Behavioural economics is a work in progress

Behavioural economics is one of the 'in things' in economics, and has been for the last several years (and evidenced by last year's Nobel Prize award for Richard Thaler, following the earlier prize for Daniel Kahneman back in 2002). However, a good article last month by Koen Smets takes issue with behavioural economics, not because he prefers models of rational decision-makers, but because behavioural economics is still just a collection of cool stories of things that get in the way of rational decision making (that's my paraphrase of Smets). He begins with:

Compared to just a few years ago, the term behavioral economics has gained tremendous currency. To say it is on everyone’s lips would be only a minor exaggeration. For the scientists and practitioners in the field, this emergence from relative obscurity should, at first glance at least, be a source of happiness.

One reason for this growing interest is the way behavioral economics has been presented and interpreted. Behavioral economics is, it seems, the field that confronts us with our deeply irrational selves. We are bamboozled by biases, fooled by fallacies, entrapped by errors, hoodwinked by heuristics, deluded by illusions...

This is all very exciting, of course, and as a result we are knee-deep in articles and infographics that gleefully point out how flawed we really are. But is that really all there is to behavioral economics?...

To a worrying extent, biases have become the defining feature of behavioral economics.

This focus on biases is unhelpful in several ways. It fails to acknowledge that biases are broad tendencies, rather than fixed traits, and it oversimplifies the complexity of human behavior into an incoherent list of flaws. This leads to misguided applications of behavioral science that have little or no effect, or which can backfire spectacularly. We need to appreciate better the role biases play on the wider behavioral-economics stage.

If you are interested in behavioural economics, I encourage you to read the whole article. It's clear that Smets' view is that behavioural economics has come a long way in describing the various decision-making quirks where we deviate from rational decision-making, but that it still fails to fully explain why those quirks appear in some circumstances and not others. But despite how that sounds, Smets isn't entirely negative towards behavioural economics. Here's the end of his conclusion:

Behavioral economics will be a work in progress for a long time to come. But with the right sculptors, there is hope yet for a masterpiece.

[HT: Marginal Revolution]