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As-if behavioral economics: Neoclassical economics in disguise?

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  • Berg, Nathan
  • Gigerenzer, Gerd

Abstract

For a research program that counts improved empirical realism among its primary goals, it is surprising that behavioral economics appears indistinguishable from neoclassical economics in its reliance on “as-if” arguments. “As-if” arguments are frequently put forward in behavioral economics to justify “psychological” models that add new parameters to fit decision outcome data rather than specifying more realistic or empirically supported psychological processes that genuinely explain these data. Another striking similarity is that both behavioral and neoclassical research programs refer to a common set of axiomatic norms without subjecting them to empirical investigation. Notably missing is investigation of whether people who deviate from axiomatic rationality face economically significant losses. Despite producing prolific documentation of deviations from neoclassical norms, behavioral economics has produced almost no evidence that deviations are correlated with lower earnings, lower happiness, impaired health, inaccurate beliefs, or shorter lives. We argue for an alternative non-axiomatic approach to normative analysis focused on veridical descriptions of decision process and a matching principle – between behavioral strategies and the environments in which they are used – referred to as ecological rationality. To make behavioral economics, or psychology and economics, a more rigorously empirical science will require less effort spent extending “as-if” utility theory to account for biases and deviations, and substantially more careful observation of successful decision makers in their respective domains.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26586.

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Date of creation: 2010
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Publication status: Published in History of Economic Ideas 1.18(2010): pp. 133-166
Handle: RePEc:pra:mprapa:26586

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Keywords: bounded rationality; ecological rationality; as-if; fit; prediction; decision; process;

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Behaviorial economics is futile so far
    by Economic Logician in Economic Logic on 2011-01-31 15:29:00
  2. Friedman`s schizophrenic legacy in economic methodology
    by ? in Freakynomics on 2011-06-01 16:32:00
  3. Friedman`s schizophrenic legacy in economic methodology
    by ? in Freakynomics on 2011-06-01 16:32:00
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Cited by:
  1. Lotz, Aïleen, 2011. "An Economic Approach to the Self : the Dual Agent," MPRA Paper 30043, University Library of Munich, Germany.
  2. Ben McQuillin & Robert Sugden, 2012. "Reconciling normative and behavioural economics: the problems to be solved," Social Choice and Welfare, Springer, Springer, vol. 38(4), pages 553-567, April.
  3. Andrea Polonioli, 2013. "Re-assessing the Heuristics debate," Mind and Society: Cognitive Studies in Economics and Social Sciences, Fondazione Rosselli, Fondazione Rosselli, vol. 12(2), pages 263-271, November.
  4. Berg, Nathan, 2010. "Success from Satisficing and Imitation: Entrepreneurs’ Location Choice and Implications of Heuristics for Local Economic Development," MPRA Paper 26594, University Library of Munich, Germany.
  5. Varma, Jayanth R., . "Finance Teaching and Research after the Global Financial Crisis," IIMA Working Papers WP2011-03-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
  6. Krieger-Boden, Christiane, 2013. "New ethics for economics?," Kiel Policy Brief 60, Kiel Institute for the World Economy (IfW).
  7. Marek Hudík, 2013. "Macaulay’s Problem," ICER Working Papers, ICER - International Centre for Economic Research 01-2013, ICER - International Centre for Economic Research.
  8. Berggren, Niclas, 2011. "Time for behavioral political economy? An analysis of articles in behavioral economics," Ratio Working Papers, The Ratio Institute 166, The Ratio Institute.
  9. Flynn, Sean Masaki & Donnelly, Michael, 2012. "Does labor contract completeness drive unionization? Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 41(4), pages 445-454.
  10. Berg, Nathan, 2010. "Behavioral Economics," MPRA Paper 26587, University Library of Munich, Germany.
  11. Berg, Nathan & Kim, Jeong-Yoo, 2010. "Demand for Self Control: A model of Consumer Response to Programs and Products that Moderate Consumption," MPRA Paper 26593, University Library of Munich, Germany.
  12. Lunn, Pete, 2011. "The Role of Decision-Making Biases in Ireland's Banking Crisis," Papers, Economic and Social Research Institute (ESRI) WP389, Economic and Social Research Institute (ESRI).
  13. Nathan Berg & G. Biele & Gerd Gigerenzer, 2013. "Does Consistency Predict Accuracy of Beliefs?: Economists Surveyed About PSA," Working Papers, University of Otago, Department of Economics 1308, University of Otago, Department of Economics, revised Apr 2013.
  14. Dorian Jullien & Nicolas Vallois, 2012. "A Probabilistic Ghost in the Experimental Machine," GREDEG Working Papers, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis 2012-05, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  15. Chen Li & Zhihua Li & Peter Wakker, 2014. "If nudge cannot be applied: a litmus test of the readers’ stance on paternalism," Theory and Decision, Springer, Springer, vol. 76(3), pages 297-315, March.
  16. Dohmen, Thomas, 2014. "Behavioural Labour Economics: Advances and Future Directions," IZA Discussion Papers 8263, Institute for the Study of Labor (IZA).
  17. Julian N. Marewski & Rudiger F. Pohl & Oliver Vitouch, 2011. "Recognition-based judgments and decisions: What we have learned (so far)," Judgment and Decision Making, Society for Judgment and Decision Making, Society for Judgment and Decision Making, vol. 6(5), pages 359-380, July.
  18. Georg Schwesinger, 2013. "Natural and Economic Selection - Lessons from the Evo-Devo and Multilevel Selection Debate," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2013-014, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  19. Marco Stimolo, 2012. "Multiple-self models in neuroeconomics. A methodological critique," ICER Working Papers, ICER - International Centre for Economic Research 07-2012, ICER - International Centre for Economic Research.

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