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Mario Rizzo reflects on the newly minted Economics Nobel laureate, Richard Thaler, and behavioral economics
From Cafe Hayek.
"Nevertheless, the emphasis on the limits of the standard
rational paradigm, as pioneered by Thaler, has been a very refreshing
and useful thing. And yet behavioral economics remains wedded to
this narrow conception of rationality as a normative and prescriptive
standard of evaluation. It drives the critique of many market
outcomes and is the basis of policy prescriptions. It is precisely
because people are not narrowly rational that their behavior must be
fixed. Their behavior must be taxed, regulated or nudged in the
direction of the behavior of the perfectly rational neoclassical man.
For example, it is alleged that people are obese because they fail to
take “full account” of the negative effects of their unhealthful eating
habits. What is full account? They must reckon or discount these effects
at the rational rate of discount – the long-run rate, the rate one
would use if one were super-rational and calm in making a diet plan to
be implemented in, say, six months or a year. But how the agent looks at
things now, at the moment of deciding what to eat, is wrong. It is
impetuous. It is “present biased.” The individual needs help. And, in
practice, it is the government’s help.
Aside from the policy implications, there is an incredible irony
here. Standard economics is mocked for its rationality assumptions and
yet those assumptions are held up as an ideal for real human beings."
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