If you have had the misfortune to study economics formally at university then you will recall sitting through endless and tedious lectures where the instructor asserted some superior knowledge about psychology and human behaviour. If you had combined the economics study with studies in psychology and sociology, you would have soon realised that what was being taught in your economics course was total nonsense. There was an article in the Fairfax press recently (August 6, 2017) – Crisis in high school economics a threat to national wellbeing – ruing the declining enrolments in secondary school economics programs. The point is that these courses are typically more damaging than useful and the contention of the journalist that we are reducing the quality of the economic debate as a result of less people studying economics is problematic. The typical economics program is simple indoctrination into a set of neoliberal principles that allow poor policy to continue despite it delivering disastrous outcomes. There is a crying need for more economic and financial literacy, but that requires an entirely different approach to be adopted rather than jamming more kids into the existing courses and having them come out dangerously brain dead....Bill Mitchell – billy blog
Behavioural economics has identified phenomena that standard models could not explain. But its critics warn that it is becoming little more than a ‘pile of quirks’. This column argues that the future development of behavioural economics should focus on a streamlining process that will clarify core issues, fill conceptual gaps, and create tractable models. Behavioural models will only become a coherent alternative to homo economicus if this process occurs.Vox.eu
I've been trying to read this. Not a huge fan of the field of behavioral economics (or here; subscription required). Don't get me wrong, yes, it provides some critiques of elements of the mainstream (marginalist) approach, regarding essentially the notion of individual rationality, as did the work of, say, Herbert Simon, in the past. People don't tend to act in a rational way, at least not in the substantive way that is prescribed by the mainstream.…
My view, and I promised a more detailed discussion when I'm done with the book, is that this is just one more iteration of the marginalist analysis trying to be relevant by introducing imperfections, the previous one being the idea of information economics, often associated with Joseph Stiglitz and George Akerlof, who is the co-author of the book with Robert Shiller. Stiglitz referred to his information economics as "Post Walrasian and Post Marxian Economics." It was very much in the Walrasian tradition, however.…
PS: Besides these problems the book by Akerlof and Shiller starts by quoting Adam Smith invisible hand out of context, which is really problematic, and shows that the profession should go back and learn the history of its own discipline.Naked Keynesianism
The greatest irony is that traditional economics is now facing a new competitor, namely behavioral economics. Behavioral economics attacks the crucial assumption that consumers engage in maximizing behavior. Aiming to maximize utility or profits is the key to building economic decision models. Otherwise, economists would have to work with another assumption, that consumers are basically “satisficing,” stopping short of spending time to maximize and being happy enough to achieve enough of what they want. But the mathematics aren’t there for this behavior and hence the claim of economics to be a science is also weakened.
Behavioral economists, instead of assuming that consumers and producers are maximizers, have to study how different marketing actors actually behave. This involves collecting empirical data. This will lead to recognizing many instances of non-rational or even irrational behavior. How do we explain people paying so much more for coffee at Starbucks or ice cream from Haagen Dazs? How do we explain some low income people voting for Republican candidates when the empirical evidence shows that poor people have done better during Democratic administrations than Republican administrations?
If economists now have to study and explain how consumers actually make their choices, they need to turn to marketing. For a hundred years, marketers have collected data on what, how and why consumers buy what they buy. The data is there. The only conclusion we can draw is that behavioral economics is, ironically, another word for marketing. Marketers have been the behavioral economists!Evonomics
Three strands of heterodox economics that are leading the way…
Complexity, evolutionary and behavioural economics
Various schools of economic thought outside the neoclassical mainstream are often placed together under the banner heading of ‘heterodox economics’. This term is used to describe any innovative way of thinking about the economy, from those that represent complete breaks from the neoclassical approach to others seeking to undermine only some of its main ideas.
In this piece, three strands of heterodox economics are discussed in some detail: complexity, evolutionary and behavioural economics. Each offers different insights into economic analysis by seeking a more accurate representation of the economy, and in so doing opens up new possibilities for policymakers. This essay summarises their basic tenets – and discusses what they might mean for public policy.…Useful summary. The new thinking in economics is making an effort to connect theory with reality after neoclassical economics prioritized theory over reality to the degree that economists lost contact with reality by caging themselves in formalism.
There have been two major contributions to economic theory in my lifetime. One is behavioral economics. The other is evolutionary economics. The revolutions induced by these new approaches are by no means complete. Their ramifications are still being worked out in the professional economics journals.
Behavioral economics abandons the traditional notion that rational choice alone can explain human behavior in favor of patterns of choice that are inferred from laboratory and field studies of actual human subjects. Evolutionary economics views the economy as a dynamical evolving system that can be modeled using the combined tools of economic and biological theory. Evolutionary economics treats individuals as the product of their biological and social history, and so fits in well with behavioral economics.
Many behavioral and evolutionary economists consider themselves allies in a battle against the principles of traditional economic theory, and many supporters of traditional economic theory share this mind set—except that they are on the other side of the conflict. This oppositional mind-set is profoundly incorrect and leads to serious errors both in developing economic theory and presenting it to the general public.Useful summary.
The most creative behavioral and evolutionary economists remain inspired by the successes of, and consider their work as extensions of traditional economic theory. The most creative supporters of traditional economic theory, in turn, embrace behavioral and evolutionary perspectives and build on its insights.
In this article I will suggest the proper way to treat the new economic theory in relation to the old. I encourage readers to offer significant critiques of or additions to my comments.…
What’s so interesting about Charité, Fisman, and Kuziemko’s paper is that it indicates that the general public’s preferences for redistribution might be different from what is assumed in the classic optimal taxation research. Their research isn’t the first to point this out, but it provides more proof that the average person might not be a strict utilitarian. This in turn means that the classical economic model that undermines a fair bit of the conversation about the proper level of progressive taxation might be based on some flawed assumptions. The importance of that fact shouldn’t be lost on economists and policymakers.Washington Center for Equitable Growth
We’re not going to build up useful economics… starting from individuals…WCEG — The Equitablog
