Thursday, July 27, 2017

On behavioral economics

Good post: Tejvan Pettinger's Applying economics in everyday life. It is a collection of short notes on various topics. For example:
Behavioural economics and bias

Traditional economic theory assumes man is rational. However, the work of behavioural economics suggests we can be prone to bias and irrational behaviour. For example, we may be prone to a present bias where we overvalue pleasure in the short-term and ignore long-term implications. For example, consuming demerit goods like alcohol or not saving sufficiently for retirement. The insight of present bias suggests we make decisions our future self would not make. If we become aware of these bias and irrational behaviour, then we can make better decisions which improve our long-term welfare.

See: Behavioural economics

I followed that last link:
Behavioural economics

Behavioural economics examines the psychology behind economic decision making and economic activity. Behavioural economics examines the limitation of the assumption individuals are perfectly rational.

And that's probably a good thing. But I always say I don't like "behavioral" economics because it is about manipulating people's behavior. Doesn't sound like that, from what Pettinger says. Sounds like an attack on "rational expectations". But read a little more:
Concepts in behavioural economics

Bounded rationality – making decisions based on limited information and from a narrow range of heuristics (simple rules)
Choice architecture – The theory consumer choice is influenced by the ways goods are presented. For example, complementary goods placed together can help sales. Related to concept of nudge.

Ah, the nudge. That comes later in the "Concepts in behavioural economics" list:
Nudges – Factors which encourage consumers to change behaviour through small suggestions

There ya go: Behavior modification. Fuck that.


The Arthurian said...

Couple "favorite quotations" from David Andolfatto's blog, relevant here:

But to manipulate men, to propel them toward goals which you – the social reformers – see, but they may not, is to deny their human essence, to treat them as objects without wills of their own, and therefore to degrade them (Isaiah Berlin)


Nothing so needs reforming like other people's habits (Samuel Clemens)

The Arthurian said...

David Andolfatto's blog

The Arthurian said...

From a comment by Luis Enrique at Stumbling and Mumbling:

"And presuming people aren't the best judges of their own welfare can take you into very dangerous territory."