Economics

En qué quedó la revolución conductual en economía

Jun 2, 2023 Antara Haldar

CAMBRIDGE – En 2008, el economista de la Universidad de Chicago (y futuro Premio Nobel) Richard Thaler y el profesor de derecho de Harvard Cass Sunstein publicaron el libro Nudge, que popularizó la idea de que pequeños cambios de diseño en la arquitectura de la elección («empujoncitos») pueden influir en nuestra conducta. El libro fue un éxito internacional y marcó un hito intelectual. Pero quince años después de su publicación, subsiste la pregunta: ¿ha estado la economía conductual a la altura de las expectativas?

Thaler y Sunstein basaron su tesis en las investigaciones e ideas de los psicólogos Daniel Kahneman y Amos Tversky, que antes habían aplicado al campo del análisis económico del derecho en un artículo publicado en Stanford Law Review (en coautoría con Christine Jolls). A pesar de que este trabajo fue uno de los artículos de revistas jurídicas más citados de la historia, casi nadie supo de él fuera de la disciplina.

Pero tras la publicación de Nudge, y en el contexto de la crisis financiera global, la economía conductual pasó al centro de la escena, con Thaler y Sunstein convertidos en superestrellas. Thaler recibió el Premio Nobel de Economía 2017. Sunstein se incorporó a la administración Obama como director de la Oficina de Información y Asuntos Regulatorios de la Casa Blanca para convertir los hallazgos del libro en políticas; y así fue que se crearon más de 200 unidades de «diseño de empujoncitos» en todo el mundo.

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0 Comments on this paragraph, 7 Comments on this article

Gerald Silverberg Aug 4, 2023

The problem in economics is not so much rational decision theory vs behavioral economics (in the sense of biases, inertia, herd effects, imitation, etc).

It is uniqueness vs multiplicity. Most interesting economic problems, even under game-theoretic assumptions of rationality (Nash equilibrium), can have multiple consistent solutions (coordination equilibria, suboptimal equilibria (e.g. Prisoner’s Dilemma)), and thus there is no unique “rational” solution. Therefore, some additional assumptions have to be made about how real people coordinate under strategic uncertainty, such as imitation, rules of thumb, learning, etc.

Game theorists were acutely aware of this already in the 1950s, but most micro and macroeconomists simply assumed this away by positing representative agents and convexity, rigging the model to always deliver unique, “rational expectations” equilibria. The Diamond-Dybvig model of bank runs and evolutionary game theory shows this is simplistic, but Kaldor’s 1940 model of the trade cycle already incorporated this kind of multiplicity in a macro model. You don’t need any ad how behavioral “irrationalities” (which may additionally exist) to do so — the problem is much deeper and reflects fundamental social dilemmas most economists were not willing to address except as outliers.
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Dawood Mamoon Jun 10, 2023

Dear Professor Antara I have written a brief article based on your marvelous article. Please find pasted below

National Sovereignty and Rational Expectations: Dialogue with Professor Dani Rodrik, Harvard Kennedy School and Professor Antara Haldar, Cambridge University

by

Dawood Mamoon

Abstract:

The author reviews the Project Syndicate Articles by Harvard Kennedy School Professor Dani Rodrik (2023) and Cambridge University Professor Antara Haldar (2023) to define the future of economics, diplomacy, foreign policy and trade policy that would take place through domestic and international governance methods.

1. Governance and National Autonomy:

Two great articles have been written in the spaces of Project Syndicate. Professor Dani Rodrik (2023) writes that there is good rational for countries to device domestic policies without any dictation from the International Institutions of Governance like the IMF and the World Bank. In other words it is a step away from ‘one policy fits all developing countries’ recipe. The governments in developing countries are the best judge for what is good for their populations. For example, as Professor Rodrik gives an example of Environmental tariffs imposed on imports by EU or for example IRA is the domestic economic policy framework for EU and the USA respectively. While it appears that IRA would distort international trade and especially trade flows from both EU and China, Biden government is justified to initiate IRA. Any step towards that fall of net global emissions is a good domestic and thereby international policy tool. Similarly international trade flows may affect developing countries in a manner that it would favor educated segments of populations than the ones who are uneducated and thereby systematically disfavor the poor. (Mamoon and Murshed, 2008). Thus and thereby a good policy domestically may be justified to protect from imports from developed countries to create a thriving industrial base whereby wages of the unskilled rise at a greater proportion than the skilled and educated while at the same time the domestic government introduces benevolent health and education policies to increase the median skill level of populations and benefit fully from international trade in future much the same way South Korea or China has done.

However the basic question remains unanswered that has been covered by Professor Antara Haldar (2023) in her Project Syndicate article and it is whether developing countries and their governments work under rational expectations. Professor Haldar gives a historic overview of how the work on rational expectations was formed and understanding of deviations around rational expectations were understood. In other words, the cause of developing rational expectations for individuals and nation states or institutions of international governance are not entirely based on economic behaviors that define behaviors based on monetary worth of goods and services, income, prices and other economic incentives. Rational expectations can be understood if non economic definitions of human behavior can be incorporated in economic models like culture, religion, languages, social status, level of education, anthropology and Economics can define and understand incentive structures within corporations or individual societies based on values like trust, kindness, truthfulness that may largely be defined and identified as good ethics.

Professor Haldar then points out in her Project Syndicate article that most of the work in understanding behavioral economics is constrained to micro economic studies focusing on consumers, individuals, workers or firms. It is indeed true that only at micro level certain control experiments can be carried out whereby certain behaviors are isolated in the experiment to understand their relationship with economic decisions and outcomes. At macro level, it is highly difficult to isolate the effect of one variable on the other and if so only loosely by running a multivariate econometric analysis.

Nevertheless, importance of understanding behavioral economics have great insights for macro economics. For example, if it is agreed that nation states should have sovereignty over its domestic policies, the second part of the question is whether these nation states are capable to adhering to international definitions of progress, prosperity and freedom for its people. In other words, the third part of the question then becomes whether the local definitions of economic progress and prosperity that the behavioral economics so much tries to understand through cultural definitions are to be relied upon by institutions of international governance like WTO, IMF and World Bank.

Only constraining to economic variables then, the local definition of the governments in developing country at macro level can simply mean more independent trade or foreign policy and even the countries can decide for themselves what governance method to rule the populations should be preferred.

Then this would become the biggest question for behavioral economics in macro studies. Has Democracy and rule of law delivered economic prosperity in developing countries or western definitions and rules have distorted domestic markets whereby economic prosperity did not result in an egalitarian outcomes benefiting the marginalized segments of the populations as it is evident for most developing countries where Governance methods from International Governance Institutions are perceived with skepticism especially in case of IMF.

If we may agree with the above statement and if national governance should be based on policies that entirely cater to the local needs of a domestic economy within developing countries, than probably the most prized instrument in developing countries become the data collection activities that not only focus on economic variables but include all the cultural and ethical variables from both consumers and producers.

This would then mean that entire paradigm for international assistance for developing countries from IMF and World Bank should thereby change guiding the foundations of macro economics dominated by tools of behavioral economics collected through such national data collection excercises.

Would that be more effective? Well Professor Rodrik (2023) exactly addresses this concern by giving the recommendation that Countries should have a right to formulate domestic policies without the influence of international laws and regulations. Thereby there should be more provision in international laws that confirm the sovereignty of a nation state in its macro policies including trade policy, fiscal policy and foreign policy.

What are rational expectations and what is asymmetric information would then be defined more accurately and would bring a revolution in macro economics, political theory and diplomacy.

Referneces:

Dani, R. ‘National Sovereignty’s Silver Lining’ Project Syndicate, 9 June 2023

Haldar, A. ‘Revisiting the Behavioral Revolution in Economics’, Project Syndicate, June 2023

Mamoon, D. and S. M. Murshed, ‘Unequal Skill Premiums and Trade Liberalization: Is Education the Missing Link?’ Economics Letters, Elsevier, 2008, 100 (3), 262-266,
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Angel Gavieiro Jun 7, 2023

Behavioural science is sorely needed, first and foremost, at the cradle of decision-making, i.e. Boards, ExCos,..., in all human organizations but specially the larger and complex ones.

Let's think about it: how different is decision-making done today vs. 25, 50 or 100 years ago? As differential factors, we got now bigger and more complex powerpoint decks/spreadsheets, more points in the strategic and operational agenda that could be possibly tackled, less time to prepare for the session, and more hurry and pressures to decide... so, not great; but even worse, as a common factor, a bunch of human beings around a table with their cognitive Biases, Noises and Politics (the "devil's triangle") contaminating decision after decision.

Like shooting an arrow at a long distance target, it is already a difficult game to take a high-stakes complex decision, then rolling it out through the molasses of implementation, and finally tossing it by the reaction of clients/competitors and wider stakeholders... so the likelihood for the arrow to even touch the target is low. The "devil's triangle" is literally a triad of demons pocking the bow as the decision is taken at inception.

SVB is just another case in point where decisions during multiple ALCOs (or equivalent committee) during 2020-2022, where sufficiently distorted at inception to generate, down the line (as it happens with all decisions on a cumulative basis) and under a specific set of unfavourable circumstances, a disaster. But let's ask, how many of these potentially 'down-the-line wrong decisions' are made every day, in every Board/ExCo, of every company globally?

Now is when we can elevate the discussion from micro to macro (don't really care much how we call the specialism after the hyphen: -economy, -sociology, -psychology... these days, the world is complex enough to call for multi-specialism to generate effective solutions). At macro level, undoubtedly, this "devils' triangle" acting across so many agents manifests as an emerging property/ies by having an economic and social impact (e.g. GFC 2008, Covid Crisis 2020,... and coming Climate Crisis/es 20XX).

We must confront with humility our lack of theoretical and practical tools at the level of sophistication required by the complexity and speed of the XXI century (humans, how little do we still know!),...
...we must embrace efforts of joint, multi-disciplinary problem solving if want to have any chance to tackle these challenges with the ultimate aim at providing our global society with a chance to live in peace and prosperity (in this order),...
... otherwise, well, that is an answer that another discipline has already provided, history, ... it will repeat itself.
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Joe Ryan Jun 7, 2023

Regretably, Prof. Haldar's essay leaves behavioral issues on the level of an insight for marketing, as the comment by Ronald Savitt has noted.

For a publication with broader application to the public interest along the lines of the comment by Waleed Addas, consider Sam Bowles's 2016 book, The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens.

The discipline of university economics seems too wrapped up in apologizing for the economy as it is to be willing to pay attention to what we might do different.
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Ronald Savitt Jun 4, 2023

Behavioral economics provided interesting insights for some but over time the ability to replicate experimental data has become more difficult. Even when that has taken place, there are significant gaps between some of the conceptual examples used and real world behaviors. That in itself is not a deterrent in all cases. What many economists have failed to do is to beyond "economics" to other fields. A mentor in my Ph. D program in economics thought much of what was taking place was "studying old amphora jugs" for the sake of studying such! After reading many of the articles and books in the field I came to the conclusion: "so what?"

Although I hold I doctorate in economics I taught in marketing where many studies which would enhance the understanding of both consumers and firms in microeconomics are ignored (or perhaps not even known or recognized as being valuable). Of recent times only Shiller's work on narrative economics has acknowledged contribution from marketing. In. my career I successfully used principles from marketing in industrial economics and economics and public policy. The study of marketing behavior by firms adds evidence to economic theory and hence practice. The same is true in the subfield of marketing consumer behavior in the area of individual behavior.

I believe "marketing evidence" has been ignored because economists say that is all about "making money." I'll that stand on its own. The issue with behavioral economists is that they have venture only a small distance, primarily into psychology, but not in to other fields. I would site behavioral geography as another area where there is significant evidence that has not been brought into behavioral economics.

And of course, there is the entire body of work by Hirshmann and his followers that is ignored. In summary the real issue is that many economists have not looked far enough, have assumed that there is little to be learned from other fields such as geography and marketing, and simply pleased staying "old jugs!"

At the end of the day, behavioral economics is headed in the right direction. I hope those wishing to enhance the field began to look at other fields, some will be valuable others not so, but get beyond the Mediterranean Sea!
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Waleed Addas Jun 3, 2023

The real problem here and as I see it now is that we urgently need to teach the good economic behaviour and not just to postulate on it. Enough of the descriptive association with the natural sciences as in the social sciences we need to be more and more prescriptive; otherwise the world will be destroyed soon as a result. Let’s all go back to basics in preserving our livelihood dignity, our common human values and the agreed universal principles of what is allowed and what is to remain barred.
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Sylvain Melancon Jun 3, 2023

No discipline is more self-critical than economics. At the same time, macroeconomists work is always based on data. National statistical agencies manufacture the data the macroeconomists need. And all national statistical agencies have to coordinate to produce similar statistics, based on the same definitions. It takes time and the OECD have to take a leadership in this matter.

Most economists would love to have statistical data that take into account the results of research in behavioural economics. Please, if you want to blame somebody, blame the OECD's slow response, not the economists in general.
https://www.oecd.org/regreform/behavioural-economics-rev1.htm

Of course, universities and economics professors should teach more behavioral economics right now, even if quality data are not available yet.
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