Socio-Economics: A Proposal for a New Interdisciplinary Field

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1 Socio-Economics: A Proposal for a New Interdisciplinary Field Arnitai Etzioni The George Washington University 2130 H Street, N.W., Washington, D.C Psychologists (working with sociologists and political scientists) seem ready to go beyond piecemeal studies of economic behavior, or studies of economic behavior as merely incidents of general psychological theorems. They can formulate a new paradigm for the study of economic behavior. The unsatisfactory nature of the prevailing neo-classical paradigm has been well established. Economic behavior requires a distinct paradigm because rationalchoice behavior is a distinct subject. The new paradigm, the base for a new interdisciplinary field, referred to here as socioeconomics, must initially be highly parsimonious, without being excessively "underdetermined." It must answer at least four key questions: How do people actually make choices when they aspire to act rationally? What is the role of emotions and values, next to intra-cognitive factors, in such decisions? What is the role of groups in setting individual choices? And, what is the role of society? The answers may require collaboration of psychologists with other social scientists as well as the institutionalization of a new interstitial discipline. Psychologists have already made numerous significant contributions to the study of economic behavior. Important work has been conducted in the areas of consumer behavior research, industrial and organizational psychology, studies of productivity, general cognitive psychology (e.g., the study of individuals' ability to draw inferences and render decisions rationally), and general social psychological work (e.g., the role of groups within the work place). In addition, there are numerous specific studies on practically every facet of economic behavior, from compliance with the tax laws to predisposition to risk taking. (For some overview articles see Alluisi & Meigs, 1983; Katzell & Guzzo, 1983; Perloff & Nelson, 1983; Quayle, 1983; Tornatzky et al., 1982; Author's Note: This a a publication of the Socio-Economic Project supported by the George Washington University and the Center for Policy Research. Journal of Social Behavior and Personality. 1986, Vol. I, No.4, 1986 Select Press

2 476 JOURNAL OF SOCIAL BEHAVIOR AND PERSONALITY and Tuttle, 1983). A new journal is fully devoted to the subject (Journal of Economic Psychology), and several others are devoting considerable space to it (e.g., Journal of Behavioral Economics). Several groups regularly meet to discuss such work, including the Divisions 14 and 23 of the American Psychological Association, The Society for the Advancement of Behavioral Economics, and The Middlebury College Conference on Economic Issues. Do these accumulating fmdings point to a new stage in the accumulation of scientific knowledge, to a new paradigm? Do the large number, rising volume, and significance of studies go beyond merely being concentrations of studies on applied topics or evidence for general psychological theorems? Are we ready to form a new interdisciplinary field? The Neo-Classical Paradigm The need for a new paradigm for the study of economic behavior is evident The prevalent paradigm in the West, neo-classical economics, has been long under severe criticism, increasingly in recent years, with its harshest critics numbering many economists (Allvine & Tarpley, 1977; Lekachman, 1976; Thurow, 1983). Its assumptions about behavior have long been shown to be utterly unrealistic (assuming people to collect all the information the choice requires, absorb it without difficulties, draw inferences, set goals and render choices unambiguously, and so on). Excessive preoccupation with mathematical elegance, neglect of induction and uncritical use of data collected for administrative purposes have been also challenged. Neo-classical economics' defense has been that unrealistic theorems and deductive approaches can lead to predictions even if they are unrealistic and fail to explain. However, neo-classical economics' predictive record in most areas has been very spotty. Policies based on neo-classical economics theory have come under severe criticism from sources from the Third World (for instance, for the recessionary policies promoted by the International Monetary Fund) to U.S. firms (for example, for trouble caused by the narrow economistic training of MBAs). Last, but not least, the utilitarian values at the core of neo-classical economics have been challenged. Early work was clearly hedonistic and extremely individualistic, overtones of which still linger. Economists themselves have called for new paradigms and pointed to the need to draw on other social sciences, especially psychology, in an endeavor to fashion such new paradigms (not to be confused with efforts to incorporate psychological findings or precepts into neo-classical economics).

3 Etzioni SOCIO-ECONOMICS 477 A Distinct Area or Study? The question may arise whether economic behavior requires a distinct paradigm, i.e., a conceptual framework within which theorems can be developed? Is economic behavior systematically different from all other forms of behavior? Could one not merely apply general psychology paradigms to the study of consumer, employee, and investor behavior? There is little doubt that economic behavior shares many attributes with all forms of behavior. However, it seems to have distinct attributes which systematically separate economic behavior (and few other similar behaviors, such as management and science) from all others. These are areas in which rational choice is legitimated in our society. Rational choice is thus seen as a subject which cuts across numerous applied areas (such as consumer behavior, investment, job related, and administrative behavior). It is like the study of socialization or perception, each of which commands, or seeks, its own paradigm. A voiding Overdetermination Probably the single most important difficulty in developing an alternate paradigm to neo-classical economics is the result of tendencies toward overdetermination. Overdetermination occurs when efforts are made to include ever more variables and relations among them in one's paradigm or theory in order to account for more of the variance in the subject under study. The result is an excessively complex conceptual framework which hinders progress. One of the few strengths of neo-classical economics is that it provides a highly simplified model of behavior (many argue, too simplified). While it might not be necessary or desirable to fully match the parsimony of neo-classical economics, social scientists who seek to develop an alternative paradigm may need to start with a limited number of concepts and simple assumptions. For example, social psychologists may need to start with the assumption that groups determine to a large extent individual choices (in contrast to neo-classical economic assumptions that they are individually determined), and leave it to later elaborations as to the numerous kinds of groups that there are, how they differ in their effects, the effects of multiple (and conflicting) group membership and so on. Elementary Questions At this stage there is no agreement what the core assumptions of a new paradigm might be. It seems, though, possible to list the questions those who seek to formulate such a paradigm must grapple with. Probably the most elementary assumption is the question of the extent of the rationality of the behavior under study. Neo-classical

4 478 JOURNAL OF SOCIAL BEHAVIOR AND PERSONALITY economics assumes that people seek to maximize one over-arching goal or utility. To maximize implies rationality in the sense to seek the best possible application of means to the goal. (Numerous other definitions of "rational" have been suggested. Most of these, though, have been largely ignored by ned-classical economists, and careful reading shows that most neo-classical economists continue to draw on the maximization definition). Psychologists have been among the leading critics of this approach, showing beyond reasonable doubt that people are unable to maximize the utility of their choices. The next step is to formulate a general conception of how people do render choices in areas in which behavior is expected to be rational. Simon's (1955) notion that people "satisfice" rather than maximize (which has similarity to Kurt Lewins's work) is a major starting point. Another is the Prospect Theory launched by Kahneman and Tversky (1979). Another contribution along these lines, concerning the notion of people drawing inferences like "intuitive scientists" is by Nisbett & Ross (1980). These and other contributions (not reviewed here, see Maital & Maital, 1984) strongly suggest directions psychologists may wish to follow in evolving a new conception. Few, though, would disagree that they by themselves do not yet provide the necessary paradigm. Second, the approaches listed so far are all purely intra-cognitive. However, there is an increasing tendency, after two decades of largely ignoring emotive factors or denying their import, to be more attentive to the role of affect in cognition and the effects of interaction between emotions and cognition on choice behavior. Questions of definition and operationalizatiqn of emotive factors have proven to be highly taxing but the outcome is of great importance for the future of the study of economic behavior. Neo-classical economics typically assumes that individual "tastes" (or preferences) are fixed, given, unambiguous, and "cold." There is, though, much evidence that preferences are subject to modification under the impact of psychological and social processes, and that they often reflect the dissonance (or conflicts) that arise when emotions, values, cognition are not all well aligned (Janis & Mann, 1977). In short, economic actors may not only be unable to think the way neo-classical economics requires, but are also much more driven by emotions and value judgements than they assume. What might be called the I&We balance (in deference to my teacher Martin Buber) is the third issue that needs focused attention. What range of economic behavior is group determined vs. subject to individual decision-making? Under what conditions do group factors dominate, under what conditions are individuals relatively freer (e.g., some see individuals relatively freer when the group forces clash; others-as

5 Etzioni SOCIO-ECONOMICS 479 anxiety-ridden under these circumstances)? Which groups are the Significant Others, and what are the relations among them, may be parts of the needed paradigm whose elaboration can be deferred, but not for long. Fourth, one must deal with the nestling questions. Neo-classical economists tend to deal with the economy (or The Market) as if they were free-standing self-regulating social systems. There is though much evidence to show that both the limits and the opportunity for economic behavior are set by the wider societal context Some societies (including their cultures and polities) legitimate fairly sizable market sectors, most-do not. A paradigm that studies economic behavior needs a concept of what accounts for the changing scope of legitimation or tolerance for rendering choices on rational, economic grounds rather than on moral, kinship, ethnic or some other grounds. These questions may need reformulation or other lists or core questions may be drawn. The main point is that some such list must provide the elementary framework socio-economics requires. The "rest" may then be subject for elaborations. However, without a framework shared by those who seek to study rational choice without neo-classical economic assumptions, it will be very difficult to advance an accumulative effort. Instead we shall continue to have a myriad of individual studies or a Tower of Babel of conflicting theories. Why an Interstitial Discipline? The study of rational choice behavior may require combining contributions from psychology, sociology and political science and anthropology, hence the reference to socio-economics. While psychology may provide much of what is necessary, other social sciences may need to be drawn upon in the study of macro elements such as the relation among groups (as distinct from those between individuals and groups), the role of society and culture (especially value systems and their dynamics) and that of the polity. These, in turn, may need to be combined with economic concepts which recognize the role of supply and demand and prices without neo-classical economic assumptions. One example of such a binary socio-economic approach will have to do. Neo-classical economists in recent years have attempted to show that crime is a rational choice behavior by ordinary individuals rather than the result of distorted personalities, poor socialization, deviant peer cultures and such, the lines of interpretation many psychologists and sociologists follow. Cost (punishment) and benefits (size of the loot) were shown to correlate with the levels of crime, even crimes of passion such as rape and murder. However, most recent work shows that such "economic" factors account for only about one third of the

6 480 JOURNAL OF SOCIAL BEHAVIOR AND PERSONALITY variance while factors traditionally studied by psychologists and sociologists, such as capacity to deter gratification and moral socialization, also account for about a third of the variance (Wilson & Herrnstein, 1985)-hence the value of systematically studying both kinds of factors in one framework. A Matter or Method and Data Introducing greater reliance on induction, drawing on experiments, observations, and attitude surveys, may turn out to be the single most important corrective socio-economics will provide to the highly deductive approach of neo-classical economic behavior. Those who do not regularly follow neo-classical economics work may find it hard to believe how far it is removed from empirical testing, at least in the way this term is understood in many other sciences, and all other social sciences (to the extent they themselves do not fall under the spell of neoclassical economics and its methods). Neo-classical economists typically deal with an artificial world and relations not found or approximated any place, for instance the relations among X firms all producing the same product in a fully competitive market. Neo-classical economists may then "relax" the base assumption by making some other equally artificial ones (the firms produce two products). Verification is done by manipulating regression analysis of previously collected data, data whose internal or external validity is almost never tested. (Economists themselves refer to these analyses as a "con" work. See Leamer, 1983 and Hoch, 1985). Or, the elaborations of various artificial economic models are compared to one another. If they can be made to dovetail, they are considered "empirically supported." Psychologists, and other social scientists, who study economic behavior by actually observing it, conduct experiments, collect attitudipal and behavioral data. This provides a much needed countervailing force. This statement is based on the elementary assumption that science is a logical-empirical deductive and inductive endeavor, and cannot be merely or mainly a branch of mathematics. Institu ti onaliza ti on There is a need to provide institutionalized bases for socioeconomics. Paradigms do not develop in thin air. They tend to require large scale accumulation of research efforts, and hence research funds, faculty positions, specialized journals, and systematic opportunities for dialogue (i.e., an invisible college). Economists report that they cannot find jobs if they seek to study economic behavior outside what is called the "received orthodoxy." Main economic journals tend not to publish their articles. Induction work is reported to be dismissed as interesting

7 Etzioni SOCIO-ECONOMICS 481 but not significant (Kuttner, 1985, p. 80). It follows that endeavors to develop and test alternate paradigms need institutional bases of their own. Among the places they might be found are the creation of new deparments (the way bio-chemistry arose next to biology and chemistry); within professional schools (especially those of business, administration, management or policy, all particularly in the need for interstitial paradigms of economic behavior); disciplinary divisions (like division 14 and 23 of the American Psychological Association and SABE) and special associations (like the new Network for the Advancement of Socio-Economics). Ultimately at issue is more than one more academic department, field or division. Economic theory plays a major role in policy formation that deeply affects the lives of millions of people. For instance, an unnecessarily tight monetary policy engineered by the Federal Reserve System because monetary theory suggests money is too abundant, throws millions out of work, break up numerous families, significantly raises suicides and mental breakdowns. The USA had four such recession since In the same years the International Monetary Fund forced scores of Third World countries through economic, social and political upheaval in the name of an unproven economic theory. No other social science is more consequential. Hence, the empirical validity of the theory applied to the study and conduct of economic behavior is a matter not only of great intellectual interest and professional concern, but of great human consequence. REFERENCES Allvine, F.C., & Tarpley, F.A., Jr. (1977). The new state of the economy. Cambridge, MA: Winthrop. Alluisi, E.A., & Meigs, D.K., Jr. (1983). Potentials for productivity enhancement from psychological research and development American Psychologist, 38, Hoch, I. (1985). Retooling the mainstream. Resources, 80, 1-4. Janis, I., & Mann, L. (1977). Decision making: A psychological analysis of conflict, choice and commitment. New York: Free Press. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. &onometrics, 47, Katzell, R.A., & Guzzo, R,.A. (1983). Psychological approaches to productivity improvement American Psychologist, 38, Kuttner, R., (1985). The poverty of economics. The Atlantic Monthly. February, Leamer, E.E. (1983). Let's take the "con" out of econometrics. American

8 482 JOURNAL OF SOCIAL BEHAVIOR AND PERSONALITY Economic Review, 73, l. kachman, R. (1976). &onomists at bay: Why the experts will never solve your problems. New York: McGraw Hill. Maital, S., & Maital, S.L (1984). Economic games people play. New York: Basic Books. Nisbett, R., & Ross, L. (1980). Human inference: Strategies and shortcomings of social judgement. Englewood Cliffs, NJ: Prentice- Hall. Perloff, R., & Nelson, S.D. (1983). Economic productivity and the behavioral sciences: An introduction. American Psychologist, 38, Quayle, D. (1983). American productivity: The devastating effect of alcoholism and drug abuse. American Psychologist, 38, Simon, H.A. (1955). A behavioral m>del of rational choice. Quarterly Journal of Ecooomics, 69, Thurow, L.C. (1983). Dangero/Lf currents. New York: Random House. Tomatzky, L.G., Solom>n, T., Bikson, T., Cole, R., Friedman, L., Hage, J., Kiesler, C.A., Larsen, 0., Menzel, D., Nelson, S.D., Sechrest, L., Stokes, D., & Za1tman, G. (1982). Contributions of social science to innovation and productivity. American psychologist, 37, Tuttle, T.C. (1983). Organizational productivity: A challenge for psychologists. American Psychologist, 38, Wilson, J.Q., & Hermstein, RJ. (1985). Crime and human nature. New York: Simon and Schuster.