Economics’ Wisdom Deficit and How to Reduce It

Download full paper

Abstract

As is well understood, the values inherent in the dominant neoclassical economic paradigm are self-interest and optimization.  These are the values that guide individuals and policymakers in advanced capitalist economies in their economic decision making.  As a consequence, the economics discipline, arguably, is insufficiently oriented to helping people and organizations make wise choices, choices about what is really and truly in people’s best interests.  In other words, there is strong reason to believe that economics has a wisdom deficit.

This paper draws on great philosophers such as Aristotle to explain what wisdom is and why, although economics is concerned with the normative aspect of decision making, economics has too infrequently been used to help people or their societies make wise decisions.  This paper is also concerned with how a society’s economic decision-making processes can be improved in order that these processes incorporate a much greater dose of wisdom.  One relevant question here is: can we learn with the help of philosophers, psychologists, and organization researchers how to make economic decisions that apply the practical wisdom that Aristotle advocated?

This paper’s overall purpose is first to point the way toward greater decision-making wisdom, and second to propose one method for improving the wisdom of important economic related decision making.  Hopefully, this paper will serve to put the issue of decision-making wisdom higher on the agenda of economists and, as a consequence, lead to wiser decisions in the economic sphere, thereby reducing the wisdom deficit.

Posted for comments on 13 Feb 2019, 4:12 pm.

Comments (3)

  • Geoffrey Harcourt says:

    I think John Tomer’s paper is challenging and interesting and should be in the public domain to create discussion. I do think the author should make clear that it is expected utility that is to be maximised in orthodox economics.

  • Khandakar Elahi says:

    I have some difficulties in understanding the meaning of Professor Tomer’s article posted on the OPD page. The title, “Economics’ Wisdom Deficit and How to Reduce It,” seems to suggest that modern economics has been suffering from ‘wisdom deficit,’ and the purpose of this paper is to recommend measures or ideas that might help ‘reduce’ that ‘deficit.’
    I know that economics is a social science, which creates ‘knowledge’ that concerns causal relations among economic variables. This knowledge refers to the body of theories and laws that are taught in our schools and colleges and used in economic research, which ultimately contributes the policymaking. For example, the law of demand says that under the ordinary situation, an inverse relationship exists between the quantity of a commodity or service demanded and its price. Thus, if the price of the commodity increases, its demand is supposed to decline. This information is a matter-of-fact knowledge that has been deduced from experience. There is no moral judgement attached to this knowledge, meaning knowledge, which some people prefer to call information, cannot be good or bad, right or wrong.
    Now, the words, knowledge and wisdom, although they are intimately connected, do not signify the same ideas or notions. The Cambridge English Dictionary defines wisdom as ‘the ability to use one’s knowledge and experience to make good decisions and judgments.’ Thus, in modern welfare states, the general policy of the government is to keep food prices low, while pushing up narcotic prices by imposing taxes. This policy decision is a matter of wisdom on the part of the public authority, while the theory it uses to formulate this policy is knowledge created by the science of economics.
    The point that emerges from the above paragraphs is that economics, as a science, cannot deal with the issues of wisdom. This is perhaps the reason why economists in general belief that value-judgement is not permissible in economic research.
    There is another difficulty in the title of the paper that demands Professor’s Tomer’s sincere attention. Only humans can make moral judgement. Since economics is a science, how can this body of knowledge make moral judgement?

  • Jorge L. Andere says:

    John Tomer has written an interesting paper which goes in two parts: first, decision-making wisdom is compared to decision-making in rational choice theory and in psychological economics, and then a modified version of the Delphi method is proposed for improving decision-making wisdom in evaluating large scale projects in the public sector. I interpret the last as an innovative effort for “putting virtues into action.”

    I think the author should distinct that, in standard economics, public sector projects are not evaluated under the individual maximization problem subject to constraints discussed in the paper, but under the collective decision-making framework of social choice theory. Addressing the optimization problem from social choice viewpoint evidences that there are no social welfare functions that can be used without falling into contradictions.

    I think this distinction may also be useful to be more persuasive. After that impossibility result, policymakers would be devoted to find a minimally satisfactory social welfare function considering the problem that is to be solved. This is still utilitarian, but it can be also a matter of judgment (i.e. efficiency versus redistribution). In my view, this judgement could be technical, deliberative, or both. On his part, the author proposes a method resting in anonym “wise-perts” carrying out an un- or semi-deliberative public policy-making process. Why does this proposal lead to better or wiser decisions?

    Regards.

Your comment

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Please note that your email address will not be published.