Economics As a Science of Human Behaviour

Economics As a Science of Human Behaviour

RECENT ECONOMIC THOUGHT SERIES Editor: Warren G. Samuels Michigan State University East Lansing, Michigan, U.S.A. Other books In the series: Feiwel, G.: SAMUELSON AND NEOCLASSICAL ECONOMICS Wade, L.: POLITICAL ECONOMY: MODERN VIEWS Zimbalist, A.: COMPARATIVE ECONOMIC SYSTEMS: RECENT VIEWS Darity, W.: LABOR ECONOMICS: MODERN VIEWS Jarsulic, M.: MONEY AND MACRO POLICY Samuelson, L.: MICRO ECONOMIC THEORY Bromley, D.: NATURAL RESOURCE ECONOMICS: POLICY PROBLEMS AND CONTEMPORARY ANALYSIS Mirowski, P.: THE RECONSTRUCTION OF ECONOMIC THEORY Field, A.: THE FUTURE OF ECONOMIC HISTORY LOWry, S.: PRE-CLASSICAL ECONOMIC THOUGHT Officer, L.: INTERNATIONAL ECONOMICS Asimakopulos, A.: THEORIES OF INCOME DISTRIBUTION Earl, P.: PSYCHOLOGICAL ECONOMICS; DEVELOPMENT, TENSIONS, PROSPECTS Thweatt, W.: CLASSICAL POLITICAL ECONOMY Peterson, W.: MARKET POWER AND THE ECONOMY DeGregori, T.: DEVELOPMENT ECONOMICS Nowotny, K.: PUBLIC UTILITY REGULATION Horowitz, I.: DECISION THEORY Mercuro, N.: LAW AND ECONOMICS Hennings, K. and Samuels, W.: NEOCLASSICAL ECONOMIC THEORY, 1870 TO 1930 Samuels, W.: ECONOMICS AS DISCOURSE Lutz, M.: SOCIAL ECONOMICS Weimer, D.: POLICY ANALYSIS AND ECONOMICS Bromley, D. and Segerson, K.: THE SOCIAL RESPONSE TO ENVIRONMENTAL RISK Roberts, B. and Feiner, S.: RADICAL ECONOMICS

Economics As a Science of Human Behaviour Towards a New Social Science Paradigm Bruno S. Frey University of Zurich ~. " Springer Science+Business Media, LLC

Ubrary of Cong_ Cataloglng-In-Publlcatlon Data Frey, Bruno S. Economics as a science of human behaviour: towards a new social science paradigmlbruno S. Frey. p. cm.-(recent economic thought series) Includes bibliographical references and indexes. ISBN 978-94-017-1376-4 ISBN 978-94-017-1374-0 (ebook) DOI 10.1007/978-94-017-1374-0 1. Economics. 2. Social sciences. I. Title. II. Series. HB71.F72 1992 33O-dc20 91-42195 CIP Copyright 1992 Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 1992. Solkover reprint ofthe hardcover 1st edition 1992 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo-copying. recording, or otherwise, without the prior written permission of the publisher, Springer Science+Business Media, LLC. Printed on acid-tree paper.

Contents Preface Acknowledgments vii xi Part A: Human Behaviour 1 1 Economics as a Social Science: Approach, Applications and Interdisciplinarity 3 2 Economics and Psychology: Homo Oeconomicus 21 Part B: Applications to Various Areas 35 3 Natural Environment: Environmental Protection and Environmental Ethics 37 4 Politics: Unemployment and National Socialism 51 v

VI 5 Arts: Investments in Paintings 73 6 Family: Patriarchy in China 87 7 Conflict: Fighting Political Terrorism by RefuSing Recognition 103 8 History: Prisoners of War 113 Part C: Extensions 137 9 Limits and Further Development of Homo Oeconomicus 139 10 The Price System and Morals 153 11 Behavioural Anomalies and Economics 171 12 An Ipsative Theory of Human Behaviour 197 References 215 Author Index 245 Subject Index 251

Preface This book champions the view that economics is a social science, and that, moreover, it may serve as a new paradigm for the social sciences. Economics is taken to be part of those sciences which deal with actual problems of society by providing insights, improving our understanding and suggesting solutions. I am aware that the way problems are addressed here has little in common with economics as it is generally understood today; most economists make strong efforts to imitate the exact sciences. Economics tends to become a branch of applied mathematics; the majority of all publications in professional journals and books are full of axioms, lemmas and proofs, and they are much concerned with purely formal deductions. Often, when the results are translated into verbal language, or when they are applied empirically, disappointingly little of interest remains. The book wants to show that another type of economics exists which is surprisingly little known. This type of economics has its own particular point of view. It centres on a concept of man, or a model of human behaviour, which differs from those normally used in other social sciences such as sociology, political science, law, or psychology. I do not, however, claim that economics is the only legitimate social science. On the vii

viii PREFACE contrary, economics can provide useful insights only in collaboration with the other social sciences-an aspect which has been disregarded by mathematically oriented economics. What insights can this economic way of thinking provide? This question will be answered in the book by offering selected applications. The value of a specific approach cannot be assessed by theoretical argument only; its usefulness is revealed in conjunction with the analysis of specific problems. Part A discusses the economic approach, human behaviour being the focal point. The relationship to the psychological view of man is exten~ sively treated. Part B applies the economic approach to six different areas which are outside the scope of topics dealt with in conventional economics: natural environment politics art family conflict history The characteristics of the approach used here becomes particularly clear when it is applied to such areas which are not normally looked at from the economic point of view. Part C deals with the limits of this approach and discusses possible further developments. In particular, ethical and psychological aspects are illuminated. This book is suitable for both beginners and advanced students of economics who are looking for an introduction into behaviourally oriented economics, also known under such terms as "Non-Market Economics," "New Political Economy," or "New Institutionalism." The book is also written for sociologists, political scientists, lawyers and psychologists who want to know more about what is sometimes called "Economic Imperialism." Finally, the book may serve the general reader who wants to know what insights modern applied economics may bring him or her. I have tried to keep the text as easy to understand as possible, and where forced to use professional terms, I have explained them. In chapter 4, which deals with the influence of economic conditions on election outcomes, an econometric (statistical) approach is used. I have attempted to show that

PREFACE IX the "economic view of the world" is not speculative and remote from reality, but is amenable to empirical analysis. The basic data and estimation results are shown in an appendix to the chapter, and are carefully explained in verbal terms. The individual chapters are based on articles which have been published in various languages in European and American academic journals. They have been completely rewritten, supplemented and brought up to the level of present day discussion. The first, second and ninth chapters were especially written for this volume. -The initial articles were the result of many years of joint work with present and former colleagues. I am grateful to Dr. Hannelore Weck Hannemann, Professor Werner W. Pommerehne, Dr. Barbara Krug, lic.oec. Heinz Buhofer and Dr. Reiner Eichenberger for permission to draw on jointly-written articles. Chapters 2 and 12 have been strongly influenced by joint research with two colleagues and friends from psychology, Professor Wolfgang Stroebe (University of Tubingen) and Professor Klaus Foppa (University of Berne).

Acknowledgments Several chapters draw on material contained in, or are the thoroughly revised and updated versions of, articles published in various scientific journals, and are partly coauthored. I am grateful for permission to use this material. Chapter 4 is based on "A Statistical Study of the Effect of the Great Depression on Elections: The Weimar Republic 1930-33" which was jointly written with Hannelore Weck-Hannemann and published in Political Behaviour 5 (1983): 403-420. Chapter 5 partly draws on material jointly written with Werner W. Pommerehne: "Art Investment: An Empirical Enquiry" was published in the Southern Economic Journal 56 (1989): 396-409. Chapter 7 includes parts of the article "Fighting Political Terrorism by Refusing Recognition" which appeared in the Journal of Public Policy 7 (1988): 179-188. Chapter 8 draws on an article written jointly with Heinz Buhofer entitled "Prisoners and Property Rights" and which was published in the Journal of Law and Economics 31 (1988): 19-46. Chapter 11 is based on an article written jointly with Reiner Eichen- Xl

xii ACKNOWLEDGMENT berger entitled "Should Social Scientists Care About Choice Anomalies?" which appeared in Rationality and Society 1 (1989): 101-122. Chapter 12 uses material contained in an article written jointly with Beat Heggli entitled "An Ipsative Theory of Business Behaviour" and published in the Journal of Economic Psychology 10 (1989): 1-20.

Economics As a Science of Human Behaviour