Constructivist and Ecological Rationality in Economics

All those interested in extended mind/externalist/situated type thought should be aware of the field of Behavioral Economics (BE) in general and the work of Vernon Smith in particular. BE is a body of literature that was ploughing this trough some twenty years before the hypothesis of extended cognition took root in cognitive science. It is interesting to note that the Clark and Chalmers thesis took some inspiration from Herbert Simon (Clark & Chalmers, 1998). Simon writes:

Human beings, viewed as behaving systems, are quite simple. The apparent complexity of our behavior over time is largely a reflection of the complexity of the environment in which we find ourselves . . . [I] would like to view this information-packed memory less as part of the organism than as part of the environment to which it adapts . . . (Simon, 1996, 53, cf.8, 62, 99, 110).

But what is remarkable about this is that Simon in turn credits and endorses Hayek for this view:

No-one has characterized market mechanisms better than Friedrich von Hayek . . . [His] defense did not rest primarily upon the supposed optimum attained by them but rather upon the limits of the inner environment – the computational limits of human beings (Simon, 1996, 34).

What Simon has grasped is the corollary to Hayek’s spontaneous order externalism – “cognitive closure” (or in Simon’s terminology “bounded rationality” was a key presupposition to all Hayek’s work and set out in its most technical form in Hayek (1952/1976). Cognitive closure is the idea that the human mind is constitutionally delimited – a condition that can be ameliorated if the social and artifactual world functions as a kind of distributed extra-neural knowledge store.

Through the work of Vernon Smith (the provenance going back to his classical namesake, Adam), ecological or situated/bounded rationality has received its most recent and finest articulation. Unlike some Nobel Laureates (no names) Vernon is not a prima donna. He is exceedingly approachable, very kind, generous, modest and open-minded. I was lucky enough to meet  Vernon in Tucson and he put me at ease very quickly as did his charming wife. Recently, Vernon gave me an inscribed copy of his Rationality in Economics: Constructivist and Ecological Forms along with his autobiography Discovery – A Memoir, the former deeply informing my work; the latter interest taking wing from my talking to him about his Kansas youth.

Nobel Lecture

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Hayek and Behavioral Economics: Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension

I see that the publisher now has a fully detailed page up for a volume that I’ve been privileged to be a part of. The Foreword is by a very nice chappie going by the name of V.Smith and includes luminaries such as McCloskey, Boettke, Gintis, Steel and others. My abstract:

Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension

Hayek’s and Simon’s social externalism runs on a shared presupposition: mind is constrained in its computational capacity to detect, harvest, and assimilate “data” generated by the infinitely fine-grained and perpetually dynamic characteristic of experience in complex social environments. For Hayek, mind and sociality are co-evolved spontaneous orders, allowing little or no prospect of comprehensive explanation, trapped in a hermeneutically sealed, i.e. inescapably context bound, eco-system. For Simon, it is the simplicity of mind that is the bottleneck, overwhelmed by the ambient complexity of the environmental. Since on Simon’s account complexity is unidirectional, Simon is far more ebullient about the prospects of explanation. Hayek’s social externalism functions as a kind of distributed “extra-neural” memory store manifest as dynamic spontaneous orders. Simon’s organizational rule-governed externalism negotiates the “inner” world (the mind) with the “outer” world through a homeostatic interface that offloads the cognitive burden into the environment. Their respective externalisms may differ in detail but not in spirit in that it ameliorates their shared presupposition of cognitive constraint. Even though any “optimization talk” for Hayek and Simon is objectionable, knowledge acquisition can be represented by a contextualized stigmergic swarm optimization algorithm that gives due emphasis to both the individual and the environment. The key insight is that “perfect” knowledge is unnecessary, impracticable and indeed irrelevant if one understands the mechanism at work in complex sociality, a stigmergic sociality that in effect augments or scaffolds cognition.

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Gintis on Hayek

Check out this recent paper by Herb Gintis entitled Hayek’s “Contribution to a Reconstruction of Economic Theory.” Herb’s paper is, I think, going to be part of an edited collection that I’m also contributing to and am still polishing up. I had the pleasure of meeting Herb just over a year ago at the Society for Behavioral Economics conference in San Diego. I recently read Herb’s The Bounds of Rationality – the title a clear nudge and a wink to that other Herb – H. A. Simon’s famous phrase. And it’s endorsed by none other Nobel laureate Vernon Smith who I happened to meet this past May at a conference.