More Econ Bashing

12 December 2007 at 2:51 pm 6 comments

| Nicolai Foss |

A topic that has frequently been discussed on O&M is the bashing of economics that appears to have become a favorite pastime of management writers such as Jeffrey Pfeffer, Henry Mintzberg, (the late) Sumantra Ghoshal, and others (e.g., here, here, and here). The most radical statement of that recent wave is the Ferraro, Pfeffer, and Sutton 2005 paper in the Academy of Management Review (here is a selection of O&M posts on this paper). Or, so we thought …

Max Bazerman and Deepak Malhotra, both of Harvard University, have contributed a chapter, tellingly titled “Economics Wins, Psychology Loses, and Society Pays,” to a recent edited volume, Social Psychology and Economics (check Herbert Gintis’ review of the book on Amazon) (here is the Google copy). What they say is so uncompromising (and cranky) that it has to be read to be believed. Here is a sample:

Recent history has witnessed the financial distress of companies such as Enron, Adelphia, Global Crossing, Halliburton, Xerox, Worldcom and Tyco. Millions of jobs and tens of millions of retirement plans have been lost. Shortcomings in U.S. security policies were at least partially responsible for the tragedies involved with 9/11. Eleven of the 17 major fisheries in the world are commercially extinct. The United States needlessly allows thousands of people to die each year because of an ill-conceived organ donation system. Behind each of these disasters is the hand of economic logic, the dominance of this logic to the exclusion of other useful social sciences (p.264).

The solution? A Council of Psychological Advisers to parallel (or trump?) the Council of Economic Advisers. Yes, that’s right.

Entry filed under: - Foss -, Myths and Realities.

Summer Workshop on Social Norms A Critique of Economics from an Unusual Direction

6 Comments Add your own

  • 1. Peter Klein  |  12 December 2007 at 3:06 pm

    I look forward to reading the annual Psychological Report of the President (not to be confused with one “on” the President).

  • 2. srp  |  12 December 2007 at 6:16 pm

    The organ donation thing is particularly bizarre. On what alternate reality is there a legal US market in organs that almost every economist would endorse in one form or another? That entire policy area is blighted with moralistic (but immoral) ideas about “repugnant markets” and the like, driven by second-rate philosophers and self-appointed bioethics sages.

  • 3. michael webster  |  12 December 2007 at 8:49 pm

    I see nothing in mainstream psychology that advances our understanding of how to prevent the type of frauds in Enron, Adelphia, Global Crossing, Halliburton, Xerox, Worldcom and Tyco.

    And I would have never lumped them all together as counter-examples to the economic underpinnings of our current regulatory scheme.

    Enron arguably disclosed their risks: nobody believed it.

    Tyco simply allowed its CEO to loot it.

  • 4. Bo  |  13 December 2007 at 7:14 am

    Very interesting. Now, I wonder WHY it is that economic logic has led to an exclusion of these other (more worthy?) social (!)sciences (!)?. Could it be that homo economicus is at play? Could it be a self-selection mechanism – economics drive society not because it is evil but rather because, as a matter of fact, it is rational beviour that works..I wonder if the book deals with the reason why economics prevails or simply bashes it?

  • 5. Nicolai Foss  |  13 December 2007 at 7:28 am

    Bo, Very good questions!
    1) Ferraro, Pfeffer, Sutton or Bazerman and Malhotra unfortunately provide very little detail on the mechanisms (theoretical and historical) that have led to the alleged dominance of economics.
    2) With respect to the point that economics may be important “because it works”, this is a main point of a recent paper by Teppo Felin and I that I am happy to send you if you are interested (and not too busy taking care of your newborn daughter; many congrats, BTW).

  • 6. Bo  |  13 December 2007 at 8:37 am

    Thank you Nicolai – I would be happy to read this paper and since my baby daughter is behaving quite well it leaves me with oceans of time…

    I was wondering when you would congratulate me on THAT achievement – it would seem that rather than waste an email on this topic you chose the economically rational solution to do it here :) No hard feelings!

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