Provocation # 28 behavioral economics.

Economists tend to be more interested in formal systems than in the phenomena of people acting in and around economy.

Take for example what is called behavioral economics. A student shows up for an “experiment”, sits down in a relatively sterile environment, looks around to see who is there, what the setup is, and seems to be thinking, “what are these people tying to do?” Using all possible clues. psychologically so far lots is going on, before the “experiment” proper begins. Lets look at the whole situation from an economic point of view. The decision to come to the experiment. Perhaps a notice on a bulletin board or in the school newspaper. What has to be his (her) state of mind to be pulled into the orbit of this little piece of text?

The student has made it to the experiment. What happened. they probably were attracted to a small amount of money filling some unused time. perhaps it is a place, he has heard, to meet girls. Maybe he is really hungry and needs the money. Maybe it is a requirement to pas the course in which case all the motives for being in college are entrained in a long historical series of acts and imaginations leading to this moment. It seems to me there is more psychology and economics in the decision to go to the experiment than can possibly be in the experiment itself.

Why is this important? Because economics assumes what needs to be analyzed: why do people act in the economy? Economists assume that people are always in the economy doing economics of little calculations as to costs and benefits. This way of looking at humans helps create a society where human actions are forced into the mold of market behavior – get money and spend it on products. The rest of life, and there is a great deal, is not only bypassed and trivialized, but economics supports and in part creates a social system where that rest of life is less significant. Only market behavior is to remain. In this way economics has a big impact on the quality of civil life. Just as the experimental situation the student is to participate in reduced the whole psychology to a few manipulated variables (with intent to deceive built in) so market pretends to be the answer to life’s needs and desires while reducing humans to mere pawns in a market maze.

If only market “counts”, why not cheat? If I am supposed to be out for myself alone, why not in fact be for myself alone? Trump is a caricature of economics. Society fails, There is an old story about the man at the dog races, wants to win, so he throws sausages on the track. The amount of business practice that has to do with simply making a better and cheaper product is very small.

Why doesn’t economics feature, rather than marginalize, the study of what people really do? Imagine buying a car. 30k. Big deal. But the decision is based on what my neighborhood’s cars looks like, the shape of the hubs on the car I am thinking about getting, the placement of the sound system, and about five minutes worth of calculations about money.

Perhaps the answer is simple. Business and the profession need simple understandable things to measure and do. All that psych stuff, economics often assumes, just gets in the way.
[the FT this morning has an article saying models are used by banks to give clients the illusion of safety http://on.ft.com/1TReL0P%5D
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Very good Richard Feynman talk on math vs physics, interest in the universal vs the particular.