Philosophy of Science or Science and Technology Studies? Economic Methodology and Auction Theory

Abstract

This article addresses some recent tendencies in economic methodology defined as a philosophy of science for economics. I review the problem of normative/positive distinction in methodology and argue that normativity in its past forms is intolerable today but is, at the same time, indispensable for methodological inquiry. Using recent texts by Mirowski and Nik-Khah and by Alexandrova and Northcott on the applications of auction theory as a case study, I compare in more detail various approaches to economic methodology inspired by the science and technology studies (STS) and philosophy of science literatures, respectively. On the basis of this comparison, I show that the STS programme in economic methodology may prove fruitful in the future, but there is still a place for more aprioristic philosophical thinking. Methodology and history of economics also play a fundamental role that goes beyond the descriptive analysis of STS and offer conceptual clarification paired with normative concerns provided by philosophers of science.

Acknowledgements

The author is deeply grateful to Anna Alexandrova, Roger Backhouse, D. Wade Hands, Edward Nik-Khah, Konstantin Sonin, Greg Yudin, three anonymous referees and the editor of this journal for their helpful comments on this paper.

Notes

By ‘aprioristic’ I do not mean the methodology of the Ludwig von Mises's Austrian economics. Rather, I use the term for characterizing a particular approach to metascience that emphasizes a priori norms and structures of scientific inquiry and not its current practices.

To avoid misunderstanding I should perhaps emphasize that I am only interested in the metaquestion of normative vs positive/descriptive economic methodology and do not want to delve into, say, the debate over whether economic science is ethically normative or what epistemic status normative economics may possibly have.

But not necessarily Lakatosian in spirit, since Lakatos in fact drew attention to the practice of science and as a historian inspired the further science studies. His role, therefore, was ambiguous, informing not only Blaug, but also such an STS-oriented scholar as Weintraub (1985).

See as an example of such research the study of Friedman's methodological principles compared to his actual scientific practices in Hirsch and De Marchi (1990).

I do not claim to give a complete overview of the existing methodological work, but I do not want to leave it as a mere assertion either. As a stylized fact, suffice it to say that, for example, the recent methodological analyses of experimental economics (Guala 2005), new economic geography (Marchionni 2008), game theory (Grüne-Yanoff and Schweinzer 2008), and error in economics (Reiss 2008) all share the strong concern for investigating current practices even when developing philosophical accounts.

Auction theory is a synthesis of game theory and mechanism design aimed at illuminating the issues of optimality (how to sell an item to the agent who values it the most), revenue (how to raise maximum from the bidding process), and information (how to overcome informational asymmetries that so often emerge in the interaction of agents) in auctions. It is obviously linked to the problem of creating and (optimally) designing institutions from scratch that is so important in the performativity literature. For an overview of contemporary auction theory see Milgrom (2004), but also Klemperer (2004).

For accurate and comprehensive historical accounts of the FCC auctions see Guala (2001) and Nik-Khah (2008).

A&N cite Nik-Khah's 2008 article without mentioning sociological perspectives on markets. The absence of A&N's paper in M&N's reference list is explicable on the ground that the latter text was written and published some time before A&N.

They do not contradict auction theorists on this general point. See Klemperer (2004). Maskin (2004) also argues that auction design as an application of auction theory still resembles art more than rigorous science.

For a more detailed critique see Nik-Khah (2008). Guala (2006b) notes that to evaluate the eventual efficiency of the auctions is a difficult task to be settled by rigorous scientific analysis.

A good example is Binmore (2004)—by the way, an economist engaged in auction construction in the UK.

It is telling that a prominent economist (when defending rational choice theory against charges of being unrealistic) claims that ‘the functional goal of social science is not just to predict human behavior in the abstract, but to analyze social institutions and evaluate proposals for institutional reform’ (Myerson 1999, 1069).

This does not mean that M&N represent the performativity program (their paper criticizes it), but their research is clearly inspired by the ideas of STS—see also Mirowski (2002), Nik-Khah (2008), Mirowski and Plehwe (2009).

M&N are right in criticizing Callon (2007) for his undifferentiated and rather primitive view of modern economic thinking, which confuses it with accounting and marketing (Mirowski and Nik-Khah 2008, 98).

Communication between philosophy and the sociology of economics may prove fruitful in the future due to institutional concerns as well. In fact, philosophers and sociologists sometimes express a specifically methodological interest in economics, but most often this requires a confident knowledge of modern economics itself. At the same time, good graduate students invest their time and effort in studying economic theory, presumably in order to practice it. The choice to become an economic methodologist is thus not an easy one on the part of today's student, and the lack of coherence in the discipline in its present-day state may prevent one from choosing this course of study. Thus, both theoretically inclined economists and students in other social sciences often neglect economic methodology, which seeks new ideas and new people from various fields of study.

I do not claim here that any of the STS- or SSK-inspired studies has such a ‘global’ concern; sometimes they are in fact very local and have a narrower focus. However, what is primarily examined in most of these studies is not scientific knowledge, but rather some social practices. The importance of the performativity program in the social studies of economics lies precisely in trying to find interconnections and feedback loops between economic concepts and social practices, sometimes even to the point of blurring the distinction between them, as in Callon (2007).