February 12th, 2007

fundamental attribution error

I have been a proponent of the f.a.e for a long time, unaware however that there was a specific term that could be used to describe the logic I followed. The f.a.e is:

"the tendency for people to over-emphasize dispositional, or personality-based, explanations for behaviors observed in others while under-emphasizing the role and power of situational influences on the same behavior".

The f.a.e was coined in the social psychology field, but can be extended to explain or theorize in a number of other areas, most notably for me, economics. I'll start off by using an oft quoted example, since it explains the economic relevance of the point very clearly. Economists bankers and much of the corresponding, relevant literary world are quick to praise Alan Greenspan as the person responsible for stable growth and stable inflation, in the same way as they criticize Arthur Burns for spiralling inflation and volatile growth. Is not the economic version of f.a.e at play here? There is too much credit given to policy decisions, and perhaps not enough to favourable circumstances or luck. Situational factors play a prominent role in shaping how policies appear. It is true that you could easily turn it around and say policies are made keeping in mind the situations and environmental conditions, but this does not address the issue. In the cases above, of greenspan and burns, external shocks were of critical importance in explaining the inflation rates prevailing at the time. And during the periods in which these two bankers were in charge, the economic scenario was not limited to merely America, but follwed the trend of most of the developed countries in the world. That is to say inflation rates, growth patterns and so on were similar throughout similar regions of the globe.

Freakonimcs drives at the same point, a reason I liked reading it. A light, enjoyable read. Levitt argues that crime rates in New York fell not because of policies and initiatives undertaken by the mayor and commisioner of police, but simply because of random, more subtle events that played a huge role without planning for it. Ie situational elements had more to do with it than great planning or innovative thinking. This is true of much in life.