Abstract
The latest financial and economic crises have undermined the confidence in the economic science and its methods, fundamentally. Now, the discipline of economics is looking for a new methodological guiding principle. Neuroeconomics, or Imperfect Knowledge Economics, emerged from this search for a New Economic Paradigm. Both schools of economic thought are highly methodology driven and limited in scope. Therefore, they cannot be used as a blueprint for a new philosophy of economics, which is able to replace the Positivist Research Paradigm. Even worse, the analysis of this thesis and the economic turbulences of the last decade, have shown that pure positive economics is impossible. This, however, does not also imply that only normative economics is possible. Nor does it imply that economics is not a science. Rather it is the case that the methodology and particularly the aims and the expectations concerning the generality of economic conclusions have to be revised.
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Notes
- 1.
E.g.: Soros (2013: 317): “In natural sciences, the outside observer, is engaged only in the cognitive function, and the facts provide a reliable criterion by which the truth of the observers’ theories can be judged. So the outside observer can obtain knowledge about the natural phenomena she is observing. Based on that knowledge, nature can be successfully manipulated. That manipulation can change the state of the physical world, but it does not change the laws that govern that world.”
- 2.
Economic reality is thought of as a reflexive system that consists of natural unchangeable parts and human changeable parts.
- 3.
George Soros (2013) had argued that reflexivity is one of the major sources of uncertainty in economics that causes the unpredictability of economic outcomes. Elena Esposito (2011, 2013), sharing the view that reflexivity is an important force driving economic progress, however, argues that reflexivity can be used to better understand economic phenomena or even exploit reflexivity in order to foresee fundamental changes.
- 4.
The label ‘objective reality’ is from my point of view misleading, as it suggests that there is some real and true objective reality. I fear this is not the case. There is something like a purely observer-independent and therefore objective natural reality. This natural reality is unattainable for us human beings, as we always perceive it with some subjective colour. Consequently, objectivity is always out of reach. Nevertheless, we can agree on facts and knowledge about this reality, which are in some way objective, and yet not universal. In the course of time our agreement about the facts and knowledge may change, due to new observations, interpretations or changed subjective realities. Thus, Soros’ objective reality, should not be confused with nature and furthermore, it is constantly changing and highly dependent on our subjective realities.
- 5.
By strategically I mean that humans are able to act against their natural instincts and decide consciously which action to take. Nevertheless, human actions are also driven by natural instincts and emotions. Yet, humans have an opportunity to turn against these instincts and emotions.
- 6.
Rosenberg (2013: 439) critically reflects Soros human uncertainty principle in the following way: “In the biological domain, uncertainty and reflexivity are held in check by environments that change with geological slowness. This produces long-lived local equilibrium outcomes. In the human domain, the environment is cultural. It is composed of nested sets of strategies that are all affected by both reflexivity and uncertainty. The result of their operation is at most short-lived local equilibria, broken up by radical environmental change. The source of this radical environmental change in human cultural processes is obvious. It is the iterated, unsynchronised combinations of reflexivity and uncertainty in strategy variation. As the rate of change in the cultural environment increases, the lifetimes of local equilibria shorten, until in many cases they disappear altogether. Human affairs appear chaotic because many of them are far from equilibrium, even if there are any equilibria to which they may temporarily be heading.”
- 7.
This conclusion is not new. However, during the last decade’s economists pushed this insight aside. E.g.: Box and Draper (1987: 424): “Essentially, all models are wrong, but some are useful.”
- 8.
Cf. Beinhocker (2013: 338): “I should also briefly note that while complex reflexive systems present a challenge due to their Knightian uncertainty, there is also an upside-their inherent indeterminacy creates space for novelty and creativity. In a perfectly deterministic system, there is no room for novelty to emerge. In a perfectly random system, there is insufficient coherence for novelty to matter. Complex reflexive systems are somewhere in between—they are hard to forecast and fallibility is inevitable, but there is nonetheless pattern and structure. This creates a space for novelty, experimentation, and in human systems creativity. One may even argue that there is a link between reflexivity and free will—reflexivity makes free will both possible and necessary.”
- 9.
Friedman (1953: 5–6) defines: “A theory is “simpler” the less the initial knowledge needed to make a prediction within a given field of phenomena; it is more “fruitful” the more precise the resulting prediction, the wider the area within which the theory yields predictions, and the more additional lines for further research it suggests. Logical completeness and consistency are relevant but play a subsidiary role; their function is to assure that the hypothesis says what it is intended to say and does so alike for all users—they play the same role here as checks for arithmetical accuracy do in statistical computations.”
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Köhn, J. (2017). Extending the Boundaries of Economics. In: Uncertainty in Economics. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-55351-1_10
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