As someone with a PhD in economics, and a believer in the what the mainstream econ departments teach, I still found this article very reasonable. I hope no one will take this article to be saying that orthodox economics is fundamentally flawed because at no point is that argued. Instead they argue that behavioral biases exist and are well enough understood that we can in some cases craft policy based on them, instead of the standard economic assumptions.
My favorite points were
- Unpack ‘animal spirits’. These arise in the minds of economic actors. We can unpack the biases behind them and do something about them – an indeed BIT is currently working on such a project.
The debate on "animal spirits"[0] is ongoing, but the potential payoff from understanding them is huge. They deserve more research using more modern ideas and methods.
- Promote rainy-day saving. Recent work suggests that the behavioural and economic effects of having even small amounts of saving are even larger than previously thought.
There are two contradictory arguments often made in regard to poverty and rational behavior: (A) poor people are completely constrained by their poverty and unable to make the "right" decision to save and (B) poor people are unable to make rational decisions because poverty affects their decision making ability. I am mostly in the (B) camp and as such, I think that helping poor people to behave more rationally is a great idea. However it does require honestly stating that poor people do make bad decisions, even if anyone else in that situation would have done the same.
The weakest point IMO was
- Trial light-touch ways to improve estimates by key economic actors. Encourage the use of estimation frames.
This is based on a claim that is much more general, and therefore requires more evidence. I would like to see a lot more studies on improving estimation accuracy in general, before I accepted that there is some general formula to make people's estimates more accurate.
[0] A term of trade for Keynes' original, but discarded by the mainstream, idea that markets were moved by irrational exuberance/pessimism by society as a whole. The main advocate of this theory today is Robert Schiller.
My favorite points were
- Unpack ‘animal spirits’. These arise in the minds of economic actors. We can unpack the biases behind them and do something about them – an indeed BIT is currently working on such a project.
The debate on "animal spirits"[0] is ongoing, but the potential payoff from understanding them is huge. They deserve more research using more modern ideas and methods.
- Promote rainy-day saving. Recent work suggests that the behavioural and economic effects of having even small amounts of saving are even larger than previously thought.
There are two contradictory arguments often made in regard to poverty and rational behavior: (A) poor people are completely constrained by their poverty and unable to make the "right" decision to save and (B) poor people are unable to make rational decisions because poverty affects their decision making ability. I am mostly in the (B) camp and as such, I think that helping poor people to behave more rationally is a great idea. However it does require honestly stating that poor people do make bad decisions, even if anyone else in that situation would have done the same.
The weakest point IMO was
- Trial light-touch ways to improve estimates by key economic actors. Encourage the use of estimation frames.
This is based on a claim that is much more general, and therefore requires more evidence. I would like to see a lot more studies on improving estimation accuracy in general, before I accepted that there is some general formula to make people's estimates more accurate.
[0] A term of trade for Keynes' original, but discarded by the mainstream, idea that markets were moved by irrational exuberance/pessimism by society as a whole. The main advocate of this theory today is Robert Schiller.