We talked yesterday about the general issues that Wright and Ginsburg raise in their critique of behavioural economists. I don’t agree with their overall conclusions about the dangerous incoherency of the “behaviourists’ agenda”–if such a thing even exists–but they do make some excellent points about the limitations of the science as it stands.
The first stage of the behavioral economics research program is best described as developing a comprehensive theory of errors. The theory-building exercise thus far has focused largely upon the effort to catalog circumstances in which economic decision-makers appear systematically to depart from rational choice behavior. The second step required to make the theory of errors policy-relevant is to map the conditions under which specific errors are more or less likely to affect decisions and then to generate estimates of the social costs imposed by those errors. This step is particularly important when the incidence of a particular decisionmaking error is context specific, unevenly distributed throughout the population, and likely to interact systematically with other errors. The third step is to compare the costs of any proposed corrective intervention against the social benefits produced by reducing the rate of error. At present, however, research in behavioral economics does not appear to have moved much beyond the first step.
I think this is true, and similar to the point Eric made in his original comments. However, it is not a criticism of the science, but merely a statement about how young the discipline is. From the discussions so far we can add a couple more points related to policy development:
- Policy conclusions need to be drawn from causal models, not correlations. That is the driving force behind the need for a coherent model supporting the idea of cognitive bias.
- The behavioural approach needs to be applied to regulators, too. Public choice was a fairly late development in microeconomics so it’s not surprising that behavioural economists haven’t got there yet, but it is certainly a development that needs to occur so that we can think more deeply about policy failure.