Behavioral economics dismisses the very premise of humans as rational being and nudges them towards rationality for their own betterment and the society as a whole. There wasn't thing that came out economics since WWII which properly considered human cognition and emotion as part of the equation. It was like trying to find the area of the circle, ignoring the value of pi. It created a great sea-saw game across the countries in the world - bunch of countries thrived only when others lost and vice versa. It is a zero sum game and nobody talks about it, hoping technology, globalization et al will miraculously fix it. Again these technologies and tools of globalization don't factor in human emotions and are content with accepting the losers as collateral damage even when there is a lack of creative destruction. Most of the collateral damage is caused by the irrationality of humans, bringing their own economic demise.
Economists being irrational themselves and fascinated by elegant mathematical models lose themselves in the the aura of their omnipotence. Daniel Kahneman and Amos Tversky founders of behavioral economics understood the limits of human rationality and rightly believed good economics begins by upping the human rationality rather than dwelling on the power of the invisible hand. Nudge was a fascinating and simple way to achieve this without any political dissonance. So I was more than thrilled when Cass Sunstein the co-author of Nudge, became the regulatory czar in the current white house. The current liberal government in USA and conservative David Cameron in UK both embracing nudge makes it bipartisan, something hard to find these days. But this article for Jerome Groopmam, author of one of my favorite book, concerns me very much.
"One of the principal aims of the current health care legislation is to improve the quality of care. According to the President and his advisers, this should be done through science. The administration's stimulus package already devoted more than a billion dollars to "comparative effectiveness research," meaning, in the President's words, evaluating "what works and what doesn't" in the diagnosis and treatment of patients.
But comparative research on effectiveness is only part of the strategy to improve care. A second science has captured the imagination of policymakers in the White House: behavioral economics. This field attempts to explain pitfalls in reasoning and judgment that cause people to make apparently wrong decisions; its adherents believe in policies that protect against unsound clinical choices. But there is a schism between presidential advisers in their thinking over whether legislation should be coercive, aggressively pushing doctors and patients to do what the government defines as best, or whether it should be respectful of their own autonomy in making decisions. The President and Congress appear to be of two minds. How this difference is resolved will profoundly shape the culture of health care in America."
and so read on the rest of article to find more.
If not on purpose, there is always the fear of straying away from nudge with good intentions. Good intentions can go haywire and can be myopic. Once they stray from nudge, its not a nudge anymore and becomes partisan. Behavioral economics is already a precarious field and always will be a ridiculed because of its simplicity. Simplicity is its strength. I hope nudge survives since it not only make us more rational but also will increase the rationality in the wisdom of crowds. I see behavioral economics not as a panacea nor as a paranoia but as little foundation which economics lacks. This will help the western economy and society and at the same time will help the Asian giants not repeat the same mistakes made by their western counterparts. I hope Sunstein reads his own book before getting carried away by passions and good intentions. There is lots at stake and we might not a second chance for a long long time to come. I still believe in the paradox of behavioral economics - "It's the only discipline which gets a free ticket to call us, the people "idiots" while making us feel like Einstein's."
Economists being irrational themselves and fascinated by elegant mathematical models lose themselves in the the aura of their omnipotence. Daniel Kahneman and Amos Tversky founders of behavioral economics understood the limits of human rationality and rightly believed good economics begins by upping the human rationality rather than dwelling on the power of the invisible hand. Nudge was a fascinating and simple way to achieve this without any political dissonance. So I was more than thrilled when Cass Sunstein the co-author of Nudge, became the regulatory czar in the current white house. The current liberal government in USA and conservative David Cameron in UK both embracing nudge makes it bipartisan, something hard to find these days. But this article for Jerome Groopmam, author of one of my favorite book, concerns me very much.
"One of the principal aims of the current health care legislation is to improve the quality of care. According to the President and his advisers, this should be done through science. The administration's stimulus package already devoted more than a billion dollars to "comparative effectiveness research," meaning, in the President's words, evaluating "what works and what doesn't" in the diagnosis and treatment of patients.
But comparative research on effectiveness is only part of the strategy to improve care. A second science has captured the imagination of policymakers in the White House: behavioral economics. This field attempts to explain pitfalls in reasoning and judgment that cause people to make apparently wrong decisions; its adherents believe in policies that protect against unsound clinical choices. But there is a schism between presidential advisers in their thinking over whether legislation should be coercive, aggressively pushing doctors and patients to do what the government defines as best, or whether it should be respectful of their own autonomy in making decisions. The President and Congress appear to be of two minds. How this difference is resolved will profoundly shape the culture of health care in America."
and so read on the rest of article to find more.
If not on purpose, there is always the fear of straying away from nudge with good intentions. Good intentions can go haywire and can be myopic. Once they stray from nudge, its not a nudge anymore and becomes partisan. Behavioral economics is already a precarious field and always will be a ridiculed because of its simplicity. Simplicity is its strength. I hope nudge survives since it not only make us more rational but also will increase the rationality in the wisdom of crowds. I see behavioral economics not as a panacea nor as a paranoia but as little foundation which economics lacks. This will help the western economy and society and at the same time will help the Asian giants not repeat the same mistakes made by their western counterparts. I hope Sunstein reads his own book before getting carried away by passions and good intentions. There is lots at stake and we might not a second chance for a long long time to come. I still believe in the paradox of behavioral economics - "It's the only discipline which gets a free ticket to call us, the people "idiots" while making us feel like Einstein's."
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