Saturday, June 30, 2012
There has been a debate recently over whether and why macroeconomics is less scientific than its micro cousin. I will leave macro aside for now and say, as clearly as possible, that micro is about as counter-scientific as one can get. The problem is that utility theory, the idea that agents’ well-being can be measured by how much utility they have and that they go through life maximizing this ineffable U, is contrary to logic, evidence and the well-grounded findings of social sciences that actually study human decision-making close up.
Sen nailed the logic part decades ago. Behavioral economics refutes the empirical presumptions. Psychology, including its social and evolutionary branches, offers much more credible models.
Take away this utility maximization stuff and what’s left of micro? There’s lots of excellent econometric technique, of course, and much of the aggregate theory (at the level of markets) still stands, but the agent stuff is at best a distraction and welfare economics is a zombie. Conventional micro is propped upright only by the collective interest of its practitioners in preserving the value of their arcane skill set, and by ideological conviction.
Science it ain’t.