Ideology & behavioural economics

Tim Harford's brilliant essay on behavioural economics highlights an ideological bias in the way the subject is used.

What I mean is that he presents it as "a hot idea for policy makers". This underplays two things.

One is that politicians themselves might be as prone to cognitive biases as the public. Indeed, it's possible that they are selected for such biases - because the overconfident are disproportionately likely to enter politics and because irrational consumers are likely to make irrational voters. The image promoted by behavioural economics (or its users) - of rational policy-makers operating upon irrational subjects - is therefore questionable.

The other is that there's an alternative use of behavioural economics. It could serve an educational function - of telling consumers what errors people commonly make, and of warning them against them. A lot of my day job is just this.

In this latter context, the complaint some make against behavioural economics - that it is a "patchwork of sometimes-fragile psychological results" rather than general laws of behaviour - loses its force. If you're a policy-maker with a "predict and control" mentality you might want general laws. But if you just want to help others improve their decision-making, the knowledge that some/many people make a particular error in a particular context is useful enough.

Behavioural economics gives economists the chance to live up to Keynes' ideal of them, as dentists giving humble competent advice. And it's a chance they are blowing.

Now, you might reply here that it has always been so, Economics has long been pompous white men in suits speaking to other pompous white men in suits, rather than a dialogue with the public. That's true. But there's a big difference between telling politicians "people are rational maximizers so leave them alone" and telling them "people are stupid and here's how you can manipulate them."

In this context, there's both similarity and contrast between users of behavioural economics and Marxists. Both believe that ideology or cognitive biases (they're much the same) stop people pursuing their best interests. Where they differ is in how they respond to this. Marxists think people should be educated out of ideology and therefore empowered: "the emancipation of the working class must be the work of the working class itself”. Most users of behavioural economics, by contrast, see cognitive biases as just more policy tools, and thus ways of empowering rulers. But it needn't be so.

Comments

[Dave Timoney]

The rise of behavioural economics to public prominence since the early 80s has paralleled the free market turn, while the recent growth in scepticism has obviously coincided with that unpleasantness after 2008.

Is BE a Polanyi-like counter-movement against the rational agent of free market ideology, or is it an ideological reframing to suit neoliberal ends: finding a justification for state authority in concert with the market?

[Metatone]

FATE as often is the case asks the most pertinent question.

I'd add that economics doesn't really have many solid general laws - rather it has some that turn into systems, and then the systems are tweaked. Economists are comfortable with those tweaks, so they declare them valid, whilst being uncomfortable with the tweaks needed for models based on the patchwork of psychologies.

So we get endless blogs and comments (no doubt Luis Enrique will be along soon) proclaiming that "the general laws of economics work quite well, thank you very much" because econ has instituted the tweaks they use for that and not other tweaks that are just as easy to do, even as easy to make mathematical - or would be if economists were as good at maths as other disciplines.

[Will Davies]

There is also a somewhat perverse media interest in all of this, that's been around since the dawn of behaviorism a century ago. The idea that there might be hidden laws governing human freedom, and that experts might be secretly using them without our knowledge, is something people find endlessly fascinating. It's the same form of enjoyment that people get from watching magicians - ultimately they know that magic isn't 'real', but for a brief moment, it's nice to imagine that it is. This suggests a Sartrean point, that freedom is not actually a very pleasant experience, and there's a deep-lying wish for someone else to be pulling the strings for our decisions.

[Rohan]

Certainly playing cognitive bias and errors back to people might be effective in changing behaviour (for good or ill). You could argue communicating social norms/proofs or minority status works partially in that way. That is, people on understanding their behaviour is atypical may internalise that.

More widely I think the health debate in behavioural economics is one of the most interesting. George Loewenstein's recent proclamations ( http://www.lse.ac.uk/publicEvents/events/2013/11/20131112t1715vSZT.aspx ) about bad diet being an externality of the food industry/market (as opposed to an internality of behaviour) moves the discussion forward and was brave given Loewenstein's experimental and field work interests.

Where I'm most positive is the use of control trials is a common factor across behavioural economics and social physiology as it is practiced in Government. So the question of what works is at the focal point (rather than ideology) including in the use of incentives (e.g. penalties). So one of the key areas economics should engage is trial design especially in what outcomes variables are studied. Across labour market and financial market interventions there is a grand opportunity here.

[Luis Enrique]

"If you're a policy-maker with a "predict and control" mentality you might want general laws"

I don't see why. If I wanted to predict and control then a suite of context-specific knowledge (models, results, whatever) would be very helpful. Fragility, however, would remain a problem even if I was a humble plumber trying to help people make better decisions.

On that point, I do not think there is much distance between humbly trying to help people make better decisions, which you characterize here as a good thing, and a policy maker (sorry, "ruler") trying to help people make better decisions (sorry, "operating upon irrational subjects") which you characterize as being a bad thing.

Meanwhile there are sensible reasons for wanting to explain as much as possible with as little theory as possible, and reasons to find a plurality of theories without a good explanation of why theory A, developed in context 1 does not also apply in context 2 etc., unsatisfactory.

I know very little psychology, but a friend who is a reasonably senior practising psychologist tells me at times the discipline can suffer from a cacophony of competing and contradictory theories.

I don't know if economists are more pompous than other academics etc. but they certainly get a run for their money in the pomposity stakes from blog commentators confidently proclaiming about what's wrong with economics.

Metatone, if I was ever tempted to write something like "no doubt Metatone will be along shortly to write some ill-informed twaddle about economics" I hope I'd think better of it.