Criticisms of economics have abounded since the financial crisis.
Even Nobel Prize winners like George Akerlof of Berkeley have got in on the act. A key demand is for economics to adopt a more recognisably human portrait of behaviour in its theories than the rational calculating machine of the textbooks.
Psychology rather than pure economic theory is needed, apparently.
The simple fact is that economics has moved on a great deal in recent years. Much of the success of behavioural economics is based upon incorporating insights from psychology. But economists have done this in their own way.
As top behavioural economist and Nobel laureate Richard Thaler notes in his book Misbehaving: “behavioural economics has turned out to be primarily a field in which economists read the work of psychologists and then go about their business of doing research independently”.
It turns out that this approach seems to have been a very sensible one. Famous psychological experiments have recently been shown to be without foundation.
The most glaring example is the 1971 Stanford Prison experiment, one of the most influential psychology studies of all time.
Students were randomly assigned to be either guards or prisoners within a mock prison. The objective was to observe the interaction within and between the two groups.
The results proved shocking, with the abuse handed out to the prisoners by the guards so brutal that the study had to be terminated after just six days.
There were already doubts about the results. Other psychologists had found them difficult to replicate. But it has emerged this month, from analysis of previously unpublished records and interviews with some of the participants, that results were simply faked.
Another famous study, the so-called marshmallow test, has also been debunked.
In the original research in the 1960s and 1970s, children aged between three and five were given a marshmallow that they could eat immediately, but told that if they resisted eating it for 10 minutes, they would be rewarded with two marshmallows. More than a decade later, in their late teens, it was claimed that the children who had resisted exhibited advanced traits of intelligence and behaviour far above those who caved in to temptation.
But by the straightforward expedient of taking into account the economic and family backgrounds of the children, almost all the differences claimed for the ability to delay gratification disappear.
Ironically, it is economists themselves who have shown that western societies as a whole, not just particular groups, have great difficulty in deferring gratification.
The Chicago economist David Laibson established the idea back in 1997 in a famous paper with the rather gnomic title of “Golden Eggs and Hyperbolic Discounting”. The obscure phrase “hyperbolic discounting” means that people assign a great deal of weight to costs and benefits incurred in the present and very near future, and very little weight to anything beyond that.
Economics may have its faults, but much of psychology seems to be built on sand. Perhaps it is psychology that can learn from economics.
