Robert Shiller’s Views On Economic Methodology
Is Economics Fundamentally Different From The Physical Sciences?
Shiller (2013) argues that a greater degree of approximation is required in economics than in the physical sciences.
As a result, economics is more susceptible than the physical sciences to the development of models whose accuracy cannot be confirmed.
Shiller also argues that economics is different from the physical sciences because, whereas the latter deals with natural phenomena, the former deals with human beings whose behavior is subject to change.
My belief is that economics is somewhat more vulnerable than the physical sciences to models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles. People can just change their minds and behave completely differently. They even have neuroses and identity problems, complex phenomena that the field of behavioral economics is finding relevant to understanding economic outcomes.
What Role For Mathematics In Economics?
Shiller (2013) argues that mathematics does have a role to play in economics.
Critics of “economic sciences” sometimes refer to the development of a “pseudoscience” of economics, arguing that it uses the trappings of science, like dense mathematics, but only for show. For example, in his 2004 book Fooled by Randomness, Nassim Nicholas Taleb said of economic sciences: “You can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as a controlled experiment.”
But all the mathematics in economics is not, as Taleb suggests, charlatanism. Economics has an important quantitative side, which cannot be escaped. The challenge has been to combine its mathematical insights with the kinds of adjustments that are needed to make its models fit the economy’s irreducibly human element.
Specialization in Economics
Shiller (2011) considers whether today’s economists have become overly specialized.
Has economics as a profession substantially lost sight of the idealism that existed in earlier decades? Has the strong impulse to pursue narrow specialization in order to propel research to the frontier led to some loss of moral perspective? (pg. 171)
Overall, the men … who were influential in the early development of the profession - including Adam Smith, Karl Marx, Henry George, John Maynard Keynes, Thomas Malthus, Alfred Marshall, and John Stuart mill - … conceived of their discipline more broadly, and more in terms of moral imperatives, than most economists seem to do today. (pg. 171)
He points out that, prior to publishing The Wealth of Nations, Adam Smith first published his Theory of Moral Sentiments which delved into questions of psychology and human nature.
Adam Smith was a professor, not of economics but of moral philosophy. His The Theory of Moral Sentiments, first published in 1759, was a mixture of philosophy, psychology, and economics. It puzzled over the guiding force behind economic activity: are people inherently selfish, or do they have a concern for others? …. This book was the foundation that enabled him ultimately to write his Wealth of Nations in 1776, the book that laid the foundations for modern economics. (pg. 171)
He also points to John Maynard Keynes who, prior to publishing The General Theory of Employment, Interest, and Money, reflected deeply on the nature of probability and whether it was a useful tool for economists.
John Maynard Keynes wrote a philosophical work A Treatise on Probability (1921) on the deep foundations of probability theory. He doubted that we should even be thinking in terms of probabilities[.] ….. This led him to think of probabilities as degrees of belief, and hence psychological phenomena, to reject much probabilistic economic modeling, and to formulate a concept of animal spirits as a force in the economy. Thus, his philosophy of probability, and his rejection of mechanical manipulation of probabilisitic models, were central to The General Theory of Employment Interest and Money[.] (pg. 171-172)
Shiller argues that, while specialization has its advantages, it has potential disadvantages as well.
Narrow specialization has its distinct advantages, of course: it facilities rapid scientific progress, at least along directions that have been indicated by earlier visionaries who did not specialize so narrowly. But a spirit of specialization in the profession has potential disadvantages as well. If specialization is too extreme, it has a tendency to lead to carrying original ideas too far, beyond their useful purpose. Specialization coupled with strong competitive pressures within academia leads to a situation in which academics often feel that they just do not have time to ponder broad issues and learn even basic simple facts outside their specialty. Their general knowledge may be embarrassingly limited, and so they may retreat into their own speciality and produce research that contributes in small ways to the development of the field, but fails to pay attention to the larger picture. (pg. 172)
Thus he calls for changes to incentive structures for researchers and the establishment of more interdisciplinary forums to combat these potential negative effects of specialization.
We simply must implement more changes, such as other interdisciplinary forums, and improved design of incentives for researchers, both in their training and in their subsequent careers. The real imperative for researchers is that efforts need to be redoubled to encourage cross-fertilization and broad-spectrum thinking, driven by the broad moral purpose of improving human welfare. (pg. 174-175)
Written By: Aiden Singh Published: June 1, 2020
Sources
Robert Shiller. Is Economics A Science? Project Syndicate. November 6, 2013.
Robert Shiller & Virginia Shiller. Economists As Worldly Philosophers. The American Economic Review. Vol. 101, No. 3, Papers and Proceedings of the One Hundred Twenty Third Annual Meeting of the American Economic Association. May 2011. pg. 171-175