From Experimental Economics toward Integral Human Rationality

Article excerpt

Introduction

Pope Benedict XVI's encyclical Caritas in Veritate addresses the concern of the human condition in a world that seems to focus on temporal and material matters to the exclusion of other things. Benedict expresses a concern for the total well-being of people throughout the world, for their "integral" nature: spiritual as well as material. Thus he writes,

   Besides requiring freedom, integral human development as a vocation
   also demands respect for its truth.... Paul VI answers the question
   by indicating the essential quality of "authentic" development: it
   must be "integral, that is, it has to promote the good of every man
   and of the whole man." (3) The focus of this article will be the
   integral human being in the context of social and economic
   exchange.

Benedict XVI, writing in the midst of the unfolding global financial crisis, is naturally drawn to the questions of material economic growth and the "malfunctions and dramatic problems" still weighing down on the development of humanity. (4) He enumerates some of these dramatic problems followed by a call to action:

   all this leads us to reflect on the measures that would be
   necessary to provide a solution to problems that are ... of
   decisive impact upon the present and future good of humanity. The
   different aspects of the crisis, its solutions, and any new
   development that the future may bring ... require new efforts of
   holistic understanding and a new humanistic synthesis. (5)

I will show in this article that there is a field of research and a growing body of empirical evidence within the discipline of economics that has already been developing such holistic integral understanding of human action and, perhaps quite unintentionally, leading to the new humanistic synthesis of the collected body of knowledge. This growing field is experimental economics, pioneered and developed by Vernon Smith whose contributions to economic science have been recognized by the Nobel Prize in economic sciences in 2002. (6)

Experimental Methods as An Answer to Problems with Data in Economics

Smith carefully and painstakingly discusses experimental methods in other sciences, relates them to, and defines them for economics. (7) For most of its history, economics has been a nonexperimental, field-observational science similar to astronomy or meteorology. Economists have used observations generated by historical economic outcomes over time. The use of collected data alone leads to methodological problems arising from two sources. First, there is no empirical basis for the assumptions surrounding the economic process that generated the data. Economists base their analysis on the general, introspectively "plausible," assumptions about human preferences and rationality and then apply them to the observed behavior in the economy. Economics has not had a body of tested behavioral principles that have survived controlled experimental tests, which then can be used to explain the naturally occurring observational data. Smith calls much of economic theory "'ecclesiastical theory' (8): it is accepted (or rejected) on the basis of authority, tradition, or opinion about assumptions, rather than on the basis of having survived a rigorous falsification process that can be replicated." (9) As a result, the experimental economics research program has been driven by the desire to rely not just on logical parables traditionally used by economists to describe human action and rationality (an exercise in logic). Instead, experimentalists seek testable and tested results that could be just as, if not more, informative to our economic analysis of competing institutions or proposals for human betterment. As I will return to later in the article, Smith unintentionally also embarked on the testing of the standard neoclassical economic model of human rationality, in which a human agent is a self-interested utility-maximizer, acting independently and taking into account full and relevant information. …