What do people think of Behavioral economics, that is, rooting economic theories in empirically demonstrated aspects of human behavior as opposed to rationally defined principles?
It tries to go beyond the mere “d’uh” that individual market actors occasionally behave irrationally. That is something that even the most diehard of capitalists must accept by this point. It goes beyond that to state that, due to the limitations of human nature, any market arising from humans will be bound by the same failures that the humans creating it have – heuristics, for example. While we can create post-hoc rational explanations for heuristic biases, they remain fundamentally irrational but also incredibly powerful.
Are these things already accounted for by a functioning market or do they represent a flaw in the market system? Or are the goals espoused by economists flawed and we ought seek something else, more in line with a libertarian notion of unrestricted access to goods?
market economies work, not because they magically guarantee some sort of perfect or ideal actions on the part of individuals, but because they properly INCENTIVIZE individual behavior towards production, efficiency and progress.
no other economic system incentivizes economic behavior in such a way-- systems which operate by government edict or central planning incentivize conformity and little or no risk taking; systems which operate by taking from one and giving to another divorce consequences from actions, and therefore incentivize reckless behavior and disregard for the consequences of ones actions. only a free market system with properly established economic and political individual rights to freedom of action, thought, speech, contracts and property will provide the incentives to work as efficiently and intelligently as you deem possible for yourself, because you WILL get the rewards for good choices and you WILL bear the consequences of your bad choices.
only a market economy which is relatively free from such coercion and force (i.e. a free market economy as defined by a maximum amount of “separation of economy and state”; and i mean MAXIMUM amount, as there will always be a need for SOME government regulation and intervention, such as establishing and enforcing economic laws upholding individual rights) will give people incentives to act in such a way as they determine for THEMSELVES how they want to act… this is because in a relatlvely free system (i.e. relatively free from coercion and force/fraud) individuals are guaranteed to reap the consequences of their economic actions; so, if an individual makes good choices, he will earn his good rewards, and if he makes poor choices, he will earn poor rewards. the extent that an individual is motivated by a desire to avoid poor rewards and to get good rewards is the same degree that the individual will try his best to make the best economic choices for himself. the individual is not perfect, of course, and will make mistakes. however, he is as free to learn or not learn from them as he wishes. holding a market system up to a standard of behavioral economics which says “well the market system doesnt guarantee that people wont make bad choices!” is just holding it to an impossible and unrealistic standard.
and realistically or practically, the BEST way to minimize the number of these economic mistakes that people will make is by giving them this maximum incentive to bear the consequences of their actions. so while a free market system will never guarantee that no one makes a mistake (we are only human after all), it WILL MINIMIZE the number of these mistakes, as well as maximize the amount of learning that takes place by individuals so that they avoid making the same mistakes again.
3X - it’s not that I disagree, but there is a certain tension in your rendering of the problem - which is by no means a radical one. Can we preclude that the government is a possible, and sometimes necessary source of some of the needed incentives in a “free” market?
Even if it’s as simple as providing the means by which to enforce contracts, for instance.
3X illustrates how a firmly held ideology precludes perceived need for and ability to appreciate or comprehend behavioral or any other economic science.
Things like the gambler’s fallacy, present-biased preferences, inequality aversion, and so on all demonstrate that people won’t behave rationally, though. You can’t create incentives that would make people behave in a non-human fashion anymore than you can create incentives that would make people grow wings. And that doesn’t even begin to address things like cheaters, which Faust alluded to.
Since we know that humans aren’t rational actors, it makes sense to use the systems which we have to counter those irrational tendencies.
yes, of course government is necessary for establishing and maintaining a free market… and no market will be 100% free because of this, its not about some absolute, its about a maximizing of freedom, as much as possible while still maintaining and enforcing basic individual rights, which are the guarantor themselves of the functioning of free markets.
a free market is the minimum necessary amount of government needed to guarantee and enforce individual rights (such as contracts, as this pertains to property rights) as well as a maxumum amount of FREEDOM for all people in the economy. its about freedom. thats basically it. and weve learned that using governments to limit some freedoms reasonably and consistently actually gives MORE freedom to people. its a give and take, and theres no absolute perfect system, for anything economic, but free markets are by far the best in terms of any economic standard of measurement youd like to pick.
i already indicated that holding people or economic systems up to unrealistic standards accomplishes nothing. should we jail every single person, confine them in prison because some of them will make bad choices to murder people? just because were not perfect does not mean than an overall system cannot be constructed which still operates based on the majority of people making good decisions, most of the time.
yes… systems to control irrational people, created by irrational people…?
the multiplication and centralization of economic power and physical force by maginfying the limited human imperfections and applying them on grand scales of entire nations… sounds like a great idea.
if indeed we are all flawed, which we are, then the best way to deal with this is to MINIMIZE the effects of these “flawed actions”, and the way this is done is to limit as much as possible the consequences of ones economic choices to himself alone. free markets maximize the benefits of individual choice while minimizing the consequences of individual WRONG choices.
It sounds rotten.
It really looks like a pseudo-scientific field that exists to substantiate government meddling in the economy under the pretense that people are not smart enough to know what is good for themselves.
Nonsense. Government is not the only physical way to defend property rights.
It might be necessary for YOU because you do not want to pony up the private costs but it is not necessary for everybody.
i never said government was the ONLY WAY to DEFEND property rights. i said government is NECESSARY for there to be any rights at all.
you cant have rights without government. without objective (universally-applicable), concrete, well-defined and measured laws and enforcement of those laws, rights themselves are impossible-- with out government guaranteeing you various rights and justice/compensation when those rights are violated, the only way to “protect” yourself in such an anarchic situation is by the personal use of force against others, which is just lawlessness.
and just so you know, people pay “private costs” to protect themselves all the time. what do you think insurance is?
paying privately for various specific protections is NOT the same, at all, as the universally-applicable guarantee of specific, concrete and measured individual rights by a governing body able to enforce these rights when necessary.
But that is just it, I do not think the free market results in “the majority of people making good decisions, most of the time”; indeed, I think it produces damned near the opposite!
We can recognize irrationality in others far more easily than we can in ourselves, it is a basic psychological coping mechanism.
Are market regulations market actions in the same sense, though?
That assumes that people and their economic actions exist in a vacuum. That is clearly not the case. Bad choices in one area can affect many different areas due to the integrated nature of our system. So, you are creating a fantasy-land where things like that doesn’t happen and then saying that is how it ought be. I see no mechanism for that occurring.
Sam,
I tend to think the entire libertarian notion of freedom is bunk. For example, recently a libertarian organization put out a “study” suggesting that those in Europe are less free than those in America and people in traditionally ‘blue’ states are less free than those in traditionally ‘red’ states. But the freedoms being advocated were not the freedom of an individual to do as they choose but rather the freedom for capital to move. I’m more interested in the freedom of people than in the freedom of capital. Conflating the two is, IMHO, downright stupid.
I agree with you but I am not representing those “freedom of capital” notions.
Please understand that not everything / everybody who identifies them under the “libertarian” label is consistent with advocating individual freedom. By way of analogy, not all self-identified “communists” in history actually practised communism.
I think of the Mises Institute as representing precisely that viewpoint. Indeed, I skimmed over the articles and they justified that assertion in presenting rather tortured explanations as to how the irrationality was rational or at least would be absent state paternalism.
hmm. interesting, you have no idea what im talking about. i guess thats to be expected.
of course rights are very different from the total of “everything government says”; the reason rights exist guaranteed BY government is by the mandate of the people, which is the only reason why any government function or structure should exist-- were talking about theory here, free economic systems. dont confuse the real systems which are unfree and where government does whatever the fuck it wants with our discussion on political economic theory, like most others do.
what am i saying, thats way too much to ask of you. sorry.
you do not know what political rights are, which is ok. if youre relatively young, like me, youll probably get the chance someday to live in a world without them. im sure youll love it.
isnt it interesting how when i talk about what a right IS, you skip that and immediately go to how to “defend” them.
the entire concept of a RIGHT is that it is applicable to everyone. that it is objective (which, as i indicated, does not mean absolute or rigid, but means “universally-applicable” to all people in that nation). if you can do something that i cannot, then its not a right. and of course in practice people do different things all the time, but thats how we understand the term VIOLATING THE RIGHTS of others. in a free country, i have the right to my property. while i agree to pay small taxes to sustain my government, the principle is that my wealth and property are mine, to dispose of as i see fit. this is a right because it applies to everyone, unless it has been taken away for a specific reason on a case by case basis, per predetermined law (e.g. when you become a criminal in the eyes of the courts).
your idea of defending your rights is correct, you can of course DEFEND your right to life and property in these ways. but that right does not even EXIST in a country without a government that says "all people are equal and have the rights of freedom of speech, press, to their property (including contracts), to own a firearm, to vote, etc…) the sum of all those guarantees, whatever they are, which are afforded to all people, are the rights of those people. the REASON WHY government is NECESSARY to guarantee rights is because government is the ONLY BODY within a nation that is capable of universal action spanning the entire nation and the ability to enforce this action (government holds a monopoly on the legal use of force-- government can come and arrest you or take your property, whereas other bodies cannot-- yes i realise people do that to others all the time, come into their homes and kill or steal their stuff, thats not what im talking about).
really, you dodged the issue by not addressing what rights are, so ill ask in a more specific way: what rights can you have that are not products of a governmental body?
you just need to understand WHAT a political-economic right is. until you grasp that, youre not going to have any idea what the basis for free economic or political systems is.
wow, good job. once again you totally ignored what i said. its like im talking to a child.
when i wrote ‘objective’ i defined it by adding “universally-applicable”; now, i grant that i left you on your own to infer that “oh, ok, so ‘objective’ just means that the law applies to all people across the entire country, that must be what he means by objective”, and in that i was just giving you too much credit, which i tend to be doing on ILP more frequently for some reason.
how am i to expect you to understand what it means to have objective laws, even when i spell it out for you? you dont even know what a right is.
‘objective laws’ as i have defined them here, and ‘subjective case-by-case enforcement of those laws’ are not at odds with each other, and both exist in a free system. think about it.
um. because different jurisdictions have different jurisdictions, by definition.
and once again, you dodged the point i made, which is ok i suppose, since you arent capable of seeing it anyways.
on what grounds or evidence do you make this claim?
that doesnt have anything to do with what were talking about, and is by no means always true.
if youre saying that we need any social systems at all, then youre right. however, thats not what were talking about when we debate between different TYPES of systems, and even so, the idea that we are less able to see our own irrationality doesnt conflate economically or politically with justification for the use of oppressive force against others-- if it did, as i indicated before, theres no reason at all to even give people any freedom whatsoever. if your only concern is trying to maximize BEHAVIORS and minimize BAD CHOICES then just remove all choices from all people… thats the logical result of your theory.
my theory, however, is not seeking some sort of absolute; it grants that we all make mistakes sometimes, it just limits those AS MUCH AS POSSIBLE (again not an absolute) to the individual himself, which is the most practical and effective way to reduce these errors in judgment to a necessary minimum (other than throwing everyone in 6’x8’ cells, which would certainly work better technically at reducing their bad choices, but its a voilation of the purpose of government and society in the first place, which i assume even you can understand).
youre just seeing things in absolutes, black and white; and because of this, you arent carrying out the logical or practical consequences of your assumptions to their full ends.
but its not like i expect you to understand what im saying.
really, im only here for my own benefit, which is beginning to be completely lost at this point. i have clarified and redefined my ideas and application thereof for myself here, reaffirmed my concepts and logic, and found them consistent and as of yet still unchallenged. i suppose ill be moving in pretty soon, then.
i dont fully understand what youre asking here, but ill take the most likely thing and answer it.
of course market regulations are limitations placed on individuals by government; all laws are. as i said, its not about trying to eliminate the need for laws, its about creating the BEST POSSIBLE laws, which is therefore about creating laws which uphold the maximum amount of freedom for all people, once everything is all said and done. its not perfect in application, of course, nothing is; if youre looking for absolutism or perfection, you shouldnt be looking into social sciences, they are probably the most imperfect and pragmatic systems of all.
actually, it does not. no one is in a vaccuum. when i make bad choices it of course can affect other people. ONCE AGAIN (im getting a bit tired of saying this) its not about reaching an absolute where no one affects others or makes bad choices. thats impossible (unless, as i said, you just jail them all). its about MAXIMIZING their freedoms and minimizing the effects of their bad choices, necessarily (really, this is somewhat secondary or at least parallel to the primary justification of economic models, which is its philosophical and moral foundation, that all people SHOULD be free and SHOULD deserve to live in social systems which respect their life and property and dimensions of free actions-- its a complicated issue, deriving and examining the justification for economic and political systems, but thats a point for another thread, im not going to further waste my time with that one)
its a give and take to equate the ideas of freedom and security, because in practice one man’s freedom of action can easily violate another man’s security of himself (but there comes in the concept of rights, which exist to establish all possible actions that an individual may be allowed or expected to engage in which do not create this conflict between one man’s freedom or security and another man’s freedom or security-- once again, i know that its not perfect in practice, no need to point that out, unless your just seeking to avoid the real issues here). that social systems are so complex and imperfect is probably the reason why no one seems to understand them.
which do you think is better at minimizing the effects of one persons decisions on others, a system which guarantees everyone the fruits of their labor without subsidizing their bad decisions, or a system which spreads everyone’s wealth and debt around to everyone else, making one person’s debts and bad economic choices the problem of his neighbors by making his neighbors pay taxes to keep him in his home or on welfare or on food stamps or in assisted living or on social security or on county services waivers or on medicare or medicaid?
if i am responsible only for myself and not for others (excluding my family of course) then the problems of my neighbors financial or economic troubles arent mine. sure, they might affect me sometimes in specific situations, such as if he borrows something from me and doesnt give it back because he had to sell it for food for his kids, or if he steals from me because he is desparate for money. but these are VIOLATIONS of the law, and they exist because the world is not perfect and people harm others. this will always be the case. what were talking about is NOT the simple fact that there will always exist people who harm others-- were talking about the entire economic system itself.
not the need to somehow magically eliminate all bad or harmful choices by all people, but the need to create the best possible system which balances freedom in one’s person and property with those of other men.
Re: evidence for claim, follow the link for behavioral economics.
Re: the rest, you are positing the existence of an individual entity which neither I nor you (by your own admission) believe exist. So why ought we gear our economic system to cater to a non-existent entity? That just seems silly to me. If you want to argue that such a stance, despite its unreality, would result in the best possible outcome (a la the Mises Institute) you’d need to have empirical backing to make that claim worthwhile. But since libertarian philosophy categorically rejects empirical economics in favor of rational economics, I’m unsure how such a claim could be verified.
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