Despite having read plenty of the behavioural economics books, of course I had to read [amazon_link id=”B00SSKM714″ target=”_blank” ]Misbehaving: The Making of Behavioural Economics[/amazon_link] by Richard Thaler, one of the first people to introduce and then popularise (through [amazon_link id=”0300122233″ target=”_blank” ]Nudge[/amazon_link] in particular) the introduction of psychological empiricism into economics. Nor do I regret it. It is a very good read. Although it goes over much familiar territory, it’s very interesting to read Thaler’s account of how a highly resistant discipline became accepting and then positively enthusiastic about behavioural models. Too enthusiastic – but more on that later.
[amazon_image id=”B00SSKM714″ link=”true” target=”_blank” size=”medium” ]Misbehaving: The Making of Behavioural Economics[/amazon_image]
[amazon_link id=”B00SSKM714″ target=”_blank” ]Misbehaving[/amazon_link] combines a broadly chronological account of Thaler’s career and work with a highly accessible explanation of what behavioural economics is, how it differs from the previously conventional kind, and the evidence from psychology about how people make decisions. The book starts by explaining why economists had adopted an unrealistic model of rational choice, and why it made economics so powerful: “That power derives from the fact that economics has a unified, core theory from which nearly everything follows.” Certainly early resistance to ‘behavioural’ assumptions tended to be that these derived from an ad hoc list of patterns of choice with no theory behind them, never mind that rational choice is ad hoc with respect to the facts. This seems to be hard for some economists still to accept perhaps because – as Thaler recounts – economists make choices far more often in conformity with their own models than do other groups of people. Misbehaving tells of a survey conducted among wine connoisseurs designed to explore how people regard sunk costs and opportunity costs, in which the people who gave the ‘correct’ answer were economists.
The book has lots of examples that will be useful to people teaching behavioural economics, including classroom experiments. I also very much enjoyed all the anecdotes, like the story of a vigorous debate with Richard Posner at a conference on law and economics, or a session on behavioural finance that had smoke coming out of Merton Miller’s ears. Resistance among distinguished economics professors who had built their glittering careers on rational choice models is, of course, entirely rational. Less rational, more human, was the behaviour of a group of University of Chicago economics faculty in selecting their offices in a brand new building.
Behavioural economics is now one of the most popular areas of the subject, and seminars on behavioural papers are packed. Sometimes it seems pretty much everyone I know has a new paper applying behavioural insights to their own sub-field. Perhaps this is just me being contrarian, but the new embrace by economists makes me uneasy. This is not just because of the well-known debate about paternalism (as discussed by Gilles St Paul in [amazon_link id=”0691128170″ target=”_blank” ]The Tyranny of Utility[/amazon_link] or Julian LeGrand and Bill New in [amazon_link id=”0691164371″ target=”_blank” ]Government Paternalism: Nanny State of helpful Friend?[/amazon_link]) It is because the sight of economists delighting in a new tool to engineer society is alarming – it’s the same old reductionism in more fashionable clothes. I happened to read this morning this essay by historian Ian Beacock on Arnold Toynbee. This quotation jumped out: “We’ve begun to treat vexing social and political dilemmas as simple design flaws, mistakes to be rectified through a technocratic combination of data science and gadgetry.”
I’m 100% in favour of empiricism. Why would you not do ‘what works’? But the behavioural rules of thumb are in danger of being seen as a new policy gadget.
[amazon_image id=”0691128170″ link=”true” target=”_blank” size=”medium” ]The Tyranny of Utility: Behavioral Social Science and the Rise of Paternalism[/amazon_image] [amazon_image id=”0691164371″ link=”true” target=”_blank” size=”medium” ]Government Paternalism: Nanny State or Helpful Friend?[/amazon_image]
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Yeah, makes me uneasy too. Although for different reasons to you, I’d guess.
Noam Yuran makes an interesting argument against behavioural economics in What Money Wants. He says that behavioural economics ‘shifts the blame to people’. It helps sustain an idea that economics *is* and *should be* rational by claiming that it is people who are irrational – this is the oldest trick in the book ‘if reality does not conform to theory, then reality must be mistaken’.
Yuran’s thesis is based on his conception of money as desire. He suggests that it is economic objects themselves that are fundamentally irrational, rather than the subjects. ‘Economic objects confront people with crystallized patterns of irrationality regardless of how rational or irrational these people are’.
My criticism of behavioural economics goes deeper still. Economics & behaviourism make good bedfellows because behaviourism itself is an extension of scientific rationality which in turn developed from and through ‘economic’ logic. Behaviourism is economics looking at itself in the mirror. I think the more power that adheres to this consensus between the two, the more dangerous and pernicious its effects. It’ll be less a nudge, more an elbow in the face. Dave Birch tweeted an article the other day about making cash more expensive in India as a way of ‘nudging’ people into the banking/tax system. That’s the sort of thing I think might be better termed ‘an elbow in the face’ (of the poor).
(DB’s link was to http://www.livemint.com/Money/LevFTgeBMVWjiS8N8eIogO/Make-using-cash-expensive.html )
That’s very interesting. I don’t know the Yuran so thanks for the pointer.
Diane