! Having protons, neutrons, neutrinos, electrons (okay, quarks and leptons) named after you is quite an acknowledgement. Fermi just didn’t write popular books, so that’s probably why he’s less well-known.

  • Ilja

    Q: Can you give a nontrivial non-circular answer to the question: “Why should I be Rational?”

    Why? The circular answer is nice:

    Definition of the rational strategy: The optimal strategy to reach the own aims.

    Why should I be rational? To reach the own aims.

    Why should I reach my own aims? You should not. Its your choice. But I think you want it.

  • Jason Dick

    Q: Can you give a nontrivial non-circular answer to the question: “Why should I be Rational?”

    Not that hard to argue this, really. Consider that you have desires, simple things like, “I want to start a family,” “I want to have a successful career that I enjoy,” “I want to enjoy the company of friends and family.” We all have such desires, things that we want to bring about. So, the question is, how do we best achieve these goals?

    There is where being rational comes in. Being rational allows us to objectively examine the evidence to determine which actions will be most likely to bring about that which we desire. It also allows us to examine conflicting desires, weigh them against one another, and determine which we really do want (e.g. I want to buy a fast new computer, and I like AMD’s processors, but Intel’s are faster right now).

    So yeah, if you have any desires at all, and you want to bring those desires about, then you should be as rational as possible in bringing about your desires.

NEW ON DISCOVER
OPEN
CITIZEN SCIENCE
ADVERTISEMENT

Discover's Newsletter

Sign up to get the latest science news delivered weekly right to your inbox!

Cosmic Variance

Random samplings from a universe of ideas.

About Sean Carroll

Sean Carroll is a Senior Research Associate in the Department of Physics at the California Institute of Technology. His research interests include theoretical aspects of cosmology, field theory, and gravitation. His most recent book is The Particle at the End of the Universe, about the Large Hadron Collider and the search for the Higgs boson. Here are some of his favorite blog posts, home page, and email: carroll [at] cosmicvariance.com .

ADVERTISEMENT

See More

ADVERTISEMENT
Collapse bottom bar
+