Behavioral Econ

Check out this insightful (imo) take on how behavioral economics can address normative questions. It argues against assumptions of people as hyper-rationalistic agents as bases for economic models.

I suspect this tendency is true at a layman level as well. On one hand (normal) people understand and rationalize what is considered (- and all too common in conversations -) “human nature”, but when posed normative questions, people apply rationalistic principles. I think this also contains a pointer to how people’s responses to hypothetical scenarios from questionnaires do not necessarily represent their behaviour when actually faced with said situations. Example: A lack of sales of goods for which people indicated demand in market surveys.

(Also, this paper made me speculate a bit on how hypnosis works.)

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4 comments
  1. pseudopseudointellectual said:

    One of these days I will actually read through one of the papers that you link to – they are interesting! But a 34 page academic paper makes for heavy reading!!

    “Are humans rational?” is a very interesting question. I would like to know how you define rationality. Is it uniform across the human race? Is it even definable (or worthy of definition) outside of an economics or game theory text?

    Having said that, as a layman I find it easy to hypothesize and answer questionnaires, because it doesn’t hurt! Real buying decisions are much more thought-through.

  2. Unawoken said:

    Hi pseudopseudointellectual,
    Please do. Unfortunately, I’ll be doing a disservice if I rephrase the original or summarise it. I will bring my biases to the table, am sure to misinterpret, colour, simplify and commit a dozen other transgressions.

    I am looking to package my understanding of rationality. I have searched for a good definition that I feel represents what I want to say. Part of the issue is that I have not yet crystallized/developed my own thoughts on this. The definitions I have encountered have way too many subtexts that I feel makes them hard to understand. Anyway, enough of digression.

    Basically, to start to talk about rationality, I think a primary consideration is how you deal with evidence. If evidence for a hypothesis makes you more inclined to believe in it [and (weakly) absence of evidence, or(strongly) evidence to the contrary hypothesis makes you not believe in the thing], then you are rational, otherwise you are not. For example, consider attitude polarization instances cited here: http://en.wikipedia.org/wiki/Attitude_polarization. So this is a (the – in a general sense) sense in which people are irrational.

    I do think it is worthy of definition and has practical usages and implications. See for example my post following this one.

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