Economist Rajiv Sethi has a great blog. In this post, Sethi, and Thoma, whom he quotes, seem to acknowledge that the financial crisis should lead them to consider new ideas for economic models. Later on in the post, Sethi points out that behavioral economics has mined psychology for insights, but that economists would do well to look beyond the level of the individual:
If one is to look beyond economics for metaphors and models, why stop at psychology? For financial market behavior, a more appropriate discipline might be evolutionary ecology. This is not a new idea. Consider, for instance, this recent article in Nature. Or take a look at the chapter on “The Ecology of Markets” in Victor Niederhoffer’s extraordinary memoir. Or study Hyman Minsky’s financial instability hypothesis (discussed at some length in an earlier post), which depends explicitly on the assumption that aggressive financial practices are rapidly replicated during periods of stable growth, eventually becoming so widespread that systemic stability is put at risk. To my mind this reflects an ecological rather than psychological understanding of financial market behavior.
Reading people like Sethi, I’m confident economics will come around. Sociologists have never overemphasized rational actors, but we too can learn from approaches in other disciplines like ecology.
Another good reference on this is Rick Bookstabers’ “On the Optimality of Coarse Behavior Rules.” He looks at ecological systems where a species is finely tuned to exploit their current environment, which eventually leads to their downfall when the environment changes. He contrasts this to non-optimized species that can thrive across state changes.