Does economics need psychology and cognitive science?

Economics meets psychology and cognitive science

In recognizing that ordinary humans are boundedly rational, economists and decision researchers who work within the framework of rational choice theory are faced with a difficult choice: stick to the standard concepts and tools of orthodox economics and bracket decision anomalies which challenge orthodoxy; or face the mounting evidence in support of bounded rationality and modify economic concepts and tools accordingly. Not surprisingly, opinions have been and remain divided on the growing role of psychology and cognitive science regarding the latter option.

Some researchers argue that economics needs psychology because individual persons are centers of decision-making—which is to say, that choices are the realization of subjective beliefs and of conscious and unconscious desires. Some take this to imply that concepts like utility and preference are indeed real psychological entities, and they hold out hope that cognitive psychology or neuroscience can illuminate where or how these concepts are realized. Hence, if whole persons are not ideally rational, perhaps some part of them – or their brain – is.

Alternatively, others argue that economics doesn’t need psychology or cognitive science precisely because economic agents are not human. Concepts like utility and preference are theoretical constructions—they are a necessary part of the economist’s toolkit; but no poking around inside of the heads of individuals will reveal what utility is or where preferences come from. Hence, any entity can, in theory, be modeled as an economic agent. But this would also suggest that, perhaps, individual persons are not centers of decision-making because choice, as it is traditionally understood by economists, is realized by processes both within and beyond, (external to) the individual.

Agency and choice

These contrasting approaches toward the integration of economics and psychology / cognitive science give rise to an interesting but crucial tension in contemporary decision research concerning the relationship between agency and choice: given the bounded rationality of ordinary humans, and, given the tools and concepts of orthodox economics, researchers are faced with the joint dilemma of re-evaluating their conception of economic agency and with identifying a more appropriate candidate for the locus of choice, i.e. the ascription of utility and/or preferences. This tension pulls in different directions as some researchers seem to want to unite and locate agency and choice (somewhere) within the individual; whereas others seem to want to decouple agency and choice entirely.