26 January 2012

The Root of the Problem

Here’s why behavioral economics is slow to take off:

More and more, I am thinking about this area in terms of the normative vision of the world it presupposes. Most amazingly, behavioral economists tend to accept the normative stance of neoclassical or standard economics (that is, the axioms of rationality). They “simply” do not believe that people behave in accordance with these axioms. Thus they find decisionmaking failure (akin to market failure). All sorts of state interventions may be warranted to correct for the suboptimalities that defective or biased decisions imply.

Ultimately, the fundamental problem with the underlying model upon which behavioral economics is that it assumes that value is objective.  Why should anyone value long-term planning, good health, intellectual development, etc.?  Sure, many people think this things are good, and the goodness of these things is generally supposed to be self-evident, but not all people will find these thing to be valuable.

As such, behavioral economics will be stunted until the leaders of the field realize that value is subjective and that most people don’t know why they make a good portion of their decisions.  The theoretical human in their models bears no resemblance to real life human beings, and therefore their model will be unreliable as long as it continues to further this misconception.

2 comments:

  1. Zen and the Art of Motorcycle Maintenance may be SWPL, but its central question, what does quality really mean, was solid. Objectivity is much rarer and much more difficult to achieve than kumbaya singers claim.

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  2. @Ulysses- I'm inclined to say it's impossible. We are all finite creatures, and having an objective understanding of anything likely requires infinite knowledge. That doesn't mean we can't become more objective in our thinking, just that we'll never reach a point of pure objectivity.

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