Richard Thaler on traditional economics:
Economists discount any factors that would not influence the thinking of a rational person. These things are supposedly irrelevant. But unfortunately for the theory, many supposedly irrelevant factors do matter.
Economists create this problem with their insistence on studying mythical creatures often known as Homo economicus. I prefer to call them “Econs”— highly intelligent beings that are capable of making the most complex of calculations but are totally lacking in emotions. Think of Mr. Spock in “Star Trek.” In a world of Econs, many things would in fact be irrelevant.
No Econ would buy a larger portion of whatever will be served for dinner on Tuesday because he happens to be hungry when shopping on Sunday. Your hunger on Sunday should be irrelevant in choosing the size of your meal for Tuesday. An Econ would not finish that huge meal on Tuesday, even though he is no longer hungry, just because he had paid for it. To an Econ, the price paid for an item in the past is not relevant in making the decision about how much of it to eat now.
Making good decisions is not easy. It requires time, effort, and brainpower. People mess up all the time, especially when it comes to highly complex choices like saving and investing. We are not econs, and it's great that behavioral economists catalog all the ways in which we fall short.
But, when it comes to policy prescriptions, here's what behavioral economists often forget: Us bumbling individuals making our imperfect choices in free markets make decisions more in keeping with our own self-interest than a government bureaucrat choosing for us would. That's why traditional economic theory gives roughly the right answers. Behavioralists are quick to point out flaws in individuals, but ascribe perfect benevolence and intelligence to government employees. They seem to think that the White House and Congress and the DMV and the local school board are all staffed by ... Econs! And these are not just your regular econs. They are perfectly knowledgeable, wise, and benevolent econs who are always acting in other people's interests. They are super-econs!
If you don't believe econs, how can you believe in super-econs?
But, when it comes to policy prescriptions, here's what behavioral economists often forget: Us bumbling individuals making our imperfect choices in free markets make decisions more in keeping with our own self-interest than a government bureaucrat choosing for us would. That's why traditional economic theory gives roughly the right answers. Behavioralists are quick to point out flaws in individuals, but ascribe perfect benevolence and intelligence to government employees. They seem to think that the White House and Congress and the DMV and the local school board are all staffed by ... Econs! And these are not just your regular econs. They are perfectly knowledgeable, wise, and benevolent econs who are always acting in other people's interests. They are super-econs!
If you don't believe econs, how can you believe in super-econs?
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