The resilience of reduction in economics: revising the problem

• Grant number: 24/01346-2
• Support Opportunities: Scholarships abroad - Research Internship - Post-doctor
• Effective date (Start): September 01, 2024
• Effective date (End): December 20, 2024
• Field of knowledge: Applied Social Sciences - Economics
• Principal Investigator: Pedro Garcia Duarte
• Grantee: Alexandre Müller Fonseca
• Supervisor: Francesco Guala
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Research place: Università degli Studi di Milano, Italy
• Associated to the scholarship: 22/11025-3 - Heuristic function and explanatory capacity: revisiting Lucas aggregate supply modelling, BP.PD

Abstract

This project has a specific target: to develop a philosophical defence in favour of reductionism in economics. More particularly, it concentrates on the debates involving the microfoundations of macroeconomics: the view held by several mainstream economists according to which the explanations for macroeconomic events must be grounded on individual decision-making problems. As such, any other alternatives that disrespect this protocol are seen as a sub-standard approach. Only individualistic explanations, i.e., those that consider the causal doers of macro events to be made of individuals' features only (people's intentions, beliefs, expectations), are admissible to unpack macroeconomic events' causes.Interestingly, while this is the dominant approach among mainstream economists, though criticized by other economists, when we go to philosophers of economics most of them are unsympathetic to this methodological paradigm. Given the état de l'art of economic theory, they claim we can't provide complete individualistic explanations for macroeconomic phenomena. Some macro entities, such as GDP and general price level, are as primitive as individuals in the economy. Moreover, the complexity of economic systems already revealed to us that some phenomenon, e.g., the thrift paradox, contradicts the old dogma that the "whole is the sum of its parts". So far, this discussion has been shaped in terms of "take it or leave it" in the literature: either there are complete individualistic explanations (then reduction), or there are no complete individualistic explanations (then no reduction). In other words, either (1) individualistic properties - people's intentions, beliefs, and expectations under a set of constraints - provide the complete explanation of macro phenomena or (2) macroeconomic events are clearly irreducible to individuals' features. In this debate, I adopt an intermediary stance: only a careful analysis of the role performed by the non-individualistic variables at the heart of the chosen economic socio-mechanism can reveal whether there's a reduction (or not). Reduction is attained when only the individuals' properties constitute the causal doers of macro events - other entities might be present in this economic machinery (relative prices, legal rules, macroeconomic data), although they do not project their features upon the explanandum. Using the recent typology offered by Francesco Guala in defence of ontological individualism (2022), I refresh the debate on reductionism in economics, paving the road for economic methodology and philosophy to make peace.