Risk, Choice, and Uncertainty: Three Centuries of Economic Decision-Making

The latest from Szpiro (Pricing the Future) probes the intellectual history of economics—specifically, how economists address decision-making. The basic principle is that people prefer more of a good until they have it. To expand on that idea, the author traces the development of economics as a discipline largely dependent on history, anecdotes, and analogies, into one that increasingly uses mathematics to understand economic issues and propose solutions to problems. Szpiro argues that the quantitative approach leads economists to assume abstract ideas about the ways in which people actually measure utility and make economic decisions. This can result in economic models that are based on unrealistic assumptions, such as the notion that information is complete and products are homogenous. Szpiro maintains that a more realistic psychology is necessary if economics is to provide useful analyses, and believes that this is gradually beginning to take hold.