Nietzschean Economics

Nietzsche described the universe as the manifestation of an underlying force which he called will to power. For him, an “insatiable desire to manifest power” is the essence of the universe, and all living things have the same goal, growth. He wrote: “every living thing does everything it can not to preserve itself but to become more.” And to grow and expand, individuals establish for themselves lofty goals that they will (probably) never reach. Aiming high requires overwhelming efforts and the willingness to “risk every danger”. Pain, suffering, and being thwarted in one’s attempts to accomplish a goal are the preconditions for growth and hence an increase in one’s power. [Link to the book] 

I have always been fascinated by this idea that individuals are living in a constant desire of self overcoming and yesterday I had the chance to read an interesting debate between Richard Robb and James Heckman. In three articles (see below) they discuss if will to power is compatible with our rational choice theory.

Robb claims that economic models cannot incorporate the Nietzschean concepts and give some examples of individuals getting “utility” not only from the output of an activity but also from the exploration and the effort exerted in that activity. Agents have a “preference” for struggling. For instance, if people go to the gym, if they suffer below cold metallic machines, and they feel pain in all the parts of their bodies is not (only) because they expect a health benefit in the long run, but because they enjoy the experience. Robb also discusses the unconscious nature of human motives and the capacity of humans to rationalize the consequences of choices after a choice is made.

Heckman replied by showing how “overcoming” might be incorporated into standard utility functions and challenge Robb asking what may be the benefit for economics from investigation into the motives underlying human action.



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Dismal Science?

In 2004 I started my PhD in Economics and one of the first things I have learned is that economists are not famous for their sense of humor. We have a tradition of bad jokes that make little sense for people outside our departments. Here an example:

Two economists are walking down the street when they see someone parking a really nice car. They stop to look at it, and after a bit, one of the economists says, “I’d like to buy a car like that.” To which the other economist replies, “No, you wouldn’t.”

[That’s it. This is the joke. If you do not find this funny you agree with me.]

But bad jokes is not the reason why Economics is described as the “dismal science”. The origin of this definition is 170 years old.

Not a ‘gay science,’ I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science.

This quote come from the historian Occasional Discourse on the Negro Question (1849) by Thomas Carlyle. Carlyle studied the labor situation the West Indies. At that time white planters were complaining that the emancipation of the slaves was an obstacle to their business because they were unable to obtain enough labour. Carlyle thought that coercion, not the market forces of demand and supply, should regulate the labor according to “their mutual duties” (to know more read here).



Literature and Economics

This summer I had the chance to read a very interesting book Cents and Sensibility [Link] by Gary Saul Morson and Morton Schapiro. The authors make the case that the humanities, especially the study of literature, offer economists ways to understand better human behavior and emotions and thus make their models more realistic, their predictions more accurate, and their policies more effective and just.

I love this book because it makes me see things differently and reflect. In particular, I have learned that humanities can help economists to understand the role of cultural factors in shaping individuals’ character and thought. Literature can help economist to recognize the complexity of human motivations, thoughts and behavior (see for instance my previous post). Finally, humanities can provide ways to think through ethical questions, revealing the strengths and limitations of the economics perspectives.

If you are interested on this topic, I suggest you watch the book presentation:

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The Pareto Principle

The Pareto principle (or the 80/20 rule) says that roughly 80% of the effects come from 20% of the causes. This principle got its name from the Italian economist Vilfredo Pareto, who showed that in 1906 approximately 80% of the land in Italy was owned by 20% of the population. He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied.

Many natural and social phenomena follow a Pareto distribution. For instance, 20% of the pea pods produce approximately 80% of the peas, 20% of drivers cause 80% of all traffic accidents, 20% of patients use 80% of health care resources, 20% of criminals commit 80% of crimes, and 20% of infected individuals are responsible for 80% of transmissions of contagious diseases. We can observe this rule even in our daily life: we wear 20% of clothes 80% of times, 20% of items in our cart amounts to 80% total grocery bill, we use 80% of the times 20% of the apps in our smart phones and tablets.

The value of the Pareto Principle is in reminding us to stay focused on the 20 percent that matters. Of all the tasks performed throughout the day, only 20 percent really matter.

In the book 80/20 Principle (Link), you can read more about the Pareto Principle and its applications. There are interesting stories and ideas for applications from life to business. I love this principle because it forces you to reflect about your life and what you do daily. You may realize you are wasting your time in activities that are not productive, important or fun. You can start by finding out what those 80% activities are for you, and what are the other 20% of activities that produce 80% of your result, happiness and meaning. Once you have done this, double down on those efforts as much as possible and then repeat the process.

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