Liberty Matters

No Methodological Holds Barred


Boettke asks what "forms of empirical investigation" are best suited to understanding a social world in which SELECT knowledge guides and shapes human action.  I am tempted to merely invite readers to decide for themselves and leave it at that.  Two of my most beloved graduate professors, Fritz Machlup and Leland Yeager, used to quote Percy Bridgman. "The scientific method, as far as it is a method, is nothing more than doing one's damnedest with one's mind, no holds barred."  (Apparently, this quote can be found in Bridgman 1955, p. 535.)  You, the reader, may successfully employ a form of empirical investigation that the rest of us mistakenly "know" to be inappropriate.  Hayek thought that experimental economics would be useless to test the theory of competitive markets. "We can test it on the conceptual models, and we might conceivably test it in artificially created real situations, where the facts which competition is intended to discover are already known to the observer. But in such cases it is of no practical value, so that to carry out the experiment would hardly be worth the expense." (Hayek, 1968 [2014], p. 305)  Vernon Smith and others have shown, however, that experimental economics can test market theory and, indeed, support a very Hayekian research program.  Let that be an object lesson to those who would limit the methods used by other souls wrestling with the truth.  I would not declare any ethical method of inquiry taboo.  I will, however, say a few words about complexity, verstehen, and bounded rationality.
Boettke criticized "mid-20th-century equilibrium economics" rather than complexity economics.  Complexity theory gives us economics with heterogeneous agents, bounded rationality, and local knowledge, which is far more Hayekian than mid-20th-century equilibrium economics. As Vriend (2002), Colander and Kupers (2014), and Arthur (2015) illustrate, serious engagement with complexity theory tends to move economists closer to Hayek.  (People who like to represent intellectual history as a Manichean struggle between good guys and bad guys must deal with the fact that Kenneth Arrow was an important figure at the founding of the Santa Fe Institute who suggested Brian Arthur be named a visiting fellow at the nascent institute.  See Waldrop 1992.) Rosser (1999, p. 185, n. 11) recognized Hayek as "an early and independent developer of complexity theory in something resembling its current form."  Vried (2002) has asked whether Hayek was an agent-based computational economist.  I have described Hayek as a complexity theorist (Koppl 2000, 2009). If Hayek was a complexity theorist, then those of us who admire his ideas should engage modern complexity theory seriously. 
At least one important modern complexity theorist has built on the listing problem (O'Driscoll and Rizzo 1985) to conjecture that we will never be able to fully mathematize social evolution.  Stuart Kauffman and his coauthors (Felin et al. 2014, Koppl et al. 2015) have drawn on recent developments in the theory of biological evolution (Longo et al. 2012, Kauffman 2014) to show that the "phase space" of evolutionary systems is not generally stable and that, consequentially, they are "lawless" in a specific sense.  They are "lawless" because there are no fixed "laws of evolution" for the system such that the future is entailed (up to a stochastic error term, perhaps) in some initial moment.  Rather, evolution is "creative" in the sense that over time it generates new forms.  It generates innovations that cannot be anticipated.  Thus, modern complexity theory seems to imply limits to the power of mathematics to describe or predict the evolution of complex adaptive systems.  It shows that evolutionary systems are creative is a sense close to that of Henri Bergson, but reaches this result by a very different path, one that may seem more "scientific" and less "philosophical" than that of Bergson.
Kauffman and his coauthors emphasize the difference between algorithmic and non-algorithmic choice.  In my view, Kirzner's theory of entrepreneurship is "really" a theory of non-algorithmic choice.  If "learning" is frame change, if it is the acquisition of new knowledge rather than new information, then there can be no learning in algorithmic choice, whereas learning is entrepreneurial discovery. 
Whatever other limits mathematics may or may not have, we cannot apply it to social theory without "interpretation" in the sense of the old verstehen, or "understanding," tradition of Dilthey, Weber, Schutz, and Mises (Koppl 2010).  Mathematics itself is always an empty calculus, pure syntax.  To use it in social theory, we must give its terms meanings.  We need semantics.  We must "interpret" the calculus.  For the social sciences (with the partial exception of demographics) such interpretation is the understanding of what Schutz and Machlup called "meant meanings."  Thus, even on the most optimistic view of the role of mathematics in economics and other social sciences, we must preserve a role for "interpretation" in the sense of classical hermeneutics.  (See Albert 1985 on the difference between classical and universal hermeneutics.)  This is not the place to express my dissatisfaction with the "universal hermeneutics" of Heidegger and his followers.  I will merely record my opinion that Alfred Schutz has given us the best available account of "understanding" in the classical hermeneutic tradition.  We can find, in my opinion, incoherent statements in hermeneutics figures coming both before and after Schutz, whereas Schutz always maintains clarity, coherence, and scientific rigor.  Even Weber and Mises, though free of absurdities and gross incoherence, are not as clear, thorough, or deep as Schutz on the understanding of meant meanings.
If I celebrate Schutz on interpretation, I would not wish to suggest that we can stop there and rest contented.  We must continually connect our existing tradition and framework to recent developments and current science.  I have attempted to link hermeneutics to modern cognitive psychology (Koppl 2010).  Felin, Koenderink, and Krueger (2016) draw on both the 19th-century biologist Jakob von Uexküll and modern psychology (Koenderink 2014) to criticize standard models of "bounded rationality" for assuming an "all-seeing eye." 
When we consider what "forms of empirical investigation" to use, we should not be tyrants.  It's no holds barred, and let a hundred flowers bloom.  This open attitude does not alter the fact, however, that any method has its limits.  Nor does it disbar us from challenging implicit assumptions or calling out over-claiming by others.
Albert, Hans. 1988. "Hermeneutics and economics – A criticism of hermeneutical thinking in the social sciences,"  Kyklos, 41: 573–602.
Arthur, Brian W. 2015. "All Systems Will Be Gamed: Exploitative Behavior in Economic and Social Systems," in Arthur, Brian W., Complexity and the Economy, Oxford University Press, pp. 103-18.
Bridgman, Percy. 1955. Reflections of a Physicist. New York: Philosophical Library.
Colander, David and Roland Kupers. 2014. Complexity and the Art of Public Policy: Solving Society's Problems from the Bottom Up. Princeton and Oxford: Princeton University Press.
Felin, Teppo, Jan Koenderink, and Joachim I Krueger. 2016. "Rationality, Perception and the All-Seeing Eye," Psychonomic Bulletin & Review pp. 1-20.
Hayek, F. A. 1968 [2014]. "Competition as a Discovery Procedure," in Caldwell, Bruce, ed. The Market and Other Orders, vol. 15 of The Collected Works of F. A. Hayek, Chicago and London: The University of Chicago Press, pp. 304-13.
Kauffman, Stuart. 2014. "Prolegomenon to Patterns in Evolution," BioSystems, 123: 3-8.
Koenderink, J. 2014. The All Seeing eye? Perception 43: 1-6.
Koppl,  Roger. 2010. "Some Epistemological Implications of Economic Complexity," Journal of Economic Behavior and Organization,  76: 859-72.
_________. 2009. "Complexity and Austrian Economics," in J. Barkley Rosser, Jr, ed. Handbook on Complexity Research. Cheltenham, UK: Edward Elgar.
_________. 2000. "Teaching Complexity: An Austrian Approach," in Colander, David, ed. The Complexity Vision and the Teaching of Economics, Edward Elgar.
Longo, Giuseppe, Maël Montévil, and Stuart Kauffman. 2012. "No Entailing Laws, But Enablement in the Evolution of the Biosphere," arXiv:1201.2069
O'Driscoll, Gerald and Mario Rizzo. 1985. The Economics of Time and Ignorance, Oxford: Basil Blackwell.
Rosser Jr., J.B., 1999. On the Complexities of Complex Economic Dynamics. Journal of Economic Perspectives 13, 169–92.
Vriend, N.J., 2002. Was Hayek an ACE? Southern Economic Journal 68, 811–40.
Waldrop, M. Mitchell. 1992. Complexity: The Emerging Science at the Edge of Chaos, New York: Simon & Schuster.