Tag: Behavioral Economics

On the nature and fallacies of Economics

February 1, 2019

Below are a few different articles on the shortcomings and false assumptions of modern economics. What’s central to each of these is the difference between the human sciences and the natural sciences and the consequences of mistaking one for the other. Economics is a social science and many problems arise when we treat it as if, because of its sophisticated mathematical models, that it is like a natural science. The last article is an interesting example of the important of models when trying to understand reality.

Old economics is based on false ‘laws of physics’ – new economics can save us

It is time to ditch the belief that economies obey rigid mechanical rules, which has widened inequality and polluted our planet. Economics is evolving

In the 1870s, a handful of aspiring economists hoped to make economics a science as reputable as physics. Awed by Newton’s insights on the physical laws of motion – laws that so elegantly describe the trajectory of falling apples and orbiting moons – they sought to create an economic theory that matched his legacy.

Their mechanical metaphor sounds authoritative, but it was ill-chosen from the start

Continue reading “On the nature and fallacies of Economics”

The Power of Nudges, for Good and Bad

November 6, 2015

“Nudges, small design changes that can markedly affect individual behavior, have been catching on. These techniques rely on insights from behavioral science, and when used ethically, they can be very helpful. But we need to be sure that they aren’t being employed to sway people to make bad decisions that they will later regret.”

http://www.nytimes.com/2015/11/01/upshot/the-power-of-nudges-for-good-and-bad.html?&moduleDetail=section-news-3&action=click&contentCollection=Economy&region=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article

The Curious Politics of the ‘Nudge’

September 28, 2015

“Earlier this month, President Obama signed an executive orderdirecting federal agencies to collaborate with the White House’s new Social and Behavioral Sciences Team to use insights from behavioral science research to better serve the American people. For instance, studies show that people are more likely to save for retirement when they are automatically enrolled into a 401(k) retirement saving plan that they can opt out of than when they must actively opt in.”

http://mobile.nytimes.com/2015/09/27/opinion/sunday/the-curious-politics-of-the-nudge.html?_r=1

What is wrong with the way we think? A Q&A with social psychologist Richard Nisbett, who researches the processes of reasoning and decision-making.

September 23, 2015

“Today, the notion of ‘smart-thinking’ is ubiquitous. This huge publishing field was prefigured by the work of social psychologist Richard Nisbett who in 1977 published an empirically researched article that showed that many of our choices and preferences are influenced by factors outside our conscious awareness. This was ground-breaking and it became one of the most cited articles of the decade. Nisbett, who is Theodore M. Newcomb Distinguished Professor of social psychology and co-director of the Culture and Cognition programme at the University of Michigan, has published numerous books over his long career. The latest isMindware: Tools for Smart Thinking. Here, he discusses some of his ideas.”

https://newhumanist.org.uk/articles/4923/what-is-wrong-with-the-way-we-think?hash=e2b2da42-609c-4954-a751-23d86f8341ae

Misbehaving: The Making of Behavioural Economics by Richard H Thaler review – why don’t people pursue their own best interests?

July 5, 2015

“That a person with such everyday flaws has scaled the unforgiving heights of the economics establishment is striking in itself. Even more so is the fact that he has done so by turning those weaknesses into the very subject of a new branch of economic science. Thaler has spent a career seeking to understand individuals as they really are – chock-full of weaknesses, irrationalities and idiosyncrasies. He labels these creatures ‘humans’, rather than as ‘econs’, walking calculators rationally optimising their utility.”

http://www.theguardian.com/books/2015/jul/04/misbehaving-making-behavioural-economics-richard-h-thaler-review-nudge?CMP=twt_gu&CMP=twt_gu

Freakonomics Podcast: The Maddest Men of All. Episode about Behavioral Economics

February 27, 2015

Another interesting discussion on the field of behavioral economics (see a previous post on the topic). Some really interesting discussions on this podcast about the contrast between classical economics and behavioral economics. You get some insight into the different approaches to knowledge and assumptions between two related fields in the human sciences.

You also get some interesting insights about how we make decisions. To what degree are our decisions motivated by reason? And to what degree are they motivated by emotion? Is it ethical for someone to use their knowledge of our emotional decision making to push us to make a decision they want us to make (i.e. buy something we otherwise wouldn’t)?

“Let’s take an example where you go to an airline website and it … quotes you a price for your seat to Sacramento, whatever it may be, and it says only four seats left at that price. Now, that works on me. I’ve spent eight years studying this stuff, I know it’s an attempt to exploit my scarcity bias, but it still makes me click. That’s just the way I’m wired. Now implicit in that line is that subsequent seats will be more expensive. But actually the person in their weasel wording hasn’t exactly made that promise, have they? They’ve merely said at this price. At this price is not quite clear. It could be that the subsequent four seats are being sold actually at a lower price.”

http://freakonomics.com/2015/02/26/the-maddest-men-of-all-a-new-freakonomics-radio-podcast/

Ethics of behavioral economics: Nudges or manipulation?

February 11, 2015

The field of behavior economics includes the study of how and why people make the decisions they do and consequently, it’s the study of how to change people’s decisions to push them in different directions. Governments have used these techniques and findings to promote positive behaviors like not littering and not smoking but also to increase the number of people paying their taxes. Private companies have used these techniques to increase the sales of their products and services. People employing these techniques often say they provide a “nudge.” At what point do these nudges become manipulation? Does it matter if the behavior being promoted is one we agree is positive like quitting smoking? How does the use of language affect our perception of ideas and things?

What is also interesting about this field is that some traditional economists resent the term “behavioral economics” and don’t consider it to be part of their field. They were further annoyed when a behavioral economist and self identified psychologist, Daniel Kahneman, won the Nobel Prize for economics.

Below are a couple of articles about this field.

1. Manipulate Me: The Booming Business in Behavioral Finance

“Many behavioral interventions work, whether at reducing litter and power usage or boosting savings rates and organ donations. Yet these successes aren’t the whole story. Even after rigorous experimentation and data analysis, the best-intentioned nudges can fall flat or backfire. Some may be behavioral band-aids that don’t address deeper structural problems such as stagnating wages. Nevertheless, consumers have jumped on the bandwagon, eager to be manipulated into the best version of themselves, and businesses are rushing to meet the demand.”

http://www.bloomberg.com/news/articles/2014-04-07/manipulate-me-the-booming-business-in-behavioral-finance

2. What was I thinking?

The latest reasoning about our irrational ways

“Why do people do things like this? From the perspective of neoclassical economics, self-punishing decisions are difficult to explain. Rational calculators are supposed to consider their options, then pick the one that maximizes the benefit to them. Yet actual economic life, as opposed to the theoretical version, is full of miscalculations, from the gallon jar of mayonnaise purchased at spectacular savings to the billions of dollars Americans will spend this year to service their credit-card debt. The real mystery, it could be argued, isn’t why we make so many poor economic choices but why we persist in accepting economic theory.”

http://www.newyorker.com/magazine/2008/02/25/what-was-i-thinking

3. Why Behavioral Economics Is Cool, and I’m Not

“It happens to me regularly: I’m an organizational psychologist, but I get introduced at least once a week as a behavioral economist. The first time this happened before a speech, I attempted to set the record straight, telling the executive that all of my degrees were in psychology. His response: ‘Your work sounds cooler if I call you a behavioral economist.'”

http://www.huffingtonpost.com/adam-grant/why-behavioral-economics_b_5491960.html

Radiolab Podcasat: The Trust Engineers

February 11, 2015

“When we talk online, things can go south fast. But they don’t have to. Today, we meet a group of social engineers who are convinced that tiny changes in wording can make the online world a kinder, gentler place. So long as we agree to be their lab rats.

Ok, yeah, we’re talking about Facebook. Because Facebook, or something like it, is more and more the way we share and like, and gossip and gripe. And because it’s so big, Facebook has a created a laboratory of human behavior the likes of which we’ve never seen. We peek into the work of Arturo Bejar and a team of researchers who are tweaking our online experience, bit by bit, to try to make the world a better place. And along the way we can’t help but wonder whether that’s possible, or even a good idea.”

http://www.radiolab.org/story/trust-engineers/