Behavioral Economics

Extremely interesting article, I agree that individual action does not remotely resemble economic modeling. However, I would be cautious to assume that humans are irrational, for ‘rationality’ is a subjective designation based on knowledge. Ancient tribes in Africa refused to have pictures taken because they became convinced that anything that could capture their image was in fact stealing part of their soul. While this may seem irrational for someone in the Western culture, it is in fact, a byproduct of the ignorance on the mechanics of how photography works. Economists have a superior understanding of the mechanics of supply and demand, thus, producing a biased expectation on ‘rational’ behavior. What is even more interesting about this paradox, is that any simpler assumption on individual behavior would seem ‘irrational’ to any economist because of their level of knowledge.

Econ Off the Shelf

Recently in the New York Times Business section, Jonathan Knee reviewedMisbehaving: The Making of Behavioral Economics, a forthcoming book by Richard Thaler of the University of Chicago. I look forward to reading Misbehaving because I’m interested in the similar critique behavioral economists and causal-realist economists have for the methods and results of mainstream economics.

Mainstream economics substitutes robots for humans in their highly mathematized models:

To achieve the same mathematical precision of hard sciences, [mainstream] economists made a radically simplifying assumption that people are “optimizers” whose behavior is as predictable as the speed of physical body falling through space.

We take derivatives of smooth, knowable utility functions when we walk down the grocery store aisles, selecting some items and not others, according to the mainstream orthodoxy. Humans are rational because they are calculators.

Austrian and behavioral economists see humans as more complex and organic and, well, human.

Austrians take a…

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