Economic Psychology

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Economic Psychology

How and why markets aren't rational. Navigational tips for charting the Bermuda Triangle of human economic behavior.




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No, it's not "GPS for Human Behavior:" Keeping BE real.
 
It should be self-evident that financial behavior is a subset of human behavior, and - as such - it is rich with nuance and meaning. Certainly, it is self-evident that most of that meaning lies unplumbed, or at least, unarticulated.

When I first stumbled on the field now known as behavioral economics (BE), or economic psychology (EP), it did not yet have a name. This is not to imply that it did not exist: it has always existed, but not as a respectable field of academic inquiry. That began to change in 2002, when psychologist Daniel Kahneman, and colleagues, won the Nobel Prize in Economics for their work on decision making under uncertainty.

... Which brings me to the comment alluded to in the title of this post: A tweet by Richard Thaler:










Recently, Behavioral Economics has become a meme, which means that it has been reduced to an easily-transmissible idea-unit, shorn of its depth and complexity. One reason for its current popularity, I fear, is its ease of use as a gimmick. Frequently, I am contacted by people/companies that want to use BE~EP knowledge to more effectively manipulate others to do what the user wants them to do. Although many of those I speak with believe they are influencing people to do things that are "good for them,"* others' goals are anything but pro-social, from convincing consumers to apply for credit cards that charge above-market interest rates to "nudging" contractors into accepting reduced compensation. The use of BE in marketing is all the rage, or so it would seem. I'm not suggesting that market is evil or that an understanding of the drivers of financial behavior should not increase a company's effectiveness: it's just that there is so much more to this field than meets the eye. For example, the research shows that social influence techniques work best when implemented ethically (with one exception: when you lie about whether you like or admire someone, it still works).

In short, the knowledge generated by centuries of inquiry and experimentation in multiple disciplines should not be reduced to a list of mental quirks that can be used to influence behavior. One more thing: nobody should claim, or allow themselves to be described as, "the father of behavioral economics." First, this begs the question: Who's the mother? Second, BE~EP, or whatever one calls it, has many ancestors. It is not new - it is newly respectable. The field's respectability is a wonderful thing, which should open it - to further inquiry, to diverse points of view, and to voices not hitherto included in the conversation.

* A contemporary version of "the white man's burden?"

 Plus ça change...
Plus ça change...
Source: Macalester College

Amuse-bouche: My answer(s) to: "What are some mind-blowing facts about behavioral economics?"