Behavioural economics – a premature obituary?


By Dan Ebanks

Behavioural economics has been the emerging  ‘movement’ within the economics discipline for quite a few years, entering the public consciousness in 2008 with the publication of Thaler and Sunstein’s now omnipresent ‘Nudge’. However, Tim Adams suggested, in his article in the Guardian (May 31st 2014), that its demise is imminent.

Until relatively recently behavioural economics had made slow and largely unnoticed progress. This may be as a result of the split in the behavioural economics camp.  The more zealous group believe this new economics is a radical departure from neoclassical microeconomics, signalling the end to the century long dominance of marginalist techniques. This camp believes it is in the process of effecting a genuine paradigm shift in terms of how economists do economics, repositioning it as a subset of empirical psychology. Here, economics would aim to truly discover why people do what they do in the economic realm, rather than just assuming automatically that there is only one motivation for agency.

Are these people fighting a losing battle? Will they be marginalised from within the economics discipline? After all, the ‘professionalisation’ of economics is much more advanced than it is for any of the other social sciences, and this means more effort is and will be made to defend the core of its theory. Philosopher, priest or hired gun? Take your pick.

Cue the second, less radical group of behavioural economists. Here, the aim is to specify more complex but still generalised behavioural motivations as a way to detect patterns in behaviour: patterns that just so happen to be explained away by the standard assumptions of neoclassical microeconomics! Assumptions of maximising and context-removed social actors still hold, only what they are assumed to be maximising in their context-removed way has changed subtly to take notice of the findings of behaviouralists. As this has been the dominant use of behavioural economics so far, we might be further away from the behavioural revolution than some of the hardcore behavioural economists hope.

The Financial Crisis and the Age of Austerity narratives give a broader framework within which to explore this debate. Orthodox economics may have failed to anticipate the Crisis, or provide a coherent alternative to the existing paradigm. Mainstream economics might be on the back foot, but there are simply too many careers and too much professional patronage at stake to allow it to fade away.

One of the interesting things about our current political economy is just how much orthodox economics has become a scapegoat. Bank bailouts came with no real strings attached in terms of a genuinely systematic approach to changing behaviours within the international finance industry. Instead, economic theory in its orthodox neoclassical microeconomics guise got the blame. Remember the Economist celebrating the death of economics? Maybe this explains why many economists have sought refuge in behavioural economics, but for what purpose? To genuinely bury neoclassical microeconomics under the rubble of a failed financial model, or as a temporary safe haven, which allows the current storm to be weathered?

If behavioural economics had had a home outside of economics before September 15, 2008 then it would already be a more powerful challenger to neoclassical microeconomics. The fact that it still lacks that home may explain why reports of its demise have been greatly exaggerated.

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