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Given that this has happened, it is a really interesting sociological question why
economic theory of this brand is still dominant and still taught. There are two reasons for
that. One is ideology, that the theory fits with the goals of people who have certain interests
in the way the economy should work. The other is that there is no good alternative. In the
philosophy of science, Karl Popper (1959) is famous for saying that the mark of science is
falsifiability, but it has been pointed out by a number of people, including Imre Lakatos
(1970) who was a student of Popper’s, that that is not how science works. A scientific
theory rarely gets falsified because it does not succeed in its predictions. What happens
instead is that people start to look for alternative theories, and it is when an alternative
theory has been developed that the original theory gets rejected. That is what happened with
creationism when evolution by natural selection came along.
One way to look for an alternative theory in economics is to try for more detailed
explanations using psychological and social mechanisms. Keynes (1936), who was certainly
no rational choice theorist, gave explanations of how the crash of 1929 took place in terms
of a seventeenth-century term, animal spirits, by which he meant emotions. People were not
being rational, they were responding to their emotions. That was pretty good for 1933 when
he wrote the general theory, but oddly enough some leading economists today, like Akerlof
and Shiller, are no more psychologically sophisticated, even though we know much more
about cognition and emotion.
My own preferred way to approach economics is to look at the emotional
mechanisms that underlie human decision-making. Why was Howard Raiffa having such a
problem? If you have to make an important decision about whether to take a new job,
clearly it is emotional. There are different sorts of goals, family issues, maybe even cultural
factors. These are all things that are highly emotional to us and we have to figure out how to
put them together. If you have an understanding of the cognitive and emotional
mechanisms, you might be able to start to answer these questions.
Nevertheless, I want to try to convince you that if that is the emotional valence you
attach to mechanisms, you are not thinking about the right kinds of mechanisms. When
people disparage mechanisms, they are attacking very simple kinds, pushes and pulls or
straightforward linear cases where A causes B causes C causes D. I am not talking about
that sort of mechanism at all. Drawing on recent philosophy of science, I consider a
mechanism to be a system of parts whose interactions explain regular changes and also
critical transitions. These mechanisms are non-linear systems that are capable of generating
multiple attractors, with movement from one attractor to another constituting a critical
transition or a tipping point with many emergent properties.
All the kinds of biological systems of which I am aware, like the heart and the lungs
and certainly the brain, which is often cited as one of the most complex systems in the
world, have all of these kinds of properties. They are also open to chaos in the technical
sense that small inputs can produce large outputs, with many feedback loops. So these are
very complex systems, but nevertheless they are describable in terms of mechanisms in the
sense I intend here.