Professor Sanjit Dhami is currently Professor of Economics at University of Leicester and Fellow at Kiel Institute for the World Economy, Kiel as well as at the Ludwig Maximilians University, Munich. Prof Dhami holds a Masters and PhD in Economics (1997) from the University of Toronto, Canada and an MPhil from the Delhi School of Economics, University of Delhi, India. Before coming to Leicester in 2003, Prof Dhami worked at the University of Essex and Newcastle University for six years. His most recent research is largely in theoretical foundations of Behavioural Economics as well as its applications, jointly with his colleague Professor Ali al-Nowaihi. Prof Dhami’s book, ‘Foundations of Behavioral Economic Analysis’ was published by Oxford University Press in November 2016, and is currently being published in seven volumes.
What are your primary research interests? What drew you to those areas?
My main research interest is in behavioral economics, which is the interface of economics, and the behavioral/social sciences such as psychology, sociology, evolutionary biology, and neuroscience.
My formal University training in economics at the Delhi School of Economics and the University of Toronto was in neoclassical economics (NE), which is still the dominant school of thought within economics. In its “actual practice” (as distinct from the vision of the founding fathers of NE), NE paints an unrealistic and largely empirically rejected picture of human behavior that eschews the use of psychology, sociology, evolutionary biology, and neuroscience. NE in its “actual practice” is too narrow, and too detached from the evidence on human behavior to enable it to make empirically sound predictions. Almost all the mainstream theoretical models in NE under risk, uncertainty, ambiguity, decision making over time, and in strategic contexts are rejected by the empirical evidence—the only yardstick on which we judge theories in science. The rationality requirements under NE are too stringent to be met in practice and its default method based on mathematical optimization and the assumption that humans act as if they are fully proficient in modern mathematics and statistics is not tenable. Humans tend to use simple rules of thumbs or heuristics and they often make mistakes, including sometimes systematic mistakes relative to the optimization benchmark based on classical statistics and mathematics.
Fortunately, we now have a rigorous theoretical alternative, behavioral economics, that makes predictions that are in much better conformity with the evidence. In its “actual practice” behavioral economics respects the scientific method and it subjects theories to stringent empirical testing in the lab and in the field. This is what attracts me to behavioral economics.
I was careful above to distinguish between the actual practice of NE and the intentions of the founding fathers of NE. The founding fathers of NE would view the development of behavioral economics to be consistent with their own view of the world out there. In this broad sense there should not be a NE versus behavioral economics. However, I certainty do take issue with the actual practice of NE, which is what is still taught in the mainstream economics curriculum in Universities. On the positive side, there have now been several Nobel prizes in behavioral economics, much greater acceptance of articles in the top journals, and an increasing number of course at the undergraduate and graduate levels.
What expertise or skill set is most important to you in your research work?
There are things that you can teach yourself to be a good researcher. These include a sound training in mathematics, statistics, economic theory, econometrics, and the basics of psychology, sociology, and evolutionary biology. In addition, you must satisfy two further conditions. (1) You should have unending and deep curiosity and passion to understand the world around you. (2) You should also have the courage to shed theories when they are rejected by the empirical evidence (this is science, not religion!!!). For this you need good training in methodology and the philosophy of science. Unfortunately, in economics, we are woefully short on such training and many, including some of the current bigwigs in the profession, have distorted and warped ideas about what constitutes good science. But this is changing and must change rapidly.
Research also requires you to be creative. Whilst some creativity might be a matter of how well trained you are in your field, enabling you to make surprising links between seemingly unrelated areas, there is a creativity based on lateral thinking that is rare. Either you are born with this kind of creativity (or perhaps you develop it in your early years), or you do not have it.
If you had the ability to go back in time, what advice would you give to your sixteen-year-old self?
I would probably train myself better in mathematics, statistics, and in the related interdisciplinary fields in the social and behavioral sciences. As someone starting out in economics (incidentally I was 16 when I was in first year BSc Hons Economics), I would also question and challenge the NE model more. Herbert Simon, the Nobel prize winner in economics, and inventor of artificial intelligence, said in his Nobel lecture: “But there is no evidence that firms produce at the point where marginal revenue equals marginal costs.” Imagine the importance of this statement. It is like a Nobel prize winning physicist saying that: “But there is no evidence that atoms exist.” How often do you question these assumptions and how often do you let your teacher teach you this without demanding the empirical evidence? This is true for everything that is taught to you under the rubric of NE. Don’t let your instructors get away without a good account of whether the evidence supports or not the theories that they teach you. This is an important element in bringing out change in the education of economists—and it is happening in the UK and the US.
If you are thinking of going to University to do an undergraduate degree in economics, do not consider a place that does not have a single course in behavioral economics. The absence of such a course already tells you a lot about the place and its ethos.
Economics, as a discipline, is going in a completely different direction due to behavioural experiments and increasing technologization of the workforce. So as students, what can we expect the future of economics to look like?
I have very little to say about technologization (is there such a word?) of the workforce, as this is not my area.
I believe that the future of economics is behavioral economics. What other economics is out there if you are interested in explaining human behavior? If economics continues to ignore the empirical evidence, it will become irrelevant. However, there are positive signs. Economists are increasing taking behavioral economics seriously. The future will be more interdisciplinary. There will also be a tighter link between economic theory and the evidence from the real world. It is not just Microeconomics that will change beyond recognition. Macroeconomics as we know it is likely to change drastically too. Agent based models that are based on low level rationality and adaptive dynamics that bring in the machinery of complexity theory and emergent phenomena are likely to be more widely used. Many current academic reputations built on the basis of empirically refuted theories shall not count for much in the future.
In this sense, it is an exciting time for open minded newcomers coming into the field. You can come in and make important and lasting contributions to the field.
What is the best book you would recommend?
Unless one is very specific and narrow on the topic it is difficult to come up with the best book, so allow me to flag up a few books.
I have spent more than 12 years writing a book on a new interdisciplinary vision of economics (The foundations of Behavioral Economic Analysis, Oxford University Press). It was originally published in one volume in 2016. Since then it has been updated, improved, and now published in 7 volumes in 2019 and 2020. It is endorsed by the who’s who in behavioral economics, including 3 Nobel Prize winners. Those who are interested in following up my assertions above, and more, are invited to consult these volumes. Book details on my webpage that I invite you to visit: https://www2.le.ac.uk/departments/business/people/academic/sdhami.
Here are a few other interdisciplinary books I believe might be useful for you:
– Samuel Bowles “Microeconomics: Behavior, Institutions, and Evolution” Princeton University Press, 2004.
– Samuel Bowles and Herbert Gintis “A cooperative species: Human reciprocity and evolution.” Princeton University Press, 2011.
– Daniel Kahneman “Thinking Slow and Fast” Farrar, Straus and Giroux, 2011.
– Daniel Kahneman and Amos Tversky “Choices values and frames.” Cambridge University Press, 2000.
– Joseph Henrich “The secret of our success” Princeton University Press, 2016.
– Melanie Mitchell “Complexity: A guided tour.” Oxford University Press, 2009.
– Richard Thaler “Misbehaving: The making of behavioral economics.” Norton, 2015
How would you describe your teaching style in one word?
Socratic-evidence based exploration.