Gross domestic expenditure on R&D As a percentage of GDP below OECD average but surprisingly on par with Norway
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Critical analysis of “The Economic Approach to Human Behaviour” by G. Becker By Martin Pospisil Professor Gary Becker in his revolutionary work presents the idea that economics is a science based on a particular approach – the economic approach – which is applicable to all human behaviour. This short paper is a critique of the introductory chapter of his book “The Economic Approach to Human Behavior”, in which he has developed a coherent and strong methodology for neoclassical economics based on the extension of the neoclassical model of utility. Becker’s new methodology is a good example of a paradigm shift described by Kuhn (1962). The Kuhnian paradigm shift occurs when a new paradigm has the promise to answer more questions than a previous one. In this notion, Becker offers a new definition of economics linked with an approach rather than with a subject matter and summarizes the main characteristics of this unique approach. The economic approach assumes that 1) people maximize their behaviour, that 2) there is a market for every commodity1 and 3) that there is an equilibrium on every market. Moreover, human preferences are assumed to be stable (non-changing) mostly because it is difficult to understand how preferences are formed. These combined assumptions form the heart of the economic approach and create the economic model of homo economicus. They are enough to reduce all human behaviour to economic behaviour. Becker’s economic approach was “sufficiently unprecedented to attract an enduring group of adherents away from competing modes of scientific activity. Simultaneously, it was sufficiently open-ended to leave all sorts of problems for the redefined group of practitioners to resolve” (Kuhn 1962, p.10). This paradigm shift, moreover, led to economic imperialism, where economics includes areas originally reserved for other social disciplines2. In the Kuhnian notion, therefore, Becker’s economic approach became mainstream in the economic theory as it has attracted an enduring group of adherents. However, economic schools that do not agree with Becker see his logical constructions insufficient or inconsistent. This is mostly because the homo economicus model does not often – contrary to Becker’s original belief – have the ability to explain real human action. The weakest points of Becker’s economic approach are the following assumptions: the stability of preferences, and maximising behaviour. These are discussed more deeply in what follows. Stability of preferences Becker believes that homo economicus has stable preferences. Science, however, should not be build up on believes but on falsifiable hypotheses. Therefore, we have to treat all Becker’s assumptions as hypotheses; otherwise, Becker’s system would only be a kind of religion (based on believes) rather that a coherent science (based on hypotheses). The assumption (i.e. hypothesis) of stable preferences has the big advantage of simplicity. With this assumption, Becker follows the perspective of his mentor, Milton Friedman, who (1953, p.14) argues that “a hypothesis must be descriptively false in its assumption; it takes account of, and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phenomena to be explained”. The hypothesis of stable preferences is dissociated from reality and difficult to test. But as Aranzadi notes (2006, p.148), “what Becker ignores is that once the hypothesis is dissociated from reality, any hypothesis is valid”. Moreover, without hypothesis-testing we can hardly build a coherent science. Becker’s scientific model, therefore, strongly contradicts with the definition of science by Karl Popper who argues that: “ the logical form [of a scientific system] shall be such that it can be singled out, by means of empirical tests, in a negative sense: it must be possible for an empirical scientific system to refuted by experience” (Popper, 1959, p.18). Becker’s scientific system is, however, not capable of falsifying. When Becker argues that he is able to explain all human behaviour, he does not create a scientific system in Popper’s sense as Becker’s system can never be falsified. Becker rather creates a religion: Either we believe in homo economicus or not. We cannot test it, we can not falsify it. In reality, obviously, people’s preferences change, which even Becker admits (Becker 1976, p.14), though he assumes for simplicity their stability. The change in preferences does not mean that people are irrational but rather that there exist motives, drivers (both endogenous such as personal norms and exogenous such as institutions, ethics) that lead the person to change his or her preferences. As people make choices according to their preferences, then if their preferences change, so do the choices. Becker acknowledges a slow evolution of preferences over time (Becker, 1976, p.14); but the evolution of preferences means – contrary to his conclusion – that in his simplified scheme we can explain human behaviour only in the short run then (i.e. before the change of preferences occurs). Becker’s approach offers only a static snapshot of human behaviour, which precludes us from analyzing it in the long run. If preferences change, if they are unstable, Becker’s approach has very circumscribed explanatory power. By neglecting to explain the formation of preferences, Becker is implicitly creating a divide between understanding and explaining human behaviour. It is mostly because the formations of preferences, motives, drivers that affect the behaviour, are crucial for the understanding of human behaviour. If we omit them, we explain behaviour without understanding it. Therefore, for Becker, there must be an implicit divide between understanding and explaining behaviour. Becker stresses the explanatory power of his approach. His economic approach aims to explain human behaviour but it does not aim to understand the behaviour. But even if we accept his notion that the ultimate target of social sciences is to explain human behaviour, we have to ask: Is it possible to explain a phenomenon without actually understanding it? If we answer no to this question (and it would be very difficult to answer yes), then we can hardly use the economic approach to explain all human behaviour. Becker has sacrificed the fullness of human behaviour by focusing only on explanation and not on the understanding of human behaviour. Forgetting to understand the formation of the human behaviour, he analyses only one side of the coin; explaining a phenomenon is not complete without understanding it. An economics which focuses only on explaining human behaviour does not give a full picture of that behaviour, and cannot be called a full-fledged science. It would only be an incomplete method (or a religion). It is not just the assumption of there being stable preferences per se but the formation of preferences matter in the economic theory in order to understand and therefore explain the human behaviour. The stability of preferences means that Becker’s approach is necessarily ahistorical. He does not consider it relevant to look at the historical development to try to understand the formation of preferences. He simply believes that this is out of the scope of economic science and that we should leave the formation of preferences to other social sciences (psychology, sociology). Becker, however, argues that the economic approach can explain all human behaviour but that other fields contribute to the understanding of human behaviour. He says that “the value of other social sciences is not diminished even by an enthusiastic and complete acceptance of the economic approach” (1952, p.14); but why would we need other social sciences if we are able to explain all human behaviour using the economic approach? Economics needs other social sciences to help economics to understand human behaviour as well to explain it but economics can not renege on the attempt to understand the formation of preferences. Even the acceptance of preference changes does not lead Becker to reconsider or relax his economic approach of stable preferences in his original paper (1976). In his later works, he – contrary to his original text – recognises the differences between stable and unstable environment and argues (Becker and Murphy, 2001, p.8): “This [economic] approach is adequate for dealing with many kinds of behavior when the social environment is stable. However, it cannot analyze behavior that aims to change this environment […]. Moreover, it says little about how exogenous changes in the social environment alter behavior, and nothing about how the aggregation of all behavior itself determines the social environment.” Becker therefore 30 years after the publishing of his original article admits that his model worksonly under the condition of stable environment. Much of [the] environment is, however, unstable. The transition from command economy to market economy, war, dramatic social changes, economic crisis, they are all examples of an unstable environment. For all this, the stability of preferences is a weak point of Becker’s economic approach. Maximizing behaviour Apart from stable preferences, Becker assumes that people maximize their utility. To put it simply, people – according to him – maximise a measure of the relative satisfaction from, or desirability of, consumption of various goods and services. He argues that people do not have to maximize utility consciously and that it is sufficient to consider that people behave only as if they maximize utility. With this notion, Becker tries to develop a universally valid theory of utility which is independent of particular facts. As elegant as it may appear, Becker’s assumption is, however, also weak and limited in use. This assumption of behaviour maximisation is an oversimplification. It can be challenged for example with the example of the first Czech president Vaclav Havel. Havel spent five years in prison for his democratic views during the communist regime. He preferred to stay in communist prison to regular offers (from the communists) to emigrate to the US. Havel’s behaviour is difficult to be explained using the economic approach and the behaviour maximisation theorem. It is difficult to imagine anybody maximising behaviour in by preferring to stay in a prison. There must have been some motive, norm, or some sort of ethics that stood behind Havel’s behaviour. What Havel was doing was not behaviour maximisation (either consciously or as if) but rather doing something because he was persuaded it is the right thing to do. His behaviour was based on morals, sense of justice perhaps, but it was not a utility maximising behaviour. This type of behaviour (and the world is plentiful of this type of behaviour) cannot be considered irrational because these decision-makers are rational, meaning they are aware of possible outcomes and take them into account. This behaviour cannot be explained using the economic approach. We see that the generalisation of homo economicus as the basis for explaining every action eliminates the object of study – the human being (Aranzadi, 2006, p.138). The economic approach leaves no room for [the] subjective aspect of human action; it is ahistorical, meaning that the historical development of the society or personal development of the decision-maker is irrelevant. The flow of time, habits, norms, or experiences cannot be included in the analysis. Becker, therefore, creates a technically coherent method for mathematical economics at the same moment as he misses the point that economics is primarily a social science. His theory is static and it does not allow for dynamic changes. He formed the basis for today’s standard neoclassical models and made economics a part of technical sciences. Aranzadi (2006, p.152) argues that Becker’s notion of maximising behaviour copies physics. Economics is, however, a social science and it should do its best to explain but also to understand human behaviour. Following Thaler (2000), we argue that the reason why Becker did not include norms, ethics, and institutions in his coherent yet simplistic model is because these behavioural models are harder than traditional ones. Building models of rational, unemotional agents is easier than building models of quasi-rational emotional humans. Because of the oversimplification of maximising utility, Becker’s model therefore made economics a part of technical sciences. Conclusion Becker states that the economic approach provides a valuable and unified framework for understanding all human behaviour. However, his stylised model of homo economicus has the ability to explain the human behaviour under very restrictive conditions only (short run, no institutional changes, no changes in norms, or ethics). The economic approach therefore, can be renounced in explaining all human behaviour. Becker’s economic approach avoids the attempt to explain what actually drives human behaviour. But any social science must have the ambition to explain the motives of human behaviour if we want to understand the behaviour. Becker has created a world based on simplistic and unrealistic assumptions and within this world all that he proves is a set of tautologies. But even Becker’s mentor Milton Friedman (1953, p.11) stresses that “economic theory must be more than just a set of tautologies if it is able to predict and not merely describe the consequences of action; if it is something different from disguised mathematics.” Becker’s perception of the object of economics – homo economicus – is by assumption different from the real human person. It is not, however, the method of abstraction used in social sciences, but rather a creating of a very specific world, where Becker’s assumptions hold but in a world which is far from observed reality. If economics is to understand and explain why people make choices, it needs to understand the formation of preferences as well. When assuming stable preferences, Becker does not ask why people make the choices they make. Economic, social or cultural development can also offer answers for the explanation of human behaviour. Becker, however, does not and can not integrate institutions, norms, or ethics in his model. On the other hand, over time even Becker relaxed his belief that the economic approach can explain all economic behaviour3. The universality of his approach is therefore doubtful. In conclusion, the economic approach certainly has the ability to explain more than other paradigms, but only if we accept Becker’s assumptions of homo economicus, which are – contrary to their elegance – weaker and to a big extent limited in use as described in this critique. The fact is, however, that substantial portions of economic theory would not survive if economic agents could not be assumed to have stable preferences and to maximise their behaviour. References Aranzadi J. (2009): ’Liberalism against Liberalism Theoretical Analysis of the Works of Ludwig von Mises and Gary Becker’. Published by: Routledge Becker, G. (1976): ‘The Economic Approach to Human Behavior’. The University of Chicago Press Becker, G. and K.M. Murphy, (2001): ‘Social Economics:‘Market Behavior in a Social Environment’. Harvard University Press Friedman, M. (1953): ‘The methodology of positive economics’. University of Chicago Press Kuhn, T. S. (1962): ‘The Structure of Scientific Revolutions’. 1st. ed., Chicago: Univ. of Chicago Pr., 1962 Popper, K. (1959): ‘The Logic of Scientific Discovery’. Hutchinson. Thaler, R.H. (2000): ‘From Homo Economicus to Homo Sapiens’. Journal of Economic Perspectives, Volume 14, Number 1, Winter 2000 |
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