I just read The Grand Design by Stephen Hawking (and Leonard Mlodinow). This was one of my favorite parts, although I don’t totally agree with it, for a variety of reasons:

“Because it is so impractical to use the underlying physical laws to predict human behaviour, we adopt what is called an effective theory. In physics, an effective theory is a framework created to model certain observed phenomena without describing in detail all of the underlying processes. For example, we cannot solve exactly the equations governing the gravitational interactions of every atom in a person’s total mass. Similarly, we cannot solve the equations governing the behaviour of complex atoms and molecules, but we have developed an effective theory called chemistry that provides an adequate explanation of how atoms and molecules behave in chemical reactions without accounting for every detail of the interactions. In the case of people, since we cannot solve the equations that determine our behaviour, we use the effective theory that people have free will. The study of our will, and of the behaviour that arises from it, is the science of psychology. Economics is also an effective theory, based on the notion of free will plus the assumption that people evaluate their possible alternative courses of action and choose the best. That effective theory is only moderately successful in predicting behaviour because, as we all known, decisions are often not rational or are based on a defective analysis of the consequences of the choice. That is why the world is in such a mess”

There are a bunch of tangents I could go down here since this touches on a bunch of my favorite subjects. I’m a chemist so I’m a little offended that he describes the entire field of chemistry as a theory. I’m also really interested in the differences between science, applied science and engineering is, which seems quite relevant here.

But for now I just wanted to discuss his conclusion that the world is in a “mess” because of people being allowed to make choices that he sees as irrational. What particular actions and consequences he’s worried about is never elaborated on, but we can guess that he is worried about AI taking over the world and global warming “ruining the planet” based on things he’s stated elsewhere. Thankfully, the rest of the book is quite apolitical and really sticks to science.

When he says that economics assumes that “people evaluate their possible alternative courses of action and choose the best”, a lot of free-market economists would completely agree. But to say that all of “economics” assumes this is clearly false. The Austrian School of Economics (the most free-market of them all) developed subjective value theory, which states that people assign different values to things and that there is no objective or “correct” price. You could say that a critical part of praxeology (the theory of human action developed by Mises, one of the great Austrian economists) is an “effective theory”, to use Hawking’s term, that humans act rationally, because having one person deciding what is rational for another is immoral and leads to all kinds of horrible outcomes.

While I absolutely adore reading the works of Austrian economists, the school is unfortunately considered quite fringe by most people. On the whole, the world has not assumed that people are rational when making judgments about their own lives. This is clearly seen by the fact that we have enormous governments everywhere around the world. I tried to find what percentage of world GDP is government spending but couldn’t find it. For the US, which lots of people condemn as overly capitalist, government spending was 35% of GDP in 2018. All government action is based on the assumption that planners know what is rational for others to do. We clearly aren’t living in a world where we are assumed to be rational.

At a more basic level, if Hawking thinks that it is impossible to model human action accurately, thereby forcing us to assume free will, how does he think that it is possible to plan an economy which consists of billions of people whose actions are impossible to model?