Jürgen Habermas and Hans Albert on the weaknesses of mainstream economics

11 Aug, 2022 at 13:41 | Posted in Economics | 5 Comments

The weaknesses of social-scientific normativism are obvious. The basic assumptions refer to idealized action under pure maxims; no empirically substantive lawlike hypotheses can be derived from them. Either it is a question of analytic statements recast in deductive form or the conditions under which the hypotheses derived could be definitively falsified are excluded under ceteris paribus stipulations. Despite their reference to reality, the laws stated by pure economics have little, if any, information content. To the extent that theories of rational choice lay claim to empirical-analytic knowledge, they are open to the charge of Platonism (Modellplatonismus). Hans Albert has summarized these arguments: The central point is the confusion of logical presuppositions with empirical conditions. The maxims of action introduced are treated not as verifiable hypotheses but as assumptions about actions by economic subjects that are in principle possible. The theorist limits himself to formal deductions of implications in the unfounded expectation that he will nevertheless arrive at propositions with empirical content. Albert’s critique is directed primarily against tautological procedures and the immunizing role of qualifying or “alibi” formulas.

This critique of normative-analytic methods argues that general theories of rational action are achieved at too great a cost when they sacrifice empirically verifiable and descriptively meaningful information … Against the recent normativism of pure economics, Albert adduces the old viewpoint that an economic theory must make assumptions about the actions of subjects in their social roles … The system of exchange relationships is so little isolated from society as a whole that the social behavior of economic subjects cannot be comprehended independently of the institutional context, that is, the extra-economic motivational patterns: “Immunization against· the influence of so-called extra-economic factors leads to immunization against experience as such.”

Seen from a deductive-nomological perspective, typical economic models (M) usually consist of a theory (T) — a set of more or less general (typically universal) law-like hypotheses (H) — and a set of (typically spatio-temporal) auxiliary assumptions (A). The auxiliary assumptions give ‘boundary’ descriptions such that it is possible to deduce logically (meeting the standard of validity) a conclusion (explanandum) from the premises T & A. Using this kind of model game theorists are (portrayed as) trying to explain (predict) facts by subsuming them under T, given A. An obvious problem with the formal-logical requirements of what counts as H is the often severely restricted reach of the ‘law.’ In the worst case, it may not be applicable to any real, empirical, relevant, situation at all. And if A is not true, then M does not really explain (although it may predict) at all. Deductive arguments should be sound – valid and with true premises – so that we are assured of having true conclusions. Constructing game theoretical models assuming ‘common knowledge’ and ‘rational expectations,’ says nothing of situations where knowledge is ‘non-common’ and  expectations are ‘non-rational.’

Building theories and models that are ‘true’ in their own very limited ‘idealized’ domain is of limited value if we cannot supply bridges to the real world. ‘Laws’ that only apply in specific ‘idealized’ circumstances —  in ‘nomological machines’ — are not the stuff that real science is built of.

When confronted with the massive empirical refutations of almost all models they have set up, many game theorists react by saying that these refutations only hit A (the Lakatosian ‘protective belt’), and that by ‘successive approximations’ it is possible to make the models more readily testable and predictably accurate. Even if T & A1 do not have much of empirical content if by successive approximation we reach, say, T & A25, we are to believe that we can finally reach robust and true predictions and explanations.

Hans Albert’s ‘Model Platonism’ critique shows that there is a strong tendency for modelers to use the method of successive approximations as a kind of ‘immunization,’ taking for granted that there can never be any faults with the theory. Explanatory and predictive failures hinge solely on auxiliary assumptions. That the kind of theories and models used by game theorists should all be held non-defeasibly corroborated, seems, however — to say the least — rather unwarranted.

Retreating into looking upon models and theories as some kind of ‘conceptual exploration,’ and giving up any hopes whatsoever of relating theories and models to the real world is pure defeatism. Instead of trying to bridge the gap between models and the world, they simply decide to look the other way.

To yours truly, this kind of scientific defeatism is equivalent to surrendering our search for understanding and explaining the world we live in. It cannot be enough to prove or deduce things in a model world. If theories and models do not directly or indirectly tell us anything about the world we live in — then why should we waste any of our precious time on them?