Behavioural economics: underrated or overrated?

Tyler Cowen’s Conversations with Tyler feature a section in which Cowen throws a series of ideas at the guest, and the guest responds with whether each idea is overrated or underrated. In a few of the conversations, Cowen asks about behavioural economics. Here are three responses:

Atul Gawande

COWEN: The idea of nudge.

GAWANDE: I think overrated.

COWEN: Why?

GAWANDE: I think that there are important insights in nudge units and in that research capacity, but when you step back and say, “What are the biggest problems in clinical behavior and delivery of healthcare?” the nudges are focused on small solutions that have not demonstrated capacity for major scale.

The kind of nudge capability is something we’ve built into the stuff we’ve done, whether it’s checklists or coaching, but it’s been only one. We’ve had to add other tools. You could not get to massive reductions in deaths in surgery or childbirth or massive improvements in end-of-life outcomes based on just those behavioral science insights alone. We’ve had to move to organizational insights and to piece together multiple kinds of layers of understanding in order to drive high-volume change in healthcare delivery.

—–

Steven Pinker

COWEN: Behavioral economics. Economists playing at psychology. Obviously you have a stronger background in psychology than the economists. What do you think of behavioral econ?

PINKER: I’m for it.

COWEN: What’s it missing?

PINKER: I’m completely out of my depth here, but I do think it is too quick to dismiss classical economics. Is this maybe another false dichotomy?

The idea that the rational actor and models derived from it are obsolete because humans make certain irrational choices, have certain rules of thumb that can’t be normatively defended — those aren’t necessarily incompatible, because even though every individual human brain might have its quirks and be irrational, it is possible for a collective enterprise that works by certain rules to have a kind of rationality that none of the individual minds has.

Also it’s possible because we’re corrigible, because the mind is many parts. We can override some of our biases and instincts either though confrontations with reality, through education, through debate.

We do know even that people who are experienced in market transactions, for example, don’t fall for the kinds of fallacies that behavioral economists are so fond of pointing out. You really can’t turn a person into a money pump, even though in the lab I can set up a demo that shows people can be intransitive in their preferences.

You actually put a person in a situation where there’s real money at stake, and all of a sudden they’re not so irrational.

COWEN: They walk away.

—–

Jonathan Haidt

COWEN: You’re a trained psychologist, in addition to your most famous work, you have a lot of other papers which are very well cited, but less famous for other public intellectuals doing what you’d call traditional psychological research. Here we have these economists, they do what they call behavioral economics, and they tread into the field of psychology, do they know what they’re doing? Behavioral economics, underrated or overrated?

HAIDT: Properly rated right now, with one caveat. We psychologists have long felt, “Oh those economists they’re the only ones that are ever consulted in Congress, and they have all these high‑prestige jobs, they have a Nobel Prize, nobody listens to us.”

Some economists beginning with Robert Frank, and Dan Kahneman, Dick Thaler, the fact that economists have been listening to psychologists, and making our work more well‑known, of course Kahneman did a lot of that work, and he is a psychologist.

That’s all good, I’m thrilled with the way that’s going. The only caveat that I would put which I would say if they don’t do this soon, then they would be overrated, is the behavioral economics work is an example of this wonderful dictum from Robert Zion, the famous social psychologist, which is that cognitive psychology is social psychology with all the interesting variables set to zero.

To the extent that behavioral economists are saying, “Look at a person shopping, what influences their decision? If the apple is at eye‑level — .” They’re looking at lone consumers who are trying to make choices to optimize their outcomes. That’s great work, but that’s setting all the interesting variables to zero. The interesting stuff is all social. It’s what does this say about me? Will I be ostracized from my group?

If behavioral economics becomes more social, which I think will be the next phase, then I would say it would deserve ever‑rising market value.

COWEN: Thorstein Veblen, that was his initial vision for it actually, was that it be quite social and that the idea of a social reference class was central to people’s behavioral biases.

HAIDT: Interesting. Again, this is a critique from outside, but what a lot of people say which sounds right to me is that the early economists were great social theorists. My God, you read Adam Smith, what a brilliant world philosopher, historian, they thought so broadly and you tell me, but it seems there was a weird turn in the mid‑20th century towards mathematics.

COWEN: Yes.

HAIDT: I think it made economists set all the interesting variables to zero.

——

These three conversations are worth reading or listening to in full. The episodes with Malcolm Gladwell and Joe Henrich are also excellent.

7 comments

  1. Interesting. That comment from Haidt about social can be glimpsed at the milk fridge. At my supermarket, both the full price branded milk and the supermarket house discounted milk are both presented at the same shelf level behind adjoining fridge doors. There was a bit of a stigma around buying the discounted milk, but has that stigma disappeared as household incomes are squeezed more and more?

  2. Nice post. Also some of your other recent ones. In particular, your series on Veblen – thanks for your hard work extracting the gist of his ideas. His overt/direct appeals to Darwinian evolution resonate with my thinking. It would be nice to see a restatement of his theses referring directly to its modern synthesis, including multi-level selection – and latest genetic research.

    But I won’t hold my breath. Treacherous territory for anyone in academe these days.

    I too have more feeds than I can keep up with – despite being retired! I recommend the latest (30 April) from Evonomics, if it slipped beneath your radar.

  3. Brilliant thanks Jason. Your curation and insights are priceless. Do you have a source for the Haidt quote from “famous social psychologist” Robert Zion – (and what is Robert Zion famous for??? – Can’t seem to find him or his fame – can only find the architect…)

    1. Behavioural economics: Depends on the domain. In academia, properly rated. In public policy, overrated. In business decision making, underrated.

      Tyler Cowen: Properly rated (which I see as relatively high). That said, his obscurantism frustrates me at times.

      1. Jason – I think your assessment of BE is spot on.

        For TC, I think where he has personal experience of he topic he writes about, he is actually underrated. For broader policy issues, I would say he is overrated. He seems oddly disconnected from the concerns about which he writes. In terms of podcasting, he is properly rated (I think he is good).

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