A new paper by Nathan Berg and Gerd Gigerenzer asks this question:

For a research program that counts improved empirical realism among its primary goals, it is surprising that behavioral economics appears indistinguishable from neoclassical economics in its reliance on “as-if” arguments. “As-if” arguments are frequently put forward in behavioral economics to justify “psychological” models that add new parameters to fit decision outcome data rather than specifying more realistic or empirically supported psychological processes that genuinely explain these data. Another striking similarity is that both behavioral and neoclassical research programs refer to a common set of axiomatic norms without subjecting them to empirical investigation. Notably missing is investigation of whether people who deviate from axiomatic rationality face economically significant losses. Despite producing prolific documentation of deviations from neoclassical norms, behavioral economics has produced almost no evidence that deviations are correlated with lower earnings, lower happiness, impaired health, inaccurate beliefs, or shorter lives.

My guess is that this critique will bring the behavioralists and neoclassical economists together in joint attack. The authors propose a new approach they call ecological economics, and summarize what the field should do improve like this:

“To make behavioral economics, or psychology and economics, a more rigorously empirical science will require less effort spent extending as-if utility theory to account for biases and deviations, and substantially more careful observation of successful decision makers in their respective domains.”

Filed under: Bias and Rationality, Economics, Modeled Behavior

I – and I believe many of my fellow economics professors – seek not to get our introductory students to learn specific facts or techniques but to begin to “think like an economist.”

I want them to abandon wishful thinking, good vs. evil analogies, just-so-stories and general ad hocery, in favor of treating human behavior as if it stemmed from some (perhaps unknown or even unknowable) set of systematic principles. In particular we are big on the notion that people respond to incentives.

Students it turns out are people. While “thinking like an economist” is often a bitter pill, this semester it went down much easier – and I think I see why. No less than half of the final papers were written on either immigration in general or the DREAM act in particular. A typical paragraph

Immigrants not only join the circular flow of the economy as labor, but also as consumers. They spend money on goods and services which results in firms having more revenue. Higher revenues tend to increase firm production to meet the higher demand of consumers. This increased production most likely would result in more jobs as firms expand to meet the needs of consumers. On a very basic level, this explains why immigration would only serve to expand the economy.

Unlike our discussions of taxes, rent control and the minimum wage “thinking like an economist” gives them in edge in an argument they already want to make: that the US should be more welcoming to immigrants.

While it is encouraging to see the tools taken up so easily, it is a warning that we cannot be sure students or the public generally has abandoned ad hocery when the systematic explanation does in fact suit their immediate needs.

Filed under: Bias and Rationality, Economics, Teaching

Gallup has a new poll out showing that the nation is divided over placing new regulations on banks and large financial institutions. Wall Street on the other hand, they say should get the shaft.

Filed under: Bias and Rationality, Economics