23.7.09

INDIVIDUAL SUBOPTIMIZATION, COLLECTIVE PROGRESS. Michael Shermer's The Mind of the Market: How Biology and Psychology Shape our Economic Lives attempts to combine insights from behavioral economics, complexity theory, and game theory to suggest that people can learn from their interactions in such a way as to improve collective outcomes. He's open about suggesting that behavioral economics and complexity theory need not have as their sole normative implications some sort of paternalism or some sort of philosopher-kings to address coordination failures. Book Review No. 22 suggests that while attempts to square a libertarian approach to public policy with a model of human behavior that is not the calculating machine of vulgar homo economicus is worth doing, the work is more useful (perhaps fittingly for the current affairs columnist of Scientific American) as a sociable rebuttal to the popular works on behavioral economics that draw a more collectivist normative implication than it is as a basis for economic research.

That research remains to be done, but it requires a lot more by way of formal development. Surveys that suggest people react differently to perceived gains than they do to perceived (despite being equivalent) losses require something better than a Friedman-Savage squiggly utility function before the work can begin. That complexity theory has a lot in common with Austrian market models also requires additional work. The reader of The Mind of the Market will find more by way of puzzles than solutions, although that might be a good place to start for a research project in the history of economic thought, or perhaps an extension of game theory or of decision making with uncertainty.

(Cross-posted to 50 Book Challenge.)

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