One Equation to Rule Them All Experimental Economics and the Questfor Unity of Human Behavioural Sci

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One Equation to Rule Them All? Experimental
Economics and the Quest for Unity of Human
Behavioural Science
World Meeting of Economic Science Association
(ESA) 2007

• Berly Martawardaya
• Universita di Siena (Italy)

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Ethics
Biology
Politics
Economics
Sociology
Philosophy
Psychology
Cognitive Science
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Why cant we get along?

• Distinct and incompatible model of human behavior
  (Gintis, 2006)

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The Family of Science (Britannica)

• Sociology
• Science of society, social institutions, and
  social relationships, and specifically the
  systematic study of the development, structure,
  interaction, and collective behaviour of
  organized human groups.
• Antropology
• Science of humanity in aspects ranging from
  the biology and evolutionary history of Homo
  sapiens to the features of society and culture
  that decisively distinguish humans from other
  animal species.

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The Family of Science (Britannica)

• Cognitive Science
• studies the cognitive processes of humans in
  terms of the manipulation of symbols using
  computational rules.
• Psychology
• studies mental processes and behaviour in humans
  and other animals. focuses on both individual and
  group behaviour.
• Economics
• studies the consequences of choices made
  concerning scarce productive resources. How
  individuals and societies choose to employ those
  resources what goods and services will be
  produced, how they will be produced, and how they
  will be distributed among the members of society

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Deductive vs inductive

• Aristotles deduction
• All men are mortal - universal rule
• Socrates is a man - case
• ?ergo
• Socrates is mortal - result
• The syllogism moving from the universal to the
  particular
• But how to get to universal?

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Induction Through the Ages

• Aristotle
• from the particular to the universal
• explaining observed facts
• Hume reasoning about unobserved facts
• Jevons the inverse of deduction
• Carnap estimating the logical strength between
  premises and conclusion
• Peirce experimental research

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What is experiments ?

• Experiment, An action or operation undertaken in
  order to discover something unknown, to test a
  hypothesis or establish or illustrate some known
  truth
• (Oxford English Dictionary)

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No experiment.

• Economics can not perform the controlled
  experiments of chemist or biologist because (it)
  can not easily control other important factors.
  Like astronomers or meteorologist, economist must
  be content largely to observe
• (Samuelson and Nordhaus, 1985)

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or experiment?

• Economics has also been regarded as a
  non-experimental science, where researchers as
  in astronomy or meteorology have had to rely
  exclusively on field data, that is, direct
  observations of the real world. During the last
  two decades, however, these views have undergone
  a transformation. Controlled laboratory
  experiments have emerged as a vital component of
  economic research and, in certain instances,
  experimental results have shown that basic
  postulates in economic theory should be
  modified.
• (The Bank of Sweden Prize in Economic Sciences
  in Memory of Alfred Nobel 2002 for Daniel
  Kahnemann Vernon L. Smith)
• ?From Anomalies of Theory to Theory of Anomalies

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Cost and External Validity

• Cost of setting up experiment
• - not all economic topic can be experimented
• - number of people, stake involved, topics,
  etc
• - co-exist with modelling simulation
• External validity
• ..much of economic theory can be called
  ecclesiastical theory. It is accepted (or
  rejected) on the basis of authority, tradition
  or opinion about assumption rather than surviving
  a rigourous falsification process that can be
  replicated Vernon Smith (1987)
• If you have to experiment, experiment often!

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Source Rabin (2004) and Gintis (1998)
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Sub-concious decisions

• Lakoff and Johnson (1999)
• The embodied mind
• Biological
• Biological process and neuronomics
• (Zak et al, 2005), (Kosfeld et al 2005)
• Environment
• Human as part of ecosystem
• Bellemare and Shearer (2007)
• We should collaborate with marketing scientist

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Selfish, social and sub-concious

• The 3 S as the building block of human behaviour
• Complex and interelated relations
• Will there be one equation?
• What about risk/uncertainty intertemporal
  decision?

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Do we have free will?

• The object of study in social science is our
  own selves, and in order to be science, social
  science must look for eternal laws that apply to
  humanity. But stripped of the freedom to act, and
  subject to such laws, there is no humanity.
  Sunder (2006).

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Know Thyself