Thaler, Sunstein, Kahneman and other ‘behavioural economics’ proponents: socialists in another guise

I’ve written sporadically on this blog and elsewhere (mainly FB) against behavioural economics. Since I have no central blog post on this issue, I’m starting this one as a placeholder in which I’ll bring earlier thoughts together, and add new ones.

MY EARLIER NOTES

“Food Police here! Stop! Don’t put that in your mouth!”

ADDING TODAY

Peter Boettke’s FB post

​Adam Smith’s invisible theorem is not handwaving as Thaler contends but along with Hume the first systematic statement of mainline economics. The defining characteristic of mainline economics is the derivation of the invisible hand theorem from the rational choice postulate via institutional analysis. It is this focus on institutional analysis and the contextual nature of humanly rational choice and the exchange relationships that develop that is missing in the contemporary debates on rational choice versus behavioral economics. This has to be corrected and the subsequent revision to behavioral economics would lead to a reset in perspective which would place humanly rational choice aka behavioral economics squarely in the mainline of economic thought. c.f., Hayek’s Individualism and Economic Order, pp., 11-14 for an earlier discussion of these issues which amazingly anticipates so much of what gets discussed today.

To which Nobelist Vernon Smith responds:

In my book (2008, p 22), http://amzn.to/1HqX2XZ I cite Mullainathan and Thaler (2001, p 2) as defining behavioral econ as a candidly deliberate search for “Identifying the ways in which behavior differs from the standard model…” 

Hence, Beh Econ has been defined by Dave Grether as “searching in the tails of distributions.”

Lopez (1991) wrote an insightful paper surveying the judgment and decision literature and concluded that it was after 1970 that the search for anomalies became evident. (There is a back story about a attempts to prevent it from being published, but I do not know its details or validity)
Before 1970, there was no shortage of examples from decision theory that failed to predict, and of examples that did predict, experimental tests of theory. Ward Edwards and Sidney Siegel, truly great psychologists, published both confirmations and rejections before 1970, but theirs were hardly “searches” for particular outcomes. 

I think it is equally true that traditional economic scientists have a “search for confirmations” bias. Of course we have long known about confirmation bias—journals are strongly biased toward empirical findings that are significant at the 5% or lower levels of error. Those such as the behavioral economists who reject the standard model are of course equally guilty of searching for confirmation of their contrary hypotheses; there is both confirmation and anti-confirmation bias.. 

As noted in my 2014 GMU (Hayek) lecture I have—at least three times—expected outcomes to confirm traditional theory and it failed miserably. 
I am giving the Bohm-Bawerk lecture in Insbruck come June 23 and I want to discuss some of these issues there. 

Experimental economics grew out of concerns for the imprecision and shortcomings of economics as an empirical science; of course we were long interested in economic behavior, but many of us in that tradition have felt that it is important to make every effort to avoid as best we can, unbalanced confirmations searches whether pro or con. Andrej Svorencik has written the first History of Experimental Economics, and soon to appear is the Witness Seminar on the Emergence of Experimental Economics.

MY VIEW ON THE ABOVE:

I don’t object to the search for exceptions (such knowledge is helpful in the academic sense) but to the implication that there are economists or bureaucrats who – based on information regarding any such exceptions that they might get hold of – are somehow capable of making rules for society that lead to what they imagine are ‘better’ outcomes.

Fatal conceit comes naturally to behavioural economists. They are socialists and planners at heart, their plans being inconsistent with free society.

Unfortunately, this new fad is catching on with a lot of “progressives” who find this a convenient tool to “fine tune” our behaviour. 

I see economics as a branch of moral philosophy and liberty, and to the extent any branch of economics actively seeks to undermines liberty, it is out of order and must be called out.