Rocking the boat with behavioral economics

Economics orthodoxy may look down on behavioral economics, but it's the most important development in economics in a long time.

Ajit Solanki / AP
Indian girls on a boat, return with drinking water collected from Nal Sarovar, a wetland bird sanctuary, 64 kilometers (40 miles) west of Ahmadabad, India, on Wednesday. Guest blogger Mario Rizzo writes that behavioral economics rocks the boat of economics orthodoxy.

It seems as if it has become increasing common for bloggers who are also academics to post the syllabi of courses that may elicit some general interest. In that spirit I post my syllabus for a graduate course in behavioral economics here. Behavioral Economics 2011 Course

Despite some rhetoric to the contrary, academics are a very conservative group. They (me too?) hate disruption of their research agendas by young upstarts who rock the boat. Where is the respect for their elders who have given the best years of their lives to orthodoxy? From the orthodox perspective, behavioral economics is, I should think, especially unpleasant. Luckily, I do not consider myself a part of an economics orthodoxy.

A few observations are in order. First, I believe that behavioral economics, interpreted broadly to include experimental economics, is the most important development in economics in a long time. To a large extent, it stands as a challenge to standard economics, including Austrian economics. It challenges the revealed preference approach of neoclassical economics, especially as developed by Samuelson, but also as amended more recently by others. It also challenges the Austrian view insofar as Austrians have also eschewed psychology in their elaboration of the theory of value and choice. As readers of this blog will know, I have been critical of Ludwig von Mises’s approach to rationality which makes irrational action impossible, by definition. Behavioral economics is causing us all (or should be) to think more deeply about rational decisionmaking.

Second, there are many areas in which behavioral economists have set the agenda and to which others are simply responding. This included the recent boom in policy recommendations under the rubric of paternalism or the malapropism “libertarian paternalism.” I am exasperated at the superficiality of the work here.

Third, most courses in behavioral economics are by practitioners who want to convey to students their excitement about the field and the new revolutionary framework to which they are contributing. I am trying to do something different. I am trying to get graduate students both to learn behavioral economics and to evaluate the whole paradigm with a rigorous critical eye.

I hope teaching this course will increase my own insights and understanding of not only behavioral economics and its neoclassical opposition, but also perhaps will help me find a new way of dealing with the issues raised by both schools of thought.

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