… because today the Science journal published a short commentary [subscription required] written by myself and John List, on the topic of behavioral economics. Our piece begins like this:
The discipline of economics is built on the shoulders of the mythical species Homo economicus. Unlike his uncle, Homo sapiens, H. economicus is unswervingly rational, completely selfish, and can effortlessly solve even the most difficult optimization problems. This rational paradigm has served economics well, providing a coherent framework for modeling human behavior. However, a small but vocal movement in economics has sought to dethrone H. economicus, replacing him with someone who acts “more human.” This insurgent branch, commonly referred to as behavioral economics, argues that actual human behavior deviates from the rational model in predictable ways. Incorporating these features into economic models, proponents argue, should improve our ability to explain observed behavior.
But we remain somewhat skeptical:
Perhaps the greatest challenge facing behavioral economics is demonstrating its applicability in the real world. In nearly every instance, the strongest empirical evidence in favor of behavioral anomalies emerges from the lab. Yet, there are many reasons to suspect that these laboratory findings might fail to generalize to real markets. We have recently discussed several factors, ranging from the properties of the situation — such as the nature and extent of scrutiny — to individual expectations and the type of actor involved. For example, the competitive nature of markets encourages individualistic behavior and selects for participants with those tendencies. Compared to lab behavior, therefore, the combination of market forces and experience might lessen the importance of these qualities in everyday markets.
and 
. You can also watch it on 
How about the work that Barry Schwartz cites in his book, that more choice makes people less happy? A particularly salient example is the work by Sheena Iyengar (Best name in decision research) demonstrating (in actual grocery stores) that shoppers are less likely to buy jam when given more (21, I think) choices than when given fewer (5-6). Any rational model I can think of would argue that more choices leads to likelier match to stable preferences. These data show otherwise.
Didn’t Ludwig von Mises do away with homo economicus a long time ago?
Without copying their article here, lets just say the piece isn’t as negative as this blurb makes it sound.
They end the article with and example of how behavioral economics has had tangible impact on a fortune 500 company. It seems, like many scientific comentaries, that the criticisms are aimed at the current state of the field, rather than the potential of the field.
Is that fair Mr. Levitt?
If I recall correctly, this experiment was set up as a “promo booth” apart from the store’s usual jams/jellies aisle. The subjects were likely to be impulse (novice) jam buyers. I wonder if the result would be replicated if tested on people going to the store to specifically buy jam (expert buyers). I think List did an experiment with pin traders that made a similar distinction between novice and expert traders, and found that experts do behave rationally.
I never quite understood in what way behavioral economics was different from “standard” economics; aren’t the new things that are learned in behavioral economics just showing economists that their assumptions for the form of the utility curve were wrong? It seems like any discoveries about human tendencies from neuroscience, behavioral economics, psychology, and so on can be modeled by including an extra parameter or factor into the utility function that the individual maximizes, rather than throwing out the whole framework of utility maximization wholesale.
Perhaps it is time for homo economicus to evolve….
Very simply, while the purely rational doings of homo economicus are a benchmark of sorts, he may not be telling us very much about the real world. For while he is Spock…the rest of us are the more emotional Kirk or Bones.
And as homo economicus evolves, he begans to take on the average nuances, histories, traditions, religious beliefs, values, biases, and so forth that we humans have–and that, taken together, cause us to make decisions differently than originally supposed. Once we have this “average” model that takes into account the many internal influences of a man, we might actually be able to “predict” with some precision how endeavors and tests will turn out.
As a non-economist fan of this blog, I propose that there is a similarity to the challenge of resolving quantum field theory with general relativity and the two modes of economic thought described in this article. In (very) short, many of the extremely tiny quantum events cancel out so as to give the impression that they do not exist. Would the behavior of an individual or small group be more likely to conform (in the lab, perhaps) to the expectations of behavioral economics? On a larger scale, many of these individual behavior choices would tend to cancel out so that the homo economicus model would provide accurate predictions. Is there a graduate paper in there somewhere?
As a non-economist, I also wonder: Is this an argument between the macro and micro economics people?
I tend to agree with such.ire that even the novice jam buyers’ behavior could probably be modeled as a utility maximization which makes me curious about why, exactly, they demonstrate the seemingly irrational behavior they do. I haven’t studied economics beyond micro 101 but my first thought is that the opportunity cost of buying a given subset of jam varieties increases with the number of available varieties (because also increasing is the number of varieties rejected) — and that at some point as the number of varieties increases, because the buyer might get his/her own preferences ‘wrong’ (which is more and more likely the finer grained choice he/she is forced to make) and regret, in particular, the *rejections* he/she made, leaving the buyer with the option to still purchase any given variety by NOT spending the money allocated for the jam budget becomes the most preferred option.