Metaeconomics as a Humanistic Behavioral Economics

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Metaeconomics draws heavily upon, while also contributing to, the rapidly growing, empirically based research in Behavioral Economics.  To understand how it relates, we draw especially on Altman (2012) and Tomer (2017) who characterize and describe the entire field of Behavioral Economics, with the goal here of showing how Metaeconomics relates to this field, and offering Dual Interest Theory as perhaps a Theory that could well become a  feature of Behavioral Economics (BE), especially a more Humanistic BE, as suggested by Tomer (2012,  p. 145).  That is, like Neoclassical Economics uses Microeconomics (and, as Tomer, 2017, pp. 145)102-103 argues, New Classical Macroeconomics), and Neoinstitutional Economics is largely atheoretical, i.e. no standard framework or theory used in the field, Behavioral Economics could use Metaeconomics, especially in suggesting future empirical testing.  Metaeconomics could also serve as a theory for the Neoinstitutional Economists, especially those who see merit in both Market&Government approaches. 

           

Tomer (2017) delineates the main strands of Behavioral Economics as follows (relationship to Metaeconomics in bold italics):

 

1. Herbert Simon and Bounded Rationality: “… investigating the degree to which decision-making is rational and self-interested… replace the motivational assumptions of NC economics (Neoclassical Economics) with more accurate assumptions… humans have to learn how to make decisions in the real world by employing simplifications, finding new data, adjusting aspirations, developing improved decision-making processes, resolving uncertainty … find ways to decide and act that are sufficient, not optimal… focused… on individual decision-making… conception of individual decision making involved a significant role for social influences on the individual in and outside organizations (Tomer, 2017, pp. 13-14).”  Bounded rationality is given substantive meaning as the area bounded by path 0G and path 0M (see Figure in What is Dual Interest Theory); rationality is bounded by an orientation to Self-interest only on path 0G and an orientation to Other-interest only on path 0M. It is irrational to be outside this bounded region. It is also clear that the best choice within the bounded rationality region is at a point  which is a satisfactory, sufficient, distinct entity point characterized by a bit of sacrifice in both the Self-interest and the Other-interest. Also, this choice is the result of social influence, represented in the Other (shared with others)-interest on path 0M; yet, we keep the notion from Neoclassical Economics that everything is within the Own-self…this is still about individualism, individual choice, individual decision making…but a choice with a joint outcome in two realms of interest, the Dual Interests,  due to nonallocable goods in consumption and nonallocable inputs in production.The goods and inputs cannot be separated out, made independent, but rather are interdependent, nonallocable between the Self&Other-interest.

2. George Katona: “… emphasized psychology… interested in understanding consumer behavior and the behavior of the macroeconomy… emphasis on empirical observation of behavior… use of surveys, often involving interviews, to learn about attitudes, aspirations, expectations, optimism/pessimism, social learning/cognition, habituation, and stereotypes… interdisciplinary (Tomer, 2017, pp. 14-15).” Metaeconomics grew out of surveys and focus groups, interviews regarding what motivated soil and water conservation decisions by farmers. The very first paper published, as we started down the path of what would become Metaeconomics was titled Attitudes and Farmer Conservation Behavior (Lynne, Shonkwiler and Rola, 1988): This paper demonstrated, empirically, that only 15-20% of the conservation decisions were explained by Neoclassical Economics reasoning. Also, the attitude measurements came from approaches developed in Social Psychology, making this approach very interdisciplinary, and showed how the methods for gaging attitudes was a way to in effect measure utility, or, at least a proxy for it.  We also researched recycling behavior, another kind of conservation. The path from a low- to a higher-level theory of Metaeconomics was paved by surveys, interviews, focus groups, and, eventually data collected in an experimental and behavioral laboratory setting, the latter involving more than just “captured” university students, inviting participation from the general public in the experiments.

3. Harvey Leibenstein and X-Efficiency (XE) Theory:   “… develop a conceptual framework for understanding why less than optimal internal efficiency (X-inefficiency) is the usual state of affairs in firms… questioning the rationality assumption, particularly the idea that people maximize… variables in XE theory are generally quantitative ones, and the theory is in principle testable… generally use graphs to depict the essential theoretical relationships… present… novel behavioral ideas in a language familiar to neoclassical economists… has an interdisciplinary element but it is not fully integrated with social science disciplines like psychology and sociology…focuses very much on the individual, an individual who is self-interested, but generally not fully rational…(rather is) constrained by commitments, social obligations, conventions, identifications, and attitudes about cooperation…(individual has) achievement need, contaminating emotion, and motivation/enthusiasm affected by the degree of bureaucracy…(Tomer, 2017, pp. 15-16).”  XE Theory is largely about a production process, within a firm (using the input-input version of the Figure, producing two joint products,  in What is Dual Interest Theory).  Importantly, the sufficient, satisfactory point B (again, in the Figure) is, thus, constrained and otherwise affected by matters outside the firm, as  in the Other-interest represented in commitments, social obligations, conventions, identifications, and the gains from cooperating with others to achieve the shared interests. And, while bureaucracy has not heretofore been considered in Metaeconomics, clearly it could be so considered, as bureaucracy pertains to perhaps a burdensome Other-interest that pulls the firm too far from the Self-interest path 0G, with too much of a bureaucractic orientation on path 0M. Yet, Metaeconomics also allows for the possibility of maximization as associated with least cost use of inputs, which occurs at point B on path 0Z, but now X-efficiency involves balance in the two outcomes, the two interests.  Also, what appears to be X-inefficiency at point B, which it is with respect to the Self-interest only point A, it actually is X-efficiency, resulting from maximizing across the Self&Other-interest.

4. Psychological Economics:   “… focuses…on the cognitive functioning of the human mind and why people are prone to make predictable errors in their judgments and decision-making… focuses on smaller decisions and on less complex situations in order to isolate specific types of human cognitive bias… empirical research often takes place in laboratory settings…(findings of) unrealistic optimism…strong tendency to go along with the status quo or default option…systematic departure from the economically rational decision-making behavior…the core of Neoclassical Economic assumptions of self-interest, rationality, and self-control are challenged… (yet, the overall approach is) to modify one or two assumptions (in Neoclassical Economic) theory in the direction of greater psychological realism…documenting how human behavior typically violates the patterns of behavior predicted by Neoclassical Economics’ subjective expected utility model… full range of empirical methods of Neoclassical Economics as well as laboratory and field experimentation, use of field data, computer simulation, surveys, and even brain scans…much less individualistic…recognize that behavior may not be self-interested or strictly rational… recognize  important social influences on individual decision making…(Tomer, 2017, pp. 16-18).” Metaeconomics evolved from using the full range of empirical methods also used in Neoclassical Economics, especially using field data and surveys, methods which showed failure in Neoclassical Economics propositions, with continued findings of failure after progressing  to collecting data in controlled laboratory settings.  The core assumptions simply do not hold:  Individuals pursue Dual Interest,  not just Self-interest; they satisfice in each domain of interest, rather than maximize exclusively in either domain,  which is deemed not rational in Neoclassical Economics.  Metaeconomics does see maximization involving both domains, like at point B on path 0Z).  The degree to which  Self-control  is operant  (presumed as always being so in Neoclassical Economics) gives understanding to how the Other-interest tempers, influences (or not) the Self-interest. Also, testing was always designed such that the default would be the Neoclassical Economics or Neoinstitutional Economics prediction; that is, the tests were mainly about whether the Other-interest was a force. If empirically not supported, the default would have been the Neoclassical Economics prediction that it was all about maximizing Self-interest only, as measured in Utility and/or Profit; this was never found, in any of the tests. If on the other hand, the Other-interest would have been  found the only force, Neoinstitutional Economics would be the default, with Self-interest no longer the main driver. Findings supported neither:  We have continued to find Self-interest as more primal, but the more accurate representation suggests it is more about Self&Other-interest, jointly pursued, seemingly a  relatively minor change, in light of the original propositions by Smith (1759;1776), but actually a quite revolutionary, substantial change in Neoclassical Economics due to it ignoring Smith (1759). It also lends more credence to the part of Neoinstitutional Economics that sees a role for the Market, just a tempered role:  Self-interest is at work, and generally needs to be tempered. Also, by focusing on Self&Other-interest we now have a theory that can work with  Economic Sociology, Social Psychology, and , perhaps even more importantly, with  Economic Psychology (or, as Tomer describes it, Psychological Economics), and with the new Neuroeconomics. Looking to the future, the testing of Metaeconomics has to date focused  mainly on relatively small decisions, like whether to use drip irrigation to save water or minimum tillage to save soil or to buy recycle content goods or to recycle;   future Metaeconomic testing needs to be taken to the larger context, to macroeconomic type questions.

5. Richard Nelson, Sidney Winter, and Evolutionary Theory:  “…borrows the evolutionary idea from biology, especially Darwin’s notion of natural selection involving differential rates of survival…focus on firms’ regular, predictable behavioral patterns…routines… analogous to genes in that the better ones are selected due to the survival and prospering forms containing these (genes)…compatible with the hypothesis of an industry lifecycle…many applications to an implications for understanding technological change processes… while human behavior frequently conforms to regular patterns or routines, humans generally do not behave in a maximizing way…very compatible with concepts in the field of organizational behavior… strongly interdisciplinary…modern organizational theory, business strategy, business history, and cognitive psychology…(Tomer, 2017, pp. 19-20).”  The current version of Metaeconomics is short on evolutionary dynamics; it relies on comparative statics much like Neoclassical Economics.  Yet, it does suggest a potential dynamic between the Dual Interests (within the band between path 0G and 0M, in Figure, a kind of attractor as in resilience theory), seeing the contention that firms interact with other firms within an industry, which Metaeconomics suggests the nature of that interaction would come out of the evolution of the Other(shared with other firms)-interest, as an evolutionary Moral Community shared by these firms ebbs and tides, crashes and reaffirms itself through time. Theories in organizational behavior, and ways to measure the key variables,  would help in making sense of the Other-interest at work in an industry. Also, Metaeconomics is interdisciplinary, crossing over with this strand in seeing Darwinian ideas about the IndividualOrganism&Ecosystem, Individual(Fittest)Survival&Group(Fittest)Survival as key to understanding Firm&Industry, Self&Other-interest. It is likely, albeit an empirical question, that both the fittest individual and the fittest group both need balance in the self&other-interest.   Metaeconomics also draws heavily upon cognitive psychology (see What Inspired), especially in the notion of the interplay of Child&Parent, Me&We, Ich&Du,  I&Thou, Self&Other, Autonomy&Homonomy, with the Adult bringing the Self-control (or outside control, when necessary, as in Angyal's Heteronomy), seeing the jointness and seeking the balance.

 

Old or New Behavioral Economics?

 

Tomer (2017, p. 21) also distinguishes the “old Behavioral Economics (BE)” and the “new BE.”  He sees everything other than some more recent applications of Psychological Economics as of the “old” variety;  in this book, we would also add much of what we refer to as the behavioral parts of Neoinstitutional Economics, too, as part of this “old” framing. So, what is the “new Behavioral Economics?”

           

Tomer sees new BE as that tightly tied to Neoclassical Economics, involving mainly empirical attention to base assumptions, like examining Utility or Profit maximization. There is, within this new BE, an insistence, too, on the Self-interest as the only driver of choice. We would include, using the territory delineated by Tomer as new BE, the work of such prominent experimental economists like Vernon Smith (see his Nobel Lecture, Smith, 2003, to understand this point).  Also, his paper the “The Two Faces of Adam Smith” (Smith, 1998), due to seeing only Self-interest,  misses the point that Adam Smith really saw two interests at work.  It was this failure to see that Adam Smith had in mind two, joint, dual interests which also led to the “das Adam Smith problem” in the German historical school, a problem that vanishes when framed in Metaeconomics, with two joint, interdependent and nonseparable, dual interests. So, joining with Tomer (2017), and his concern that new BE has not paid enough attention to old BE, Metaeconomics is more firmly connected with old BE than with new BE, as the latter reflects  some minor adjustments to Neoclassical Economics, with little immediate hope it will lead to any substantive changes.

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100 Percent Self-interest, 100 Percent Rationality, 100 Percent  Self-Control?

 

Overall, as Tomer (2012, p. 122) points out, Neoclassical Economics presumes, generally without empirical test,  "100-percent self-interest, 100 percent rationality, and 100 percent self-control."  Metaeconomics has demonstrated in study after study that individuals do not act in 100 percent self-interest nor with  100 percent self-control, neither across individuals, and, even within individuals, not all the time, wherein they vacillate in the balance of interests and how much self-control they can muster.  On rationality, Altman (2012, loc 1089) points to a long list about what it means in Neoclassical Economics, none of which carry much in the way of empirical credence, as represented in:   “… materially selfish, maximizing his or her material wealth; focuses very much on himself or herself in making decisions; maximizes profits and productivity; is a prodigious and rational calculator; is forward looking; has stable and consistent wants and desires or preferences; has will power.”  As both Altman (2012) and Tomer (2017) make clear, Behavioral Economics based empirical science, including Metaeconomics, puts all of these presumptions in question; Metaeconomics research generally agrees, albeit the notion of Own-interest, i.e. focusing "very much on himself or herself" does seem to be supported, albeit this Own-interest includes both Self&Other-interest, with the the latter sometimes having to be nudged, at least nudged to be more mindful.  Overall, however, over 4-decades of empirical research in Metaeconomics (see details in Kalinowski, Lynne, and Johnson, 2006; Lynne et al. 2016) supports the notion,  like Thaler and Sunstein (2008), that real decision makers are better described as Human rather than the Econ characterized in this list.  We need a Humanistic Behavioral Economics, with Metaeconomics seen as part of this New Economics... perhaps even being what we eventually just refer to as Economics.  It is truly time for a major paradigm shift. 

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Altman, M. 2012. Behavioral Economics for Dummies. Mississauga, ON: John Wiley and Sons Canada, Ltd.

Kalinowski, C.M., Lynne, G.D. and Johnson, B. . 2006. "Recycling As a Reflection of Balanced Self-Interest: a Test of the Metaeconomics Approach." Environment and Behavior no. 38 (3):333 – 355.

Lynne, G.D., Czap, N.V., Czap, H.J., and Burback, M.E. . 2016. "Theoretical Foundation for Empathy Conservation: Toward Avoiding the Tragedy of the Commons." Review of Behavioral Economics no. 3:245-279.

Smith, Vernon L. 1998. "The Two Faces of Adam Smith." Southern Economic Journal no. 65 (1):1-19.

Smith, V.L.  . 2003. "Constructivist and Ecological Rationality in Economics." American Economic Review no. 93:465-508.

Thaler, R.H. and Sunstein, C.R. 2008. Nudge:  Improving Decisions About Health, Wealth, and Happiness. New Haven, Massachusetts: Yale University Press.

Tomer, J.F. 2017. Advanced Introduction to Behavioral Economics. North Hampton, MA: Elgar.