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Behavior economics

by on June 22, 2009

Since we are using the idea of behavior, which has some baggage good and bad, this review helps understand the issues in its use.

http://cheeptalk.wordpress.com/2009/06/21/is-behavioral-economics-doomed/

Here are a few excerpts with notes by me

The modern paradigmatic man (or more often these days woman) in modern economics is that of a decision-maker beset on all sides by uncertainty. Our central interest is in how successful we are in coming to grips with that uncertainty.

Note how this is, lets say anthropologically, a very poor description. Each person is embedded in a culture, and under conditions of uncertainty is more likely to turn to the culture, meaning, group solidarity and identity, than to individual coping. So the author downplays the role of culture and plays up the fragmented individual.

One of the most widespread empirical tools in modern behavioral economics is the laboratory experiment in which people – many times college undergraduates, but often other groups from diverse ethnic backgrounds – are brought together to interact in artificially created social situations to study how they reach decisions individually or in groups. Many anomalies with theory have been discovered in the laboratory – and rightfully these are given emphasis among practitioners, as we are most interested in strengthening the weaknesses in our theories. However, the basic fact should not be lost that the theory works remarkably well in the laboratory.

The lab where strangers are brought together ( undergraduates at the host institution) hardly represents a normal social situation. It srtips out relationships and those in the experiment have no way of reaching out to each other or to support for background culture, both of which are much more present in real world interactions. Confusion comes because modern society increasingly fragments and isolates people as consumers rather than groups them in communities as citizens.

The heart of modern “rational” economic theory is the concept of the Nash (ornon-cooperative) equilibrium of a game. A game is simply a careful description of a social situation specifying the options available to the “players,” how choices among those options result in outcomes, and how the participants feel about those outcomes.

Here “social situation” is the aggregate of isolated individuals who can only play by the game’s rules. As we think about “sustainability” these underlying issues of  fragmented social reality approximated by game theory will require careful thought. If you thought that psychological understanding might help, look at how Levine undermines the psychological perspective.

The key difference between psychologists and economists is that psychologists are interested in individual behavior while economists are interested in explaining the results of groups of people interacting. Psychologists also are focused on human dysfunction – much of the goal of psychology (the bulk of psychologists are in clinical practice).

There are two key thoughts here.  First note how he has made economics social and psychology individual, though, as we have seen, the standard approach in economics is to the individual treated statistically as a stand-in for social/culturally embedded humans. Second, he equates psychologist with interest in dysfunction. This is an unfortunate trend in psych, to treat of dis-order. But any real theory of disorder must have a theory of order, which is a deeply political notion, as in “the well-ordered society” of  John Adams circa 1800, and missing in psych theory that is pathology oriented.

These themes of order-disorder, rational, isolated, game, rules and persons, culture and meaning, will be central to understanding culture and society for sustainability.

The modern paradigmatic man (or more often these days woman) in modern
economics is that of a decision-maker beset on all sides by uncertainty. Our central
interest is in how successful we are in coming to grips with that uncertainty. My goal inThe modern paradigmatic man (or more often these days woman) in modern economics is that of a decision-maker beset on all sides by uncertainty. Oor central interest is in how successful we are in coming to grips with that uncertainty.  Psychologists also are focused on humandysfunction – much of the goal of psychology (the bulk of psychologists are in clinical
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