How Economics Must Adapt to the Digital Era: Understanding the Performativity of Economic Theories

  Today, the influence of economics on policy may have reached an all-time high, and at the same time it has endured criticism may have reached an all-time high. Since 2008, crises have followed one after another, but economics has repeatedly failed to predict them in advance. Moreover, economics seems to have failed to prepare for the arrival of the digital economy era. Digital technology, big data, machine learning and artificial intelligence are completely changing the phenomena that economics tries to measure, understand and shape. How should economics respond? ?
  The book “Gears and Monsters: A New Agenda for Economics in the Digital Era”, based on reflection on the current situation of economics, explores how to innovate the economics research framework in the era of digital economy.
Beyond straw man criticism of economics

  In this book, Coyle first points out that many critics of economics often base their views on “straw man” criticisms that ignore the real flaws of economics. Coyle believes that this kind of “straw man” criticism not only turns a deaf ear to the positive changes in economics research and economics education, but also causes some economists to inadvertently ignore or deliberately deny fundamental problems in the field of economics. Therefore, she first spent some ink on providing a rational defense of economics, and then criticized its shortcomings. This is also a natural move. To discuss the possible future development path of economics in the context of the rising digital economy, of course, we must first understand the advantages and disadvantages of economics.
  So, what are the “real flaws” in economics? Coyle does not give a clear list, but judging from the whole book, the target of her criticism seems to be focused on economic research methods. She raised a series of questions in the book, such as: To what extent does economics have performativity (“performativity” in English is “performativity”, and the Chinese version translator translated it as “performativity”, but The author prefers to translate it as “performativity”. The following uses “performativity”)?
  The whole book revolves around the two main lines of criticizing the shortcomings of economics and conceiving a new agenda for economics in the digital era. I personally think that “performativity” may be a core concept to understand the entire book “Gears and Monsters”.
Economics as a performative science

  From the perspective of subject research objects, economics can be defined as the science of the market. Of course, defining economics as the science of the market does not mean that the market environment is not important; market entities such as enterprises and consumers are also important. The key benefit of this definition is that it reflects the performative nature of modern economics.
  The term “performativity” originally originated from the field of language philosophy and is an important concept in speech act theory. Simply put, the so-called “performativity” refers to the phenomenon that a theory not only explains society, but also transforms society so that its development is consistent with the theory itself.
  In economics, performativity refers to the phenomenon by which economics shapes the economy it purports to study. That is to say, economics as a science and the economy as its research object are in a co-evolutionary relationship, and economics in a certain sense creates the kind of things that are considered “economic”.
  Performativity is closely related to two concepts: reflexivity and anticipatory self-evidence. Roughly speaking, it can be said that the concept of reflexivity is broader than performativity, and the concept of performativity is broader than anticipatory self-evidence. Of course in economics we discuss reflexivity primarily in the context of expectations theory. If agents’ expectations are rational, then their expectations should be influenced by the latest “techniques” employed by economics. Therefore, economics will directly influence people’s behavior by influencing the way they form expectations. Lucas’s famous critique of macroeconomic models (the “Lucas Critique”) encapsulates this observation: Economists build macroeconomic models to predict economic development and behavior, but the predictions and knowledge provided by the models will directly change behavior The subject’s behavior thus renders the original prediction irrelevant.
  In contemporary times, economics is not only used to analyze markets, but also to design markets. More fundamentally, modern economics even determines the size and scope of markets. Therefore, economics is a performative science.
The meaning of performativity to economists

  Compared with other social scientists, economists play a more important role in shaping the political and economic life of modern society. The discipline of economics develops endogenously with economic, social and political changes, so economists must always adopt a vigilant and critical attitude towards economics. Or in other words, economists must always be aware of the performative nature of their theories and must also apply their theories to analyze their own roles as “policy advisors.”
  At times, economists may adopt a piecemeal social engineering stance, such as when designing markets, but the performative nature of economic theory requires that they ultimately must do so within the broader social and political context. It is inevitable to adopt some normative stance. This also means that, at a certain stage, economists’ suggestions must go beyond the nature of “technical expert opinions” and therefore cannot completely avoid value judgments.
  This is the core content of the first chapter of “Gears and Monsters” “The Social Responsibility of Economists”. In fact, from the perspective of performativity, we can find that the remaining chapters of the book “Gears and Monsters” are also developed around certain characteristics or meanings of the performativity of economics.
  The performativity of economics means that the traditional view must be abandoned: that economists can stand outside the objects of their analysis and conduct completely objective analyzes of economic phenomena, because economists’ values, interests and understanding of the situation Judgments can get tangled up.
  The performativity of economics also means that on the one hand, economic actors will construct and operate the market through their actions and thoughts; on the other hand, the market is also shaping the cognition of economic actors in specific ways, making them Engage in behavior that corresponds to economic assumptions. For example, some (still controversial) results from economic experiments suggest that economics students become more individualistic, more rational, and even more opportunistic after studying economics. Therefore, economics may need an “agent taxonomy” to distinguish various types of actors with certain general roles in the economy.
  Finally, the performativity of economics also means that economics must study the narratives and ideas that people follow in their actions, and that economics is only one contributor to these narratives and ideas.

  In addition, the “gears” and “monsters” in the title of this book can also be understood as a pair of paradoxical results caused by the performativity of economics. Moreover, in the era of digital economy, “monsters” will emerge in greater numbers.
Gears and Monsters as Paradoxical Consequences of Performativity

  When explaining the title of the book, Coyle said that “gears” represent mainstream economics’ view of individuals, who focus on their own interests, interact as independent identities in specific environments, and calculate carefully; “monsters” represent Unique economic phenomena in the digital economy, these phenomena have a “snowball effect”, will be affected by society, and are difficult to control. Therefore, the unmarked field of digital economy is still full of unknowns. If there is a map, this field can be marked with “monsters infested”. Economics regards ordinary people as “cogs” in the economy. This view has inadvertently created more “monsters” and emergent phenomena.
  This is a paradoxical result of the performativity of economics. “Gears” are assumptions made because of the failure to recognize the performative nature of economics, while the emergence of “monsters” is caused by performativity and the failure to recognize performativity.
  It is particularly worth noting that after entering the era of digital economy, performativity may lead to the emergence of “monsters” running rampant.
  Coyle summarized three major economic characteristics of the digital market itself. The first is “superstar characteristics”, which refers to the phenomenon of “winner takes all” and “winner takes more” due to increasing returns to scale. The second is the indirect network effect in the digital market, which will lead to the emergence of concentrated winners. Third, digital platforms can accurately match demand and supply. The combination of these characteristics makes it difficult for small platforms to emerge and grow, causing changes in the way the market operates and deviating from the mental model of traditional economists.
  In fact, these characteristics are all related to the performativity of the digital economy. Almost every one of us has had this experience. As long as we click on a piece of news on our mobile phone, news on the same topic will continue to be pushed. Of course, there is some kind of algorithm behind this, and the essence of the algorithm is the connection between a specific “theory” and the behavior or phenomenon that is digitized, and it is strengthened through learning, so it is a performative phenomenon.
The Renaissance of Political Economy and the Performativity of Economics

  About 100 years ago, Keynes delivered a profound speech at Oxford University in the late autumn of 1924 – “The End of Laissez-faire”, criticizing the economic theory at the time, “This theory is so is so elegant and simple that it is easy to forget that it is not based on actual facts but on imperfect assumptions introduced for the sake of simplicity… However, when economists argue their points , complexities are often involved in the later stages, and at this time they usually have reservations about the above assumptions… Even if many economists realize that this simplifying assumption cannot accurately correspond to the facts, they still infer that this This kind of simplification does represent something ‘natural’ and therefore ideal and perfect. They regard this simplifying assumption as healthy and the deeper complexity as pathological.” ”
  Gears ” is such an assumption, and “monster” is roughly equivalent to what Keynes called “complexity.” Back then, the Great Depression triggered the rise of Keynesianism, and the stagflation of the 1970s promoted the revival of neoclassical liberalism. Today, under the impact of the series of crises that occurred after 2008, the transformation of economics has made some progress, but it is still looking for a new paradigm.
  Some possible alternatives are already emerging. For example, complexity theory, agent-based models, etc., but they are all based on computer methods and have not yet formed a new research paradigm.
  Coyle himself placed his hope on the revival of political economics and emphasized the abandonment of the behavior of artificially separating observation analysis from value judgment. It is not difficult to see from the above discussion that political economy in this sense is economics that reflects the essence of performativity.

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