Take the evolutionary economics pill


Jason Collins


November 1, 2011

Frances Wooley writes:

Economists’ policy recommendations - our ideas about which policies enhance economic efficiency and which ones detract from efficiency - are all based on the idea that individuals know what’s best for themselves. …

But if people’s demands are just a product of framing, salience, and the public prominence of hurty-elbow syndrome, how can we use them to infer the marginal benefits to consumers of consuming health care? How can we make statements like ‘the marginal benefits of health care are less than the marginal costs’? …

If people’s choices are not a reliable guide to their well-being, you have to turn to something else. Ask people how happy they are and measure well-being in terms of happiness. Evaluate health care spending by looking at objective measures of health, such as mortality, morbidity, or survival rates. Chuck out the entire elegant theoretical framework of welfare economics.

That idea has me, for one, reaching for the blue pill - after all, people aren’t stupid, so standard economic analysis isn’t a bad approximation of the real world, is it?

But I can’t find one. I can’t get all of that behavioural stuff outside of my head.

I want a purple pill - a merging of the red and the blue - that would allow me to merge behavioural insights into a coherent model of economic behaviour.

(Evolutionary economics - and other research programs that explain why humans behave the way they do - might have some promise as a purple pill).

Behavioural economics is going to continue to be attacked as a discipline until more of the results are placed in a conceptual framework. One of my favourite wikipedia pages is the list of cognitive biases - yet the nature of this list hints at the underlying failure to develop the framework in which they fit.

HT: Arnold Kling