Berg, Nathan and Gigerenzer, Gerd (2010): As-if behavioral economics: Neoclassical economics in disguise? Published in: History of Economic Ideas , Vol. 18, No. 1 (2010): pp. 133-166.
Download (410Kb) | Preview
For a research program that counts improved empirical realism among its primary goals, it is surprising that behavioral economics appears indistinguishable from neoclassical economics in its reliance on “as-if” arguments. “As-if” arguments are frequently put forward in behavioral economics to justify “psychological” models that add new parameters to fit decision outcome data rather than specifying more realistic or empirically supported psychological processes that genuinely explain these data. Another striking similarity is that both behavioral and neoclassical research programs refer to a common set of axiomatic norms without subjecting them to empirical investigation. Notably missing is investigation of whether people who deviate from axiomatic rationality face economically significant losses. Despite producing prolific documentation of deviations from neoclassical norms, behavioral economics has produced almost no evidence that deviations are correlated with lower earnings, lower happiness, impaired health, inaccurate beliefs, or shorter lives. We argue for an alternative non-axiomatic approach to normative analysis focused on veridical descriptions of decision process and a matching principle – between behavioral strategies and the environments in which they are used – referred to as ecological rationality. To make behavioral economics, or psychology and economics, a more rigorously empirical science will require less effort spent extending “as-if” utility theory to account for biases and deviations, and substantially more careful observation of successful decision makers in their respective domains.
|Item Type:||MPRA Paper|
|Original Title:||As-if behavioral economics: Neoclassical economics in disguise?|
|Keywords:||bounded rationality, ecological rationality, as-if, fit, prediction, decision, process|
|Subjects:||D - Microeconomics > D0 - General > D03 - Behavioral Economics; Underlying Principles
B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925
B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology
|Depositing User:||Nathan Berg|
|Date Deposited:||02. Dec 2010 12:13|
|Last Modified:||11. Feb 2013 18:44|
Amir O., Ariely D., Cooke A., Dunning D., Epley N., Gneezy U. et alii 2005, “Psychology, behavioral economics, and public policy”. Marketing Letters, 16, 4, 443-454.
Ashraf N., Camerer C. F. and Loewenstein G. 2005, “Adam Smith, behavioral economist”, Journal of Economic Perspectives, 19, 3, 131-145.
Berg N. 2003, “Normative behavioral economics”, Journal of Socio-Economics, 32, 411- 427.
Berg N., Biele G. and Gigerenzer G. 2008, “Consistency versus accuracy of beliefs: Economists surveyed about psa”, Dallas, University of Texas, Working Paper.
Berg N. and Gigerenzer G. 2007, “Psychology implies paternalism?: Bounded rationality may reduce the rationale to regulate risk-taking”, Social Choice and Welfare, 28, 2, 337-359.
Berg N. and Hoffrage U. 2008, “Rational ignoring with unbounded cognitive capacity “, Journal of Economic Psychology, 29, 792-809.
Berg N., Eckel C. and Johnson K. 2009, Inconsistency Pays?: Time-inconsistent subjects and eu violators earn more, Dallas, University of Texas, Working Paper.
Berg N. and Lien D. 2005, “Does society benefit from investor overconfidence in the ability of financial market experts?”, Journal of Economic Behavior and Organization, 58, 95-116.
Bernheim B. and Rangel A. 2005, Behavioral public economics: Welfare and policy analysis with non-standard decision-makers, NBER Working Paper 11518. Beshears J., Choi J. J., Laibson D. and Madrian B. C. 2008, “How are preferences revealed?”, Journal of Public Economics, 92, 8-9, 1787-1794.
Binmore K. G. and Samuelson L. 1992, “Evolutionary stability in repeated games played by finite automata”, Journal of Economic Theory, 57, 2, 278-305.
Binmore K. and Shaked A. 2007, Experimental Economics: Science or What?, London, else Working Paper 263.
Blume L., Brandenburger A. and Dekel E. 1991, “Lexicographic probability and choice under uncertainty”, Econometrica, 59, 61-79.
Brandstätter E., Gigerenzer G. and Hertwig R. 2006, “The priority heuristic: Making choices without trade-offs”, Psychological Review, 113, 2, 409-432.
— 2008, “Risky choice with heuristics: Reply to Birnbaum”, Psychological Review, 115, 281-290. Bruni L. and Porta P. L. 2007, Handbook on the Economics of Happiness, Cheltenham (uk) and Northampton (ma, usa), Edward Elgar.
Bruni L. and Sugden R. 2007, “The road not taken: How psychology was removed from economics, and how it might be brought back”, Economic Journal, 117, 516, 146-173.
Camerer C. 1999, “Behavioral economics: Reunifying psychology and economics”, Proceedings of the National Academy of Sciences of the United States of America, 96, 19, 10575-10577.
— 2003 Behavioral Game Theory: Experiments In Strategic Interaction, New York and Princeton (nj), Russell Sage Foundation-Princeton University Press.
Carpenter J. and Seki E. 2006, “Competitive Work Environments and Social Preferences: Field experimental evidence from a Japanese fishing community”, Contributions to Economic Analysis & Policy Berkeley Electronic Press, 5, 2, Article 2.
Cohen J. and Dickens W. 2002, “A foundation for behavioral economics”, American Economic Review, 92, 2, 335-338.
Compte O. and Postlewaite A. 2004, “Confidence-enhanced performance”, American Economic Review, 94, 5, 1536-1557.
Conlisk J. 1996, “Why bounded rationality?”, Journal of Economic Literature, 34, 2, 669- 700.
Czerlinski J., Gigerenzer G. and Goldstein D. G. 1999, “How good are simple heuristics?”, in G. Gigerenzer, P. M. Todd and the abc Research Group, Simple heuristics that make us smart, New York, Oxford University Press, 97-118.
Dekel E. 1999, “On the evolution of attitudes toward risk in winner-take-all games”, Journal of Economic Theory, 87, 125-143.
De Miguel V., Garlappi L. and Uppal R. 2009, “Optimal versus naive diversification: How inefficient is the 1/N portfolio strategy?”, Review of Financial Studies, 22, 1915-1953.
Diamond P. 2008, “Behavioral economics”, Journal of Public Economics, 92, 8-9, 1858- 1862.
Erev I., Roth A., Slonim R. L. and Barron G. 2002, “Combining a theoretical prediction with experimental evidence to yield a new prediction: An experimental design with a random sample of tasks”, Columbia University and Faculty of Industrial Engineering and Management, Technion, Haifa (Israel), Working Paper.
Fehr E. and Schmidt K. 1999, “A theory of fairness, competition and cooperation”, Quarterly Journal of Economics, 114, 817-868.
Ford J., Schmitt N., Schechtman S. L., Hults B. H. and Doherty M. L. 1989, “Process tracing methods: contributions, problems, and neglected research questions “, Organizational Behavior and Human Decision Processes, 43, 75-117.
Frank R. H. 1991, Microeconomics and Behavior, New York, London, Montreal and Sydney, McGraw-Hill.
Frank R. 2008, “Lessons from behavioral economics: Interview with Robert Frank”, Challenge, 51, 3, 80-92.
Friedman M. 1953, Essays in Positive Economics, Chicago (il), University of Chicago Press.
Galbraith J. K. 1938, “Rational and irrational consumer preference”, The Economic Journal, 48, 190, 336-342.
Gigerenzer G. 2008, Rationality for mortals, New York, Oxford University Press.
Gigerenzer G. and Brighton H. 2009, “Homo heuristicus: Why biased minds make better inferences”, Topics in Cognitive Science, 1, 107-143.
Gigerenzer G. and Goldstein D. G. 1996, “Reasoning the fast and frugal way: Models of bounded rationality”, Psychological Review, 103, 650-669.
Gigerenzer G. and Selten R. 2001, Bounded Rationality: The Adaptive Toolbox, Cambridge, The mit Press.
Gigerenzer G., Todd P. M. and the abc Research Group 1999, Simple Heuristics that Make Us Smart, Oxford, Oxford University Press.
Gilboa I., Postlewaite A. and Schmeidler D. 2004, “Rationality of belief, or: Why Bayesianism is Neither Necessary nor Sufficient for Rationality”, Cowles Foundation Discussion Papers 1484, Cowles Foundation, Yale University. Güth W. 1995, “On ultimatum bargaining – A personal review”, Journal of Economic Behavior and Organization, 27, 329-344.
— 2008, “(Non-) behavioral economics - A programmatic assessment”, Journal of Psychology, 216, 244-253.
Hastie R. and Rasinski K. A. 1988, “The concept of accuracy in social judgment”, in D. Bar-Tal and A. W. Kruglanski, The Social Psychology of Knowledge, New York (ny)-Paris (f), Cambridge University Press-Éditions de la Maison des Sciences de l’Homme, 193-208.
Hammond K. R. 1996, Human Judgment and Social Policy: Irreducible Uncertainty, Inevitable Error, Unavoidable Injustice, New York, Oxford University Press.
Hayek F. A. 1945, “The use of knowledge in society”, American Economic Review, 35, 4, 519-530.
Heukelom F. 2007, Who are the behavioral economists and what do they say?, Tinbergen Institute Discussion Papers 07-020/1, Tinbergen Institute.
Heilbronner S. R., Rosati A. G., Stevens J. R., Hare B. and Hauser M. D. 2008, “A fruit in the hand or two in the bush? Ecological pressures select for divergent risk preferences in chimpanzees and bonobos”, Biology Letters, 4, 246-249.
Heinrich J., Boyd R., Bowles S., Camerer C., Fehr E., Gintiz H. and McElreath R. 2001, “In search of homo economicus: Behavioral experiments in 15 small-scale societies”, American Economic Review, 91, 73-78.
Jolls C., Sunstein C. R. and Thaler R. H. 1998, “A behavioral approach to law and economics”, Stanford Law Review, 50, 1471-1541.
Jorland G. 1987, “The Saint Petersburg Paradox 1713 – 1937”, in L. Krüger, L. Daston and M. Heidelberger (eds), The Probabilistic Revolution, vol. i, Ideas in History, Cambridge (ma), The mit Press, 157-190.
Kahneman D. and Tversky A. 1979, “Prospect theory: An analysis of decision under risk”, Econometrica, 47, 2, 263-291.
Keynes J. M. 1974 , The General Theory of Employment, Interest And Money, London and New York, Macmillan-Cambridge University Press, for the Royal Economic Society.
Knight F. H. 1921, Risk, Uncertainty and Profit, repr., London, lse, 1933.
Laibson D. 1997, “Golden eggs and hyperbolic discounting”, Quarterly Journal of Economics, 112, 2, 443-477.
— 2002, “Bounded rationality in economics” [PowerPoint® Slides], Retrieved from uc Berkeley 2002 Summer Institute on Behavioral Economics website, organized by the Behavioral Economics Roundtable, Russell Sage Foundation. Accessed February 22, 2009, website: http://elsa.berkeley.edu/symposia/sage02/slides/laibson3.pdf.
Leland J. W. 1994, “Generalized similarity judgments: An alternative explanation for choice anomalies”, Journal of Risk and Uncertainty, 9, 151-172.
— 2002, “Similarity judgments and anomalies in intertemporal choice”, available at http://ideas.repec.org/s/oup/ecinqu.html, Oxford, Oxford University Press, 40, 4, 574-581.
Lipman B. 1999, “Decision theory without logical omniscience: Toward an axiomatic framework for bounded rationality”, Review of Economic Studies, 66, 339-361.
O’Donoghue T. and Rabin M. 2006, “Optimal sin taxes”, Journal of Public Economics, 90, 10-11, 1825-1849.
Pantaleoni M. and Bruce T. B. 1898 , Pure Economics, London and New York, Mac millan.
Payne J. W. and Braunstein M. L. 1978, “Risky choice: An examination of information acquisition behavior”, Memory and Cognition, 6, 554-561.
Rabin M. 1998, “Psychology and economics”, Journal of Economic Literature, 36, 1, 11-46.
—2002, “A perspective on psychology and economics”, European Economic Review, 46, 4-5, 657-685.
Roberts S. and Pashler H. 2000, “How pervasive is a good fit? A comment on theory testing”, Psychological Review, 107, 358-367.
Rosati A. G., Stevens J. R., Hare B. and Hauser M. D. 2007, “The evolutionary origins of human patience: temporal preferences in chimpanzees, bonobos, and human adults”, Current Biology, 17, 1663-1668.
Rubinstein A. 1988, “Similarity and decision-making under risk (Is there a utility theory resolution to the Allais-paradox?)”, Journal of Economic Theory, 46, 145-153.
— 2003, “‘Economics and psychology’? The case of hyperbolic discounting”, International Economic Review, 44, 1207-1216.
Russo J. E. and Dosher B. A. 1983, “Strategies for multiattribute binary choice”, Journal of Experimental Psychology, Learning, Memory, and Cognition, 9, 676-696.
Sargent T. J. 1993, Bounded Rationality in Macroeconomics, Oxford, Oxford University Press.
Smith A. 1997 , The Theory of Moral Sentiments,Washington (dc), Regnery Pub.
Starmer C. 2004, Friedman’s risky methodology, University of Nottingham, Working Paper.
— 2005, “Normative notions in descriptive dialogues”, Journal of Economic Methodology, 12, 2, 277-289.
Thaler R. H. 1991, Quasi Rational Economics, New York, Russell Sage Foundation.
Thaler R. H. and Sunstein C. R. 2008, Nudge: Improving Decisions about Health, Wealth, and Happiness, New Haven, Yale University Press.
Tversky A. and Kahneman D. 1986, “Rational choice and the framing of decisions”, The Journal of Business, 59, 4, 251-278.
— 1992, “Advances in prospect theory. Cumulative representation of uncertainty”, Journal of Risk and Uncertainty, 5, 297-323.
Veblen T. 1994 , The Theory of the Leisure Class, New York, Dover Publications.
Wansink B. 2006, Mindless Eating: Why We Eat More than We Think, New York, Bantam Books.
Winter S. G. Jr. 1964, “Economic ‘Natural Selection’ and the theory of the firm”, Yale Economic Essays, 4, 1, 225-272.
Yee M., Dahan E., Hauser J. R. and Orlin J. 2007, “Greedoid-based noncompensatory inference”, Marketing Science, 26, 4, 532-549.