Time to abandon group thinking in economics

Da Silva, Sergio (2013): Time to abandon group thinking in economics.

Abstract

Group thinking is the notion that animals do those things that maximize the chance of survival of their species. It is wrong because natural selection does not favor what is good for the group or the species; it favors what is good for the individual. Here, I show through examples how group thinking also pervades economics. In connection with the fallacy of group thinking, I also discuss how economics fails to ground itself in the underlying knowledge provided by biology. I also argue that economists need to redirect their conventional approach to study group behavior. Current macroeconomics is reductionist while the route followed by biology, physics, and chemistry was to resort to a different approach when focusing on macro systems made up of a large number of heterogeneous micro units. The group level pattern self-organizes as it is not encoded directly in the individual-level rules. And here the right mathematical models can help deduce hidden connections between the interactions of individuals and the patterns that emerge at the group level.

• Item Type: MPRA Paper
• Language: English
• Keywords: group thinking, biology, economics
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology; D - Microeconomics > D7 - Analysis of Collective Decision-Making; Y - Miscellaneous Categories > Y8 - Related Disciplines

References

Becker, G. S. (1991) A Treatise on the Family, Enlarged Edition, Cambridge, MA, Harvard University Press.

Bouchaud, J. P. (2008) Economics needs a scientific revolution, Nature 455(30), 1181.

Buchanan, M. (2007) The Social Atom, New York: Broomsbury Publishing.

Da Silva, S. (2009) Does macroeconomics need microeconomic foundations? Economics 3(23), 112.

Dawkins, R. (2012) The descent of Edward Wilson, Prospect Magazine, 195, May 24.

Farmer, J. D., D. Foley (2009) The economy needs agent-based modeling, Nature 460(6), 685-686.

Gitlin, T. (2012) Have economists learned from the Great Recession? The Chronicle of Higher Education Magazine, June 12.

Hansson, S. O., T. Grüne-Yanoff (2011) Preferences, The Stanford Encyclopedia of Philosophy, Metaphysics Research Lab Stanford University, Web. 15 Aug. 2012.

Hintikka, J. J. (2012) Applied logic, Encyclopedia Britannica, Online Academic Edition, Encyclopedia Britannica Inc., Web. 15 Aug. 2012.

Krugman, P. (2009), How did economists get it so wrong? New York Times Magazine, September 6.

Lux, T., F. Westerhoff (2009) Economics crisis, Nature Physics 5, 23.

Pinker, S. (2002) The Blank Slate: The Modern Denial of Human Nature, New York, Penguin Books.

Rajan, R. G., L. Zingales (2003) Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity, New York, Crown Business.

Schuettinger, R. L., E. F. Butler (1979) Forty Centuries of Wage and Price Controls: How Not to Fight Inflation, Thornwood, NY, Caroline House Publishers.

Sennholz, H. F. (Editor) (1992) Prices and Price Controls, Irvington, NY, Foundation for Economic Education, Inc.

Sowell, T. (2011) Basic Economics: A Commonsense Guide to the Economy, 4th Edition, New York, Basic Books.

Sumpter, D. J. T. (2010) Collective Animal Behavior, Princeton, Princeton University Press.

Suhadolnik, N., J. Galimberti, S. Da Silva (2010) Robot traders can prevent extreme events in complex stock markets, Physica A 389(22), 51825192.

Trivers, R. (2011) The Folly of Fools: The Logic of Deceit and Self-Deception in Human Life, New York, Basic Books.

Varian, H. R. (2010) Intermediate Microeconomics, 8th Edition, New York, Norton.