Self-Interest’s Not Interesting
For a long while economists worked hard to cleanse their subject of any trace of psychology which, on the face of it, was rather odd as the main assumption for the subject is that people act in their own self-interest, a psychological principle if there ever was one. The argument in favour of such an approach is that it doesn’t really matter whether the assumption of self-interest is true or not as long as the reality is matched by the theoretical predictions.
Well, as we know, the reality has a nasty tendency to go off and do its own thing and the idea that economics can exist without taking account of psychology has taken a beating in recent years. What’s odd, though, is that the idea was ever even considered. Understanding why that happened is a critical step in creating a new economics, one that actually has some genuine predictive capacity and which can avoid screwing up the world in its efforts to get economists invited to all the best parties.
For a long while economists worked hard to cleanse their subject of any trace of psychology which, on the face of it, was rather odd as the main assumption for the subject is that people act in their own self-interest, a psychological principle if there ever was one. The argument in favour of such an approach is that it doesn’t really matter whether the assumption of self-interest is true or not as long as the reality is matched by the theoretical predictions.
Well, as we know, the reality has a nasty tendency to go off and do its own thing and the idea that economics can exist without taking account of psychology has taken a beating in recent years. What’s odd, though, is that the idea was ever even considered. Understanding why that happened is a critical step in creating a new economics, one that actually has some genuine predictive capacity and which can avoid screwing up the world in its efforts to get economists invited to all the best parties.
