Behaviorism in Economics: A Funeral

One reaction to my recent piece in Econ Journal Watch is “economics isn’t about what people say or believe; it’s about what people DO.” The easy response is: Not anymore, it isn’t! Survey research has exploded in economics. So has the whole field of Psychology and Economics. If economics is what economists do, then what people say and believe is now economics.

It is pretty obvious that the latest generation of economists has lost – or never had – interest in methodological injunctions against studying anything other than “observable behavior.” Check out Timur Kuran’s cool work on preference falsification. But was there ever any reason to abide by this restriction? It is grossly counter-intuitive. I know by introspection that my beliefs affect my behavior, and I know by experience that asking people what they are doing is often informative. So how did a doctrine so contrary to common sense ever become conventional wisdom?

All the economists I asked traced behaviorism in economics back to Milton Friedman’s essay, “The Methodology of Positive Economics.” (Here’s an excerpt). Upon re-reading it, I was surprised to learn that he barely touches on the issue. Virtually the whole essay is about the alleged impossibility of testing assumptions, as opposed to predictions. His central complaint about survey research is NOT “economics is about what people do, not what they say.” Instead, his central complaint is that surveys are yet another futile effort to test assumptions.

Friedman’s only specific arguments against asking people are “throw-aways”:

1. “The evidence cited [against profit-maximization] is generally taken either from the answers given by businessmen to questions about factors affecting their decisions – a procedure for testing economic theories that is about on par with testing theories about longevity by asking octogenarians how they account for their long life – or from descriptive studies of the decision-making activities of individual firms.”

2. “Little if any evidence is ever cited on the conformity of businessmen’s actual market behavior – what they do rather than what they say they do – with the implications of the hypothesis being criticized…”

3. “I do not mean to imply that questionaire studies… are useless… They are extremely valuable in… constructing new hypotheses or revising old ones. Whatever their suggestive value in this respect, they seem to me almost entirely useless as a means of testing the validity of economic hypotheses.”

Pretty flimsy stuff. Point by point reply:

1. I’d say asking businessmen what they do is a lot more “on par” with asking a satellite installer how he installs satellite t.v. systems. Listen up, he probably knows the answer. Of course, many people digress when you try to pump them for information, but the common sense solution is to keep questioning them to keep them on track. Don’t lead the witness, but discourage him from off-roading.

2. I doubt Friedman’s charge was ever correct. But suppose it was. The solution to one-sided focus on talk is not one-sided focus on behavior. The solution is doing both, and taking both seriously.

3. How can asking people be so useful for getting new ideas, but so useless for testing existing ideas? It’s not impossible, but highly implausible. If people have insightful new things to tell us, they probably have informative old things to tell us too.

Admittedly, Friedman’s essay was not primarily a defense of behaviorism. I’ve heard better arguments. The leading candidates:

1. People lie.

2. People make mistakes.

Both are true, but it is a weird over-reaction to use these inadequacies to excommunicate talk from economics. My rebuttal:

1. Yes, people lie. But there are times to raise your eyebrows, and times to take people at their word. Two big rules:

Be skeptical of self-serving statements. “Are you a hard worker? Yes!”

Doubt “socially desirable” responses. “Do I maximize profit? No, my workers are my first priority!”

2. Yes, people make mistakes. But some people are a lot more likely to make mistakes than others. That’s why, for example, you should:

Give less credence to hasty and emotional reactions. “Do I maximize profits? I get up every morning and bust my hump all day, unlike you and the other eggheads!”

Trust experts more than laymen, and people with first-hand experience more than people without it. An engineer I know frequently accuses businesses of backroom collusion – except in his own business, where he tells story upon story about cut-throat competition. I discount the first class of statements, but largely buy the second.

In the past decade, behaviorism in economics died. It’s time to give it a proper burial.

I hate to speak ill of the dead, but duty calls. Behaviorism had a lot of smart adherents, but their arguments on its behalf were lame from the start. Furthermore, I strongly suspect that even in its heydey, a lot of economists didn’t believe it, but were too scared to say so.

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