Thursday, November 4, 2010

standard economic theory as a social norm and an anomaly?

Nudge co-author and behavioral economics leading light Richard Thaler gave Berkeley's Dicusssions with History a very nice interview. This conversation is a great introduction (or reminder) for people who are (or not) familiar with behavioral economics, social psychology, nudges, libertarian paternalism, economical anomalies, save more tomorrow, the power of facilitating people's life, default options etc.

Among the topics Richard addresses are "anomalies", i.e how standard economic models fail to predict most of our behaviors. I know I am not being very original here, but it always strikes me that what economists refer to as "anomalies" are actually what everyone else would call "real life"! Are there people that consider seriously our daily/usual/real behavior an anomaly?

Of course the framework under which this anomaly tag is to be considered is the standard neo-classical economic models and the fact that most of our behaviours do not fit with and in their predictions. But even if behavioral economists and psychologists  have shown repeatedly how "anomalies" are not anomalies per se but quite the opposite, we are still calling them this way. Bottomline :
  • Standard economics is a social norm in itself, providing a great illustration of how powerful these norms are at (self-)maintaining their influence: Everytime we use the term anomaly in its economic sense, we somewhat strenghten this norm!
  • Given that most of our behaviors cannot be predicted by standard neo-classical economics, isn't a theory that considers people as rational maximizer (selfish, immune to social influences, with unlimited knowledge and will etc) the true anomaly? ;-)
Now that I made those slightly provocative statements, enjoy Richard's words and do not hesitate to let me know your feelings about all of this.