Why We Do What We Do

Behavioral economics under attack

Here is an interesting article. I have not yet finished reading Nudge (though enjoying it) and Predictably Irrational is next on my to-read list, so it’s difficult for me to refute or support this piece.

http://www.slate.com/id/2283063

I will say that I don’t think it was Thaler & Sunstein’s intent to offer anything more than evidence (at this stage) that the classical economics models aren’t adequate in determining how people actually make decisions. (Have we forgotten LTCM?) I would however be interested in hearing their response to this challenge. I would also add that Thaler & Sunstein do point to “the why”: our Automatic and Reflective Systems (as discussed in the first chapter). We can describe these systems quite well, in fact – they do in the text – and there is considerable evidence to believe they are accurate models of how we think

http://www.scientificamerican.com/article.cfm?id=of-two-minds-when-making

Curious if Pinker would agree, but I digress.

Gigerenzer and Berge are not wrong in their complaint; we do not have a complete description of our decision making system – there is no equation we can write down that says this is exactly how we behave. I guess the question is, do we need it to gain insights? (I would say no.) Is it sufficient to design experiments to test these black boxes that are our Automatic and Reflective Systems? (I would say I don’t know.)

Anyway, Gigerenzer seems to have something interesting to say: “Gut Feelings” looks like an interesting read and will end up on the wishlist:

The key concept—rules of thumb serve us as effectively as complex analytic processes , if not more so—is simple to grasp. Gigerenzer draws on his own research as well as that of other psychologists to show how even experts rely on intuition to shape their judgment, going so far as to ignore available data in order to make snap decisions. Sometimes, the solution to a complex problem can be boiled down to one easily recognized factor, he says, and the author uses case studies to show that the Take the Best approach often works.

I’m going to have to add Basic Instincts to my wishlist, too, since it was mentioned in the article along with Nudge and Predictably Irrational, besides also looking interesting. (I am humored that this article actually “nudged” me to add another book on the exact topic it’s trying to refute!) If any of you would like to borrow Nudge (or anything else on this or related topics, for that matter), let me know.

Cheers,

Ken