Bruce Littleboy

Shackle and Behavioural Economics

Most economists who are familiar with the works of George Shackle probably view him primarily as someone who combined elements from, and contributed to, Austrian and Post Keynesian approaches to economics. In this chapter, however, we cast him in a different role, that of a pioneer in behavioural economics. As is evident from Earl (ed.) (1988), Sent (2004) and Tomer (2007), behavioural economics takes many forms but may be generally thought of as using knowledge of how people actually make decisions, and of actual business practices, as foundations for economic analysis and policy. Economists sometimes gather the knowledge that provides the foundations for behavioural economics themselves, via questionnaires, in-depth case studies and experiments. Some, including Shackle, also engage in intense introspection on the nature of the human condition and how people deal with the challenges of everyday life. But many of the underpinnings of behavioural economics have come from social and cognitive sciences, particular from various branches of psychology. Indeed, though the frequently renamed prize that is popularly known as the Nobel Prize in Economics has been awarded twice for contributions to behavioural economics, in neither case did the recipient hold an academic affiliation as an economist: the 1978 recipient, Herbert Simon, a remarkable polymath, was a professor of computing science and psychology, while Daniel Kahneman, who shared the 2002 Prize with experimental economist Vernon Smith, is a professor of psychology.

Critical Perspectives on Shackle’s Theory

When Shackle’s Expectation in Economics was published, it was widely praised for its originality: for example, Graaff and Baumol (1949, p. 338) suggested that he had offered a ‘quite devastating critique’ of orthodox thinking. In addition to standard book reviews, it was accorded lengthy review articles by Carter (1950) and Mars (1950; 1951) and was given a major place in a key survey article by Arrow (1951). It can be seen now a precursor to state-of-the-art non-Bayesian, non-additive approaches to choice under uncertainty such as Shafer’s (1976) Evidence Theory (Fioretti, 2001; 2004; 2009; Zappia, 2008). Yet by 1961, when Shackle offered his book Decision, Order and Time as a thorough restatement and clarification of his position, interest in his theory had all but fizzled out. This was despite an attempt by Shackle’s friend Eraldo Fosatti to keep interest alive by devoting a double issue of his journal Metroeconomica to papers about Shackle’s theory.1 This 1959 symposium had an eminent set of contributors and was timed to mark the tenth anniversary of the publication of Expectation in Economics. However, a sign that Shackle had already lost the battle to sell his ideas was the fact that Arrow’s contribution rather rudely made no more than passing reference to Shackle’s theory and concentrated instead on Savage’s subjective probability approach and how it might be used.

Lessons for Economists, Entrepreneurs and Business Schools

This chapter develops and integrates themes from earlier chapters to summarize where we think Shackle’s work points for academics in economics departments and business schools, and for decision-makers in businesses and the public sector. Our focus, like that of Shackle himself, is mostly on methodological issues rather than on policy pronouncements. As we have shown, Shackle was reluctant to get involved in debates about public policy even though his analysis of the challenges that uncertainty and irreversibility pose for decision-makers applies both in firms and in the public sector. His work might have made a bigger impact if he had tried to derive normative rules for coping with life’s crucial choices or statistically infrequent but potentially significant events. In contrast to today’s behavioural economists, he was unwilling to cast himself in the role a guru by offering recommendations about how to take better decisions or the kinds of choices that should be made in particular contexts. He also did not set out to show what could be done with his theoretical framework by using it in applied contexts and he did not cultivate doctoral students to whom the task might be delegated. Yet the range of applications of his thinking has turned out to be wide, from contract bidding in the construction sector (Hillebrandt, 1985), livestock auctions (Duncan, 1957) and the women’s fashion sector (Wray, 1956; 1957; 1958), to ecological issues centred on irreversible environmental change (Young, 2001; Aldred, 2012).

Possibility versus Probability: The Rhetoric of Choice

This chapter begins an exploration of George Shackle’s unique approach to understanding and modelling choice. What is the future but the void? To call it the future is to concede the presumption that it is already ‘existent’ and merely waiting to appear. If that is so, if the world is determinist, then it seems idle to speak of choice. (Shackle, 1972, p. 122) For Shackle, dreams spur deeds. The cascading consequences of our genuinely creative choices bustle and tumble to fill the void and form our future. According to Ford (1993, p. 694), Shackle most wanted to be remembered for his theory of decision-making. Ford (1985, p. 10) observed: ‘It has obviously been a source of disappointment to George Shackle that his own theory has had virtually no impact on the profession. It is only now that his work is being acknowledged … ’ Sir Charles Carter (1993, p. 129) hopefully proclaimed: ‘My theme … is that new minds are needed, to take what is valid from Shackle’s profoundly original contribution of 44 years ago, and to achieve a revolution in economic thinking which is still awaited and still needed.’ Our ambition is slightly more modest. We aim to explain the merits of Shackle’s position and to show how it may dovetail with some contemporary theorizing. We consider here Shackle’s rhetorical strategy and the informal aspects of his arguments, the intuition, analogies and the like.

Potential Surprise and Choice

The book that, for a time, earned Shackle the status of a star amongst contributors to the theory of choice under uncertainty was Expectation in Economics. It was published early in 1949 and boldly rejected both the use of probabilities as decision weights and the idea that decisions about uncertain prospects are made by aggregating scores for mutually exclusive potential outcomes. In those days, the academic publication process seems, if anything, to have been faster than the modern world of digital publishing and by the end of that year not only had reviews been published but Shackle had already published his first replies to some of his reviewers (Shackle, 1949b; 1949c). However, while the book was something of an overnight sensation, it was actually the product of a decade of work that Shackle had published as a succession of articles (Shackle, 1939; 1940a; 1940b; 1941; 1942; 1943; 1945). It began as an extension of his thinking in his PhD-based first book Expectations, Investment and Income (1938) about the role of investment in business cycles and the ways in which changes in expectations could affect business decisions. Shackle (1949a, p. xiv) reported that ‘The problem and the germ of the solution … were already in my mind in the summer of 1937’. Much later he revealed that he had the key insight on which his theory is founded while he was standing at the kitchen sink (Shackle, 1988 [1983d], p. 232).

Shackle’s Economics

Shackle lived through two world wars, the Great Depression, Keynes’s revolution, Stalinism, the decline of the British Empire, the Cold War, Maoism and the sexual revolution. The first steps on the moon were in the year he retired. Will and imagination had proved autonomous. In response to macroeconomic turmoil during the 1970s and 1980s, more self-described revolutions and counter-revolutions burst into print. The world and our view of it had often reconfigured. In Shackle’s case, sober realism as well as his leanings to romanticism had shaped his thinking towards kaleidics. The key driver was uncertainty, ‘which gives room for hope, at the price also of being afraid’ (Shackle, 1966a, p. 133).

Life and Vision

Shackle asked a question to which his life’s work is an answer: Is the economy to be seen as a machine, an organism, a battlefield or a drill ground, or is its history like an oral saga maintained and embellished by a hundred generations of individual poets? (1966a, p. 6) The timelines and key areas of George Shackle’s contributions are clear. In the late 1930s he first made his mark as a theorist of the business cycle. Throughout his academic life, he was respected for his explanations of the meaning and significance of Keynes’s macroeconomics. Shackle was a key participant in post-war microeconomic debates over the theory of choice under uncertainty. Although his campaign to set the agenda for the further development of choice theory faltered during the 1950s, his insights deserve recognition, as later chapters show. In the second part of his career, the 1960s and the decades following his retirement in 1969, he earned new respect as an historian of economic thought and philosopher of economics. However, his work is unified by the expression of his underlying vision of economic life.

Making Sense of Diversification

Although economists are prone to adhere to or reject theories on the basis of whether or not key assumptions are consistent with their habitual modes of thought, they are not averse to looking at the predictive content of theories if it suits them to do so. In the case of Shackle’s radical alternative to probabilistic models of choice, critics found themselves presented with a golden opportunity to reject it on empirical grounds without any need to undertake empirical work. A major prediction of the theory simply did not ring true, and it was Shackle himself who drew it to his readers’ attention. In this chapter, we consider this problematic aspect of Shackle’s model and the opportunities he missed not merely to deal with it but also to mount an even more persuasive case against probabilistic thinking.

Rhetoric in the spirit of Keynes: metaphors to persuade economists, students and the public about fiscal policy

This book contends that post Keynesian economics has its own methodological and didactic basis, and its realistic analysis is much-needed in the current economic and financial crisis. At a time when the original message of Keynes’ General Theory is no longer present in most university syllabuses, this book celebrates the uniqueness of teaching post Keynesian economics, providing comparisons with traditional economic rationale and illustrating the advantages of post Keynesian pedagogy.

The Ideas of George Shackle and Henry Boettinger

G.L.S. Shackle’s collected papers are held at Cambridge. One correspondent was Henry Boettinger, a senior corporate executive. Their letters and published writings reveal aspects of their ideas on economics as a practical art, an applied science and as creative theory. Boettinger had reflected upon his practical experience in making critical decisions, and Shackle sought to explain how such decisions were made.