18 October 2013

What behavioral economics is not

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Essay:
The Nature of the BEast: What Behavioral Economics Is Not
10/16/13
Matthew Darling, Saugato Datta, and Sendhil Mullainathan

People are complex; they defy easy summary. Like Walt Whitman, we all contain multitudes. As a discipline, economics has been successful in part because it has ignored this complexity. Instead it has focused on explaining the institutions in which decisions are made — with institutions ranging from capitalism to communism, from perfect competition to monopolies, and from rock-paper-scissors to the prisoner’s dilemma.

Behavioral economics differs from standard economics in that it uses a more realistic (and more complicated) model for people; it differs from psychology in that it maintains the focus on institutions and the contexts in which decisions are made. Behavioral economists study how the context of decisions interacts with our expanding understanding of human psychology. By combining the insights from these two very different perspectives, behavioral economists have been able to reveal new depths in ourselves.

The short 4 page essay can be downloaded for free from the website of the Center for Global Development, an independent, nonprofit policy research organization “dedicated to reducing global poverty and inequality and to making globalization work for the poor”.

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