Jan 16, 2013

How did Homo Economicus grow up?

Interesting paper by Nicola Giocoli (The History of Behavioral Sciences, Winter 2013):
Bayesian rationality is the paradigm of rational behavior in neoclassical economics. An economic agent is deemed rational when she maximizes her subjective expected utility and consistently revises her beliefs according to Bayes's rule. The paper raises the question of how, when and why this characterization of rationality came to be endorsed by mainstream economists. Though no definitive answer is provided, it is argued that the question is of great historiographic importance. The story begins with Abraham Wald's behaviorist approach to statistics and culminates with Leonard J. Savage's elaboration of subjective expected utility theory in his 1954 classic The Foundations of Statistics. The latter's acknowledged fiasco to achieve a reinterpretation of traditional inference techniques along subjectivist and behaviorist lines raises the puzzle of how a failed project in statistics could turn into such a big success in economics. Possible answers call into play the emphasis on consistency requirements in neoclassical theory and the impact of the postwar transformation of U.S. business schools.
The full title is "From Wald to Savage: Homo Economicus Becomes a Bayesian Statistician." A draft is here, and the following is from the conjectures at the end of the paper:
Summing up, we may say that Bayesianism was at least “in the air” in the Department of Statistics of places like Carnegie, Chicago and Stanford which also happened to host the leading business schools of the new, “scientific” kind. Harvard Business School may also be added to the list, thanks to the teaching of scholars like Raiffa, Schlaifer and, later, John Pratt. While of course the conjecture awaits further confirmation (say, by examining MBA curricula and reading lists, or by investigating personal relations between economists and Bayesian statisticians in those very universities), it may provisionally be concluded that the dramatic change underwent by management teaching in the second half of the 20th century has probably played a major role in the spreading of Bayesianism in general, and of SEUT in particular, within contemporary economics. To reword Marschak’s dictum once again, it was not that homo economicus directly became a Bayesian statistician, but possibly that, first, homo managerialis was taught to behave that way, and, then, that economic agents came to be modeled as Bayesian corporate managers. P. 41. 

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