Making economics more human

As the “official doctrine of neoclassical economics, enshrined in all respectable textbooks,” the esteemed game theorist Ken Binmore says, revealed preference theory “succeeds in accommodating the infinite variety of the human race within a single theory simply by denying itself the luxury of speculating about what is going on inside someone’s head. Instead, it pays attention only to what people do.”

So great is its reach that it doesn’t stop with the entire human race. The first papers on experimental economics I ever read as an undergraduate were about how pigeons and rats exhibit ordered preferences and downward-sloping demand curves. How absolutely thrilled was I to learn that I could apply intermediate microeconomics to the entire animal kingdom.

Economists and our students alike read Binmore’s statement and nod in agreement. It doesn’t seem to occur to us, as economists, to question what we ask of our first-year students: What are the benefits and costs of stretching a theory to accommodate all forms of human and animal life? Mid-twentieth-century economists like Paul Samuelson and Hendrik Houthakker developed the tool of revealed preferences to organize consumer behavior in markets. They were interested in the orderly way that consumer purchases change when budget constraints shift. They were not interested in why people switch from butter to margarine when the price of butter increases, just like the experimental economists Ray Battalio and John Kagel were not interested in why a rat switches from Tom Collins mix to root beer when the number of lever presses for Tom Collins mix increases.

Lest I be misunderstood, let me clearly state upfront, for the record, that utility maximization is both important and useful for understanding economics. But let’s also be clear-eyed and honest about its usefulness. Utility maximization is not a sufficient foundation for understanding economics. Economists designed the utility maximization problem to explain intelligible economic consequences—that is, outcomes and outcomes only. The tool provides answers to questions like: What happens to a consumer’s purchases when the price of a good increases? How much of the change is due to their purchasing power, and how much is due to switching to cheaper alternatives?

Economics, however, omits something rather important—namely, that which makes us human—when we do not study ourselves as purposeful beings. If a captor offers us either root beer or Tom Collins mix for pressing a lever, sure, to an observer from Mars, we would look just like a rat in a cage and prefer root beer to Tom Collins mix if and only if we choose root beer over Tom Collins mix. But to state the obvious, we, as human beings in our everyday lives, do much more than simply prefer good B to good A if and only if we choose B over A.

Human beings make meaningful decisions. We understand what one another does as intelligent conduct. We make sense of what people do by what they feel, think, know, and want. Human beings value A in the moment and value B in the future, and we imagine how good it would be for us to have B but not A in the future. We jointly imagine a better future and exchange A for B with another human being.

Human beings are the only species that routinely exchanges one thing for another thing, and all human communities do this. Primatologists have tried their hardest to create the conditions for captive chimpanzees to trade fruit they liked less for fruit they liked more. But chimpanzees would not give up something in this moment for something else they favored more in the next moment. For chimpanzees, there is no favored fruit in the future. There is only now and the fruit in their physical possession now.

Humans stand alone in nature as beings who purposefully turn natural-born enemies into exchanging friends. Humans stand alone as beings who deliberately extend their own average life expectancy and intentionally decrease their own rate of infant mortality. Humans stand alone as beings who actualize healthier and more comfortable lives for themselves. Humans are a marvel. We … are a marvel! Understanding humankind’s place in the world is key to understanding why economics is necessary to explain the wonder and surprise of the human condition. 

Our common humanity tends to get lost, however, in modern social science. We doggedly search for quantitative differences among people—statistically significant differences, of course. The very foundation of economics, however, is about what all human beings do, a point that seems to go unmentioned in every principles of economics textbook. As Adam Smith clearly recognized, the nature and causes of the wealth of nations, however, rests on “the certain propensity in human nature … to truck, barter, and exchange one thing for another.” What sets us apart is not just what we choose or trade, but that we choose to trade—purposefully, imaginatively, and with an eye toward a future that only human beings can envision.

_{Featured image by sydney Rae on Unsplash.}