Sunday, May 10, 2015

Confounding humans

Richard Thaler's piece in the New York Times talking about the rise of behavioural economics (he has a book out on the topic that gets an interesting review in the same paper) was a pretty good read.  But I also liked this comment at the side:

Clarification: (1) Economists have never believed that their assumptions about "rationalism" and "money-seeking" described real people--only that their models derived from such assumptions could predict behavior (at least in many specified situations) with a helpful (utilitarian) degree of accuracy. By focusing on the "unreality" of the model assumptions, critics miss the salient point of emphases: how well do economic models predict? When and under what circumstances? Or perhaps, more significantly, should people think of economists as forecasters (foremost, i.e., as portrayed in the media)?
(2) Behavioral economics does not represent a relatively new field of study--it's only new to the math modelers. Cato the Elder wrote on the subject 2500 years ago. The book from the 1960s, "Bears, Bulls, and Dr. Freud still sits on my book shelve. And, McClellan (1958) "The Achieving Society", explained economic growth and prosperity of nations far better than the economic growth models (then or since) created by Nobel-awarded, growth theorist economists whose work was published during that era. David McClelland was a Harvard social psychologist.

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