Monday, 31 December 2018

Scott Sumner on behavioural economics in introductory economics

In a recent blog post, Scott Sumner argues against a large role for behavioural economics in introductory economics:
The Atlantic has an article decrying the fact that economists are refusing to give behavioral economics a bigger role in introductory economics courses. I’m going to argue that this oversight is actually appropriate, even if behavioral economics provides many true observations about behavior...
Most people find the key ideas of behavioral economics to be more accessible than classical economic theory. If you tell students that some people have addictive personalities and buy things that are bad for them, they’ll nod their heads.  And it’s certainly not difficult to explain procrastination to college students. Ditto for the claim that investors might be driven by emotion, and that asset prices might soar on waves of “irrational exuberance.”  Thus my first objection to the Atlantic piece is that it focuses too much on the number of pages in a principles textbook that are devoted to behavioral economics.  That’s a misleading metric.  One should spend more time on subjects that need more time, not things that people already believe.
The whole post is worth reading. Although I don't agree with all of it, as I think behavioural economics does have a role to play in introductory economics. However, in my ECONS102 class I use it to illustrate the fragility of the rationality assumption, while pointing out that many of the key intuitions of economics (such as that people respond to incentives, or even the workhorse model of supply and demand) don't require that all decision-makers be acting with pure rationality. At the introductory level, I think it's much more important that students take away some economic intuition than a collection of mostly ad hoc anecdotes, which is essentially what behavioural economics is currently. That point was driven home by this article by Koen Smets (which I blogged about earlier this year).

Sumner argues in his blog post that we should focus on discouraging people from believing in eight popular myths. I don't agree with all of his choices there. For Myth #2 (Imported goods, immigrant labor, and automation all tend to increase the unemployment rate), I'd say it is arguable. For Myth #3 (Most companies have a lot of control over prices.  (I.e. oil companies set prices, not “the market”), it depends what you mean by "a lot". For Myth #7 (Price gouging hurts consumers), Exhibit A is the consumer surplus.

However, one popular myth that should be discouraged is the idea that behavioural economics will (or should) entirely supplant traditional economics. There is space for both, at least until there is a durable core of theory in behavioural economics.

[HT: Marginal Revolution]

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