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  • Print publication year: 2016
  • Online publication date: May 2018

15 - Problems with behavioral economics

from Book V - Behavioral economics: a challenge to conventional microeconomics


Complete realism [in founding premises] is clearly unattainable, and the question whether a theory is realistic “enough” can be settled only by seeing whether it yields predictions that are good enough for the purpose at hand or that are better than predictions from alternative theories. (1953, 41)

Milton Friedman

Behavioral economists and psychologists feel confident, if not cocky, that they have substantively undermined the methodological approach to conventional (neoclassical) economics identified in modern times with the two branches of the Chicago school associated with Milton Friedman and, more pointedly, Gary Becker. Certainly, the behaviorists have contributed substantially to our understanding of people's decision making abilities, especially their limits, and have caused conventional economists (including us) to rethink their (our) methodologies. This in turn has led us to a new understanding of the role of the rationality premise in economics and of a budding economic theory of the human brain. There are, however, several good reasons for caution in siding with the behaviorists on all critical fronts, even if their research findings on people's decision biases and irrationalities are confirmed time and again. Let us count the ways in Part A. In Part B we cover the various ways behavioral economists have suggested people's decision making can be “improved,” or “nudged” to their benefit; at the same time, behaviorists insist, freedom of personal choice is maintained, even when their own surveys reveal that a sizable segment (but less than a majority) of the population opposes these “nudges” (Sunstein 2015).

Between Parts A and B, in Perspective 15, we take up an issue of growing prominence in both the hard and social sciences – the extent to which scientific findings, which focus on the environmental and physiological forces affecting individual thinking, decision making, and behavior, absolve people of personal responsibility for what they do and deny the deterrent effects of punishments (or even just price increases). We take up this issue by recounting the case of NBC News anchor Brian Williams who, in early 2015, was caught fabricating, or just exaggerating, his personal roles in life-threatening attacks in the combat zones where he was reporting.

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