Brooks and the New Economics

Apropos of Larry’s recent post (and paper) on economic analysis, David Brooks had an interesting op-ed in yesterday’s New York Times, under the headline “The Return of History“.  In the piece, Brooks offers a history of the discipline of economics, in five acts, culminating in the following:

Economics achieved coherence as a science by amputating most of human nature. Now economists are starting with those parts of emotional life that they can count and model (the activities that make them economists). But once they’re in this terrain, they’ll surely find that the processes that make up the inner life are not amenable to the methodologies of social science. The moral and social yearnings of fully realized human beings are not reducible to universal laws and cannot be studied like physics.

Once this is accepted, economics would again become a subsection of history and moral philosophy. It will be a powerful language for analyzing certain sorts of activity. Economists will be able to describe how some people acted in some specific contexts. They will be able to draw out some suggestive lessons to keep in mind while thinking about other people and other contexts — just as historians, psychologists and novelists do.

In something of that spirit, I might flag a recently completed (and submitted) paper of mine, entitled Beyond Individualism in Law and Economics.  In it, I argue that law and economics – and, in a sense, economics more generally – must recognize important challenges to its methodological orientation to individuals, just as it has recognized, over the last twenty years, the limits of its assumption of rationality.  Once the discipline does so, I suggest, it will invite far broader insights, akin to those offered by the behavioral revolution in psychology and economics.

The abstract, for those interested, is below the fold.

The study of law and economics is built on two pillars.  The first is the assumption of individual rationality.  The second, less familiar, is the practice of methodological individualism.  Over the last twenty years, law and economics has largely internalized behavioral critiques of the rationality assumption.  By contrast, it has failed to recognize the implications of growing challenges to its methodological individualism.  Where social norms shape individual choices, network externalities are strong, coordination is the operative goal, or information is a substantial determinant of value, a methodology strongly oriented to the analysis of individuals will overlook at least as much as it reveals.  Among other potential distortions, indicia of consent may be given greater weight than they deserve, the evolution of law and norms may be underemphasized, and our regulation of information, knowledge, and even the financial markets may be flawed.  As with the shift toward a more careful approach to rationality, then, attention to the limits of methodological individualism may lead us to a richer account of law and economics.

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4 Responses

  1. I skimmed your article (for now) so perhaps I missed a reference, but I admit to being a bit surprised to seeing a fairly sophisticated discussion of the literature that omits perhaps the foremost articulate exponent of methodological individualism, namely, Jon Elster. It would also be nice to see some references to critiques of rational choice explanation that have been in circulation for some time but have not trickled down in any profound way in the law and economics literature: those by Amadae, Mirowski, Sen, Hausman and McPherson, McCloskey come quickest to mind.

    I’m constitutionally disposed to find critiques of law and economics congenial but I wonder if your critique of methodological individualism here is largely confined to its understanding and employment in much of that genre but perhaps not about methodological individualism as such, and here I’m thinking of Jon Elster’s work, which not infrequently deals with institutions, social norms and coordination games grounded in the assumptions of methodological individualsm. A methodological individualist can appreciate social structures, institutions and sundry collective rules, constraints and norms, etc., all such social phenomena, in principle, capable of being explained by the properties, goals, beliefs and actions of individuals. There’s nothing intrinsic to the method that need involve a lack of appreciation for the various roles of collective structures and behavior (including ‘interdependencies’) or for the role of constraints in explaining social phenomena. Incidentally (or not), one of the more perspicuous discussions of social norms, Cristina Bicchieri’s The Grammar of Society: The Nature and Dynamics of Social Norms (2006) largely repsects the principles of methodological individualism. As Elster has explained, we may supplement choice-based explanations with other methods but they can hardly replace such explanations:

    “Also in some case one may argue that selection of agents rather than choice by agents is reponsible for the behavior we observe. By and large, however, I believe that the subjective factor of choice has greater explanatory power than the objective factors of constraints and selection. This is obviously an intuition that cannot be proved in any rigorous sense, and in any case social scientists ought to have room for all the factors in their toolbox.”

    This strikes me as true enough.

  2. Robert Ahdieh says:


    Thanks for your excellent comments. A few quick thoughts, by way of response:

    On the narrow question of citation to Elster, I thought there was at least passing reference to him – even in this earlier version of the paper, on SSRN – but perhaps the cite fell out, at some point in the editing process. In any case, though, my attention to him (as well as other important advocates and critics of methodological individualism) is limited, given that my critique is, as you suggest, “largely confined to [the concept’s] understanding and employment” in law and economics, and in neoclassical economics more broadly.

    Beyond that, though, I guess I would offer some resistance to what I take as your substantive argument for the capacity for methodological individualism to embrace collective structures, institutions, and interdependencies. I don’t dispute that one could construct a theory (or definition) of methodological individualism that does so. As I attempt to suggest in Part I of the paper, though, it is often unclear what is intended by the invocation of methodological individualism in the analysis of such phenomena. And where it is clear, I am unsure it is consistent and/or sustainable. Thus, I read Elster as minimally failing to make explicit what he sees as capable (and incapable) of inclusion in social scientific explanations. Further, I read him to adopt a strong form of methodological individualism that takes the form of psychological reductionism. As “method,” however, I think the latter will often prove problematic, in the settings I highlight in the paper.

    Finally, on your conclusion, and the passage from Elster with which you close, I think you largely echo where I end up: not with a claim of methodological holism, or any claim that methodological individualism must be displaced, but rather with the argument that multiple forms of explanation may be relevant, depending on the particular setting of interest. This, perhaps, comes back to my particular emphasis on law and economics (and the neoclassical economics from which it derives), where I see conventional explanations as excluding too much, beyond the individual. Hence my critique.

  3. A.J. Sutter says:

    Brooks’s column shows his ignorance — such an historical project is exactly what a group of Baby Boomer scholars, including Philip Mirowski, D. Wade Hands, Esther-Mirjam Sent and quite a few others have been engaged in for more than 20 years. The books written and edited by Mirowski raise deep questions about the intellectual coherence of neoclassical economics, collectively forming a far more devastating critique than behavioral economics (which is just a tweek of the prevailing orthodoxy). At least NCE economists are familiar enough to regard him as a pain in the butt (or in his own words, as an “aging enfant terrible“); that his work is totally ignored in the parallel universe known as L&E is just shows that L&E folks have drunk the Kool-Aid about NCE far more than have economists. Patrick is right to have mentioned him.

    Your paper, if not an exception vis-à-vis Mirowski &al., does seem to be one in the Kool-Aid-drinking sense. Still. it looks like you’re at least taking a sip: one hopes your enthusiasm for Hayek might be tempered after taking a look at the volume Mirowski recently edited with Dieter Plehwe, The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective (Harvard UP 2009). You might also take a look at the volume edited by Mirowski & Hands, Agreement on Demand: Consumer Theory in the Twentieth Century (Duke UP 2006), especially Mirowski’s concluding essay, which includes a good historical overview of mid-late 20th Century utility theory and, briefly, NCE’s fascination with evolutionary arguments. A couple of essays in that latter volume also deal with the Sonnenschein-Mantel-Debreu theorem and other aspects of the problem of aggregating individual demand curves, which is certainly relevant to your theme.

    The concept, if not the appellation, of “methodological individuality” is much older than Schumpeter and not necessarily Austrian. You can find it in Walras, in Irving Fisher’s 1891 Ph.D. thesis, and probably even in J.-B. Say (see definition of utility in his Traité d’économie politique (1st ed. 1803, but not in later editions) and definition of society in the 1821 2d ed. of his Catéchisme d’économie politique).

  4. Robert Ahdieh says:

    On your suggestions re: Mirowski, I’m grateful, and will definitely take a look. On Hayek, my intent was not to suggest enthusiasm, so much as to counsel that even he embraces a more complex account than the reductionist individualism for which he is sometimes cited in the law and economics literature. Finally, on Schumpeter, my only suggestion was that the term originated with him. I believe I have a note somewhere, acknowledging earlier antecedents – to which I will happily add the additional references you suggest.