Recent Stories with tag behavioral economics

Behavioral economist Dan Ariely brought a big crowd to a sold-out Town Hall appearance on Tuesday night. He was wearing a black, Nehru-collared shirt; jeans; and red sneakers, and the crowd seemed hipper as well, than you might get at a typical economist's talk.

His new book, The Upside of Irrationality, is just out, and both New York Times reviewers and NPR reporters have fastened upon his claim that we're less like the cerebral Spock of Star Trek fame and more like the "fallible, myopic, vindictive, emotional, biased Homer Simpson."

Out of context this isn't news, because of course Spock was supposed to stand in contrast to humanity, while Homer Simpson is the de facto everyman. What Ariely is challenging, though, is that traditional economics is built on the fiction of a "rational" or "optimizing" actor, who in theory makes very Spock-like judgments on the basis on self-interested cost/benefit and utility analyses.

In other words, economists tend to think that everyone is just like them--or that enough people are--that it's close enough.

Ariely's adventures in behavioral economics, in contrast, provide a fundamental correction. It's rooted in the neuroscience of the last few decades, which has rewritten and resolved some old dichotomies. Joseph LeDoux's research into emotions and thought, for instance, that we're all emotionally driven, whether we're aware of it or not. Reason divorced from emotional impulse is simply the capacity to plot out decision trees, not to rate which one is preferable. The moment we evoke cognition, Ariely argues, people stop caring. Emotion propels us to action, not thinking.

Ariely had finished his last book, Predictably Irrational (Here's my recap of his 2008 Town Hall talk) just as the subprime meltdown was arriving. Finally, behavioral economics, which had been pooh-poohed as being too bottom-up to allow for strong theoretical claims, had an upset apple cart to stand on and shout from.

"I couldn't have hoped for a better marketing campaign," Ariely said. Those critics who said the stock market compensated for irrational behavior had some explaining to do. "All of a sudden we saw these things can actually have big consequences."

In that book, he focused a lot on the difference between social and market economies, and how adopting a pure market economics standpoint makes us, functionally, less human. (Whereas a pure social economy leads to Burning Man.) The thesis: "Social economy norms create more happiness than market economy norms."... (more)