Behavioral Economics Doesn't Have to Be a Total Loss: Allison Schrager
Behavioral economics is facing a reckoning.
For a few decades, the idea of applying human psychology to economics made a dry subject hip and relatable. Before, the field seemed out of touch, full of abstract models that started with the assumption that people would act rationally based on a universal desire to make widgets and get more stuff.
But along came a generation of economists and psychologists with tales of how crazy we all are and how bad we are at understanding risk. The seductive implication was that wise technocrats could use this knowledge to shepherd the irrational masses into better, or at least commercially viable, behavior.
Now that thinking is looking overrated, as is the idea people can or should be tricked into making better decisions when confronted with risk. Behavioral economics went too far, was oversold, misused and abused. But it's not irredeemable. Among many other lessons, the pandemic has made it clear that instead of goading people into certain behavior, we're better off using the same insights to help people make better choices for themselves.
Economists are often reminded by well-meaning friends and strangers that economics is flawed for assuming people are rational when they're not. It's not always clear what these skeptics mean by rational — often it's a propensity for making bad decisions. And there’s truth in that. People struggle to make sense of probabilities, especially in the midst of uncertainty. Just look at the difficulty most people have had understanding the effectiveness of Covid-19 vaccines.