ECONOMICS LANGUAGE AND ASSUMPTIONS: HOW THEORIES CAN BECOME SELF-FULFILLING

ECONOMICS LANGUAGE AND ASSUMPTIONS: HOW THEORIES CAN BECOME SELF-FULFILLING

December 2003 | Fabrizio Ferraro, Jeffrey Pfeffer, Robert I. Sutton
This paper explores how social science theories, including economics, can become self-fulfilling by shaping institutional designs, social norms, and language. Theories can become self-fulfilling when their assumptions and language become widely accepted, influencing how people think and behave. This process is illustrated through the example of economics, where assumptions about self-interest and market mechanisms have shaped management practices and institutional arrangements. The paper identifies three mechanisms through which theories can become self-fulfilling: institutional design, social norms, and language. These mechanisms are not mutually exclusive and reinforce each other. The paper also discusses two scope conditions, culture and accountability, that may affect the operation of these mechanisms. The language and assumptions of economics have become dominant in management and organizational practices, influencing how people behave and how institutions are designed. The paper argues that economic theories can become self-fulfilling because they shape the reality they are meant to explain. This is demonstrated through examples such as the Chicago Board Options Exchange and the use of operant conditioning in organizational settings. The paper also discusses how economic language and assumptions affect managerial practices and how these practices, in turn, reinforce the theories. The paper concludes that economic theories can become self-fulfilling because they influence the behavior and institutions they are meant to explain.This paper explores how social science theories, including economics, can become self-fulfilling by shaping institutional designs, social norms, and language. Theories can become self-fulfilling when their assumptions and language become widely accepted, influencing how people think and behave. This process is illustrated through the example of economics, where assumptions about self-interest and market mechanisms have shaped management practices and institutional arrangements. The paper identifies three mechanisms through which theories can become self-fulfilling: institutional design, social norms, and language. These mechanisms are not mutually exclusive and reinforce each other. The paper also discusses two scope conditions, culture and accountability, that may affect the operation of these mechanisms. The language and assumptions of economics have become dominant in management and organizational practices, influencing how people behave and how institutions are designed. The paper argues that economic theories can become self-fulfilling because they shape the reality they are meant to explain. This is demonstrated through examples such as the Chicago Board Options Exchange and the use of operant conditioning in organizational settings. The paper also discusses how economic language and assumptions affect managerial practices and how these practices, in turn, reinforce the theories. The paper concludes that economic theories can become self-fulfilling because they influence the behavior and institutions they are meant to explain.
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