Tuesday, May 7, 2013

Economics and Anthropology: Stated Preferences, Dignity, and Pleasure

Noted economist Daniel McFadden makes a radical call for his field to pay more attention to the insights of anthropology and other disciplines in his NBER Working Paper "The New Science of Pleasure."  Summing up lots of recent research, McFadden claims that economics needs to look other fields not just to explain irrational anomalies, but to consider that complex subjects are the norm.  As The Economist puts it, "Homo economicus, not his fallible counterpart, is the oddity."

McFadden is on comfortable disciplinary ground in arguing for the inclusion of insights from behavior economics and psychology--the endowment effect, hyperbolic discounting, and other such cognitive quirks have been well documented by Daniel Kahneman and others.

Where McFadden pushes the envelope is his call for incorporating anthropological and social science perspectives into economic modeling to understand the role of identity, social relations, and persuasion in decision making.

The manuscript I just finished (The Good Life: Aspiration, Dignity, and the Anthropology of Wellbeing) echoes a number of McFadden's observations, which I take to be an encouraging sign of the changing zeitgeist.  For example, while economists have long privileged revealed preferences (observable behavior) we need to take more seriously stated preferences (what folks say they want to do).  Revealed preferences are taken by economists to be more real: it is thought that when the rubber hits the road and the cash changes hands, one reveals one’s true preferences.  At the same time, a laser focus on revealed preferences discounts the importance of the cultural—the fact that choices are delimited, as in the all too common scenario we are faced with on the grocery store aisle and in the voting booth of choosing between the lesser of evils. Stated preferences, in not being bound to the immediate here-and-now, often take a longer-range view of overall preferences and ideals. Stated preferences are more likely to be concerned with non-material values; these are given more weight in the long term project of one’s life, one’s overall wellbeing. Often they are connected to identity.    

In my book, I also focus on the role of dignity and fairness, which The Economist also neatly highlights in their review of McFadden's paper: "Dignity is not something mainstream economics has much truck with.  But creating a sense of dignity turns out to be a powerful way of affecting decisions."  It is also a key element of wellbeing. 

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