Caveats Concerning Behavioral Economics
Check this out. What you will find is a very well-reasoned and important piece penned by Koen Smets, the “organization development adviser” pictured here.
As you know, Behavioral Economics has become a really big thing within the hallowed halls of many pharmaceutical companies. Consultants pushing BE principles have been scoring especially big with marketing and marketing research departments, many of whom have come to believe that these principles will help them to understand their customers better and to market to them more effectively.
No doubt, Behavioral Economics constitutes an important step beyond classical economics in understanding how people make decisions. BUT, as Koen sagely points out, we must interpret its principles with great care. For example, among the many misinterpretations he debunks is the belief that many people hold that BE principles like biases and heuristics, cause people to do things. Or explain their behavior. Rubbish. Think about it. How would that actually work? It wouldn’t. Biases and heuristics are just labels for behavior that people exhibit.
Smets also debunks the perception that there are a multitude of Behavioral Economics interventions, “nudges,” that individually have huge impacts on human behavior. He points out that if this were actually true, it would be like having an aquarium filled with piranhas. The behavioral nudges would cancel each other out, just as the piranhas would busy themselves eating each other.
One of the most surprising and bothersome “debunkings” pertains to some of the “experiments” that have been conducted to support the principles of Behavioral Economics. Hundreds of them! Reported across all the books that make up the BE literature. Only problem, Smets points out, is that typically small sample sizes were utilized, the researchers were biased to interpret the results in a particular way, AND attempts at replicating the results of many of these studies have failed. Miserably.
As I read this article, I was also impressed with the fact that BE deals only with “one off” decisions. It does not deal with longer terms, habitual behavior. This is sort of unfortunate, since habitual behavior actually makes up the majority of what we do every day.
Oh, and “Just one more thing” as Detective Columbo used to say. But it is an important thing. Reading this piece reminded me that ALL of the Behavioral Economic books have a very negative view of human behavior. We’re irrational, lazy, selfish and misguided. We bring to our behavior all kinds of “biases” and try to sleaze in our decision making by using “heuristics.” Somehow, Behavioral Economists seem to believe that there is an absolute standard against which our behavior should be judged, and up against which we are failing. Miserably. I am voting “no” on that belief!
Bottom Line. Sometimes I tell you to simply skim one of the URL’s that I refer you to. Not this time. There is a lot of important information in this article. Read it. Think about it. Behavioral Economics has made major steps to take us beyond Classical Economics and its “rational man” model of human behavior. HOWEVER. Its contributions are often wildly misunderstood and overestimated!