Friday, March 20, 2009

Adam Smith the Moral Philosopher and Student of Human Behavior

Adam Smith the human behavior studying guy? Whha.a.aat? LOL Yeah I didn't konw that either... Adam Smith... the name all MBA's and Economics majors know.... So with all the financial turmoil.. there seems to be strong popular support for behavioral economics.... which is interesting... considering Adam Smith of Wealth of Nations fame and Economics lore... was a Moral Philosopher and student of human behavior.... (I didn't know this tidbit about Adam Smith until I saw this interesting posting on Gene Expression....)
Check out the Gene Expression blog entry here.

Gene Expression has some gems such as:

To be fair to the field, though, they point out that before roughly the 1970s, mainstream economists all believed that the foibles of human beings, as they really exist, should be incorporated into theory, rather than dismissing them as behaviors that only an irrational dupe would show. Remember that Adam Smith was a professor of moral philosophy and wrote extensively about human psychology. From what I can tell, the recent shift does not have to do with the introduction of math nerds into the field, since the man who laid most of the formal foundation -- Paul Samuelson -- was squarely in the "psychology counts" camp. It looks more like a subset of math nerds is responsible -- call them contemptuous autists, as in "What kind of idiot would engineer the brain that way?!" (Again, these are very rough impressions, and I'm winging it in categorizing people.)

Notice... the math nerd part, well at least the ones that like to mistake models for reality.... =). The explosion of quantitative finance (think derivatives and option pricing etc) really took off in the late 1970's and 1980's when many Physicists, Mathematicians, and Scientists started entering into the field, applying traditional physics/math concepts such as equilibrium to financial models... in fact... the canonical Black-Scholes option pricing equation is based on the physics of heat transfer... at least in the equilibrium concept... check the Wiki Entry here to see the Heat Equation Black-Scholes is based on roughly speaking.

The moral of the story I think is that... although we grow up to be astronauts, janitors, and engineers.... should not, for one minute.... forget the social lessons we learned while on the playground... Human behavior does not change magically just because people get older... Thus I think.... in truth, partially at least,... everything we need to know about human behavior... we learned in Kindergarten.... we just forgot it when we got older..... =)

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