MINDS, MARKETS, AND MONEY: Psychological Foundations of Economic Behavior by Shlomo Maital

MINDS, MARKETS, AND MONEY: Psychological Foundations of Economic Behavior

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Two of today's shakier fields of knowledge are psychology and economics, but Israeli economist Haikal thinks that economic theory can be firmed-up by turning to psychology. The result, predictably, is more confusion. Economic theory now relies heavily on psychological theory in regard to consumption: how will the consumer spend his dollar given a set of wants and limited dollars, etc. Maital thinks that psychology has a lot to say about production, too, and various other things. For example, he explains inflation partly in terms of people's expectations about the future. Some studies show that children are socialized into self-interestedness and impatience; as adults, looking out for oneself in the short-run has terrible results for everyone in the long-run--including unproductive spending and inflation. Inflation, in turn, causes unstable currency; and the perception of instability leads to uncertainty, which in turn leads to impatience and, so, to still more inflationary behavior. That does constitute a description, of sorts, but it falls short of an explanation of any theoretical value. Similarly, Maital thinks that economics has ruled out error from its favorite models--they all postulate a rational economic factor--whereas most of what we do entails error. An example of this is in risk-taking: people tend to make errors in calculating probabilities, but economics prefers to think that people rationally sort out the risks involved. That, too, doesn't get us very far, even if it might explain why so many people think they'll strike it rich in the stock market despite the odds against them. In the end, Maital merely criticizes economics for not asking the question why; and for him that means turning to psychology. But psychology (as distinct from psychoanalysis) is also behaviorally oriented; descriptive, that is, rather than analytical. (Maital blithely parallels Adam Smith and Marx with Freud and B. F. Skinner.) Ultimately, Maital winds up with a conception of economics as a theory of aggregated individual behavior that isn't fundamentally different than the one that's supposed to be in a crisis. This isn't the way out.

Pub Date: May 28th, 1982
Publisher: Basic Books