Abstract
Abstract This paper examines the research area identified by Frey and Gallus (Aggregate Effects of Behavioral Anomalies: A New Research Area, 2014) and the relationship between it and the choices that economists make. It supports the Frey and Gallus view that, as a consequence of individuals employing external inputs rather than relying upon their own judgemental capacities, the quality of decision-making may differ at the market and macro levels from what has been observed in laboratory experiments. It seeks to forestall potential moves by rational choice theorists to argue that such processes, imposed by competitive pressures, will swiftly eliminate anomalous behaviour. But it questions Frey and Gallus’s use of conventional rational choice theory as the reference point for judging the quality of real-world decisions. It argues that choice is an activity based on evolving sets of habits and rules, rather than based on given preference systems, and that Frey and Gallus’s failure to consider alternative reference points is itself a manifestation of anchoring.
Highlights
Frey and Gallus (2014) have made a valuable contribution by highlighting an area where much research is needed, namely, the real-world market- and macro-level significance of human tendencies to behave at odds with conventional rational choice theory
Human fallibility has been studied extensively by psychologists in a laboratory setting, and economists such as Richard Thaler have provided us with many anecdotal examples of individuals seemingly conforming with the heuristics and biases identified in such experiments
I am concerned that the research agenda will not be widely adopted: I fear that mainstream economists may seize upon the core propositions of Frey and Gallus’s paper and use them as a basis for arguing that market processes can be assumed to correct individual shortcomings and that economists should backtrack on their recent openness to the modern behavioural approach. Those who would prefer not to engage with psychology and who wish to conceal their unwillingness to accommodate what psychologists have discovered about the limits to rationality may be expected to say, in effect, that ‘Yes, we know what happens in psychology laboratories, but out there in the real economy human shortcomings will be tempered by social interaction and competitive pressures and it is OK to model consumers “as if” they are fully rational until anyone presents us with evidence that the market process fails to induce rational choices’
Summary
Frey and Gallus (2014) have made a valuable contribution by highlighting an area where much research is needed, namely, the real-world market- and macro-level significance of human tendencies to behave at odds with conventional rational choice theory. I am concerned that the research agenda will not be widely adopted: I fear that mainstream economists may seize upon the core propositions of Frey and Gallus’s paper and use them as a basis for arguing that market processes can be assumed to correct individual shortcomings and that economists should backtrack on their recent openness to the modern behavioural approach Those who would prefer not to engage with psychology and who wish to conceal their unwillingness to accommodate what psychologists have discovered about the limits to rationality may be expected to say, in effect, that ‘Yes, we know what happens in psychology laboratories, but out there in the real economy human shortcomings will be tempered by social interaction and competitive pressures and it is OK to model consumers “as if” they are fully rational until anyone presents us with evidence that the market process fails to induce rational choices’. Such anchoring may ensure mainstream economists are more likely to read the Frey and Gallus paper attentively but, in not canvasing the ideas in relation to alternative views of rationality, the anchored approach makes it easier to construct a case against any major change in core economic thinking
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