Abstract
A core insight from early economics is that much of human judgment and behavior is influenced by fast that is intuitive, associative, and automatic; very little human thinking resembles the rational thinking that characterizes homo economicus. What is less well-recognized is that innate reliance on cognitive shortcuts means that cultural mental models --categories, concepts, social identities, narratives, and worldviews -- profoundly influence judgment and behavior. Individuals have a cultural toolkit or repertoire of mental models that they use to perceive and interpret a situation and construct a response. Many researchers have connected cultural mental models to economic development, yet they rarely identify their research findings as behavioral economics. This research constitutes a second strand of economics that illuminates the tight interlinkages between preferences, culture, and institutions and points to new policy opportunities. It brings the discipline almost full circle back to 18th and 19th century perspectives. This essay cautions against strong reductionism in which sociological influences on decision making are squeezed into a rational actor model.
Highlights
A core insight from early behavioral economics is that much of human judgment and behavior is influenced by “fast thinking” that is intuitive, associative, and automatic; very little human thinking resembles the rational thinking that characterizes homo economicus
A shorter version of this essay will appear in History of Political Economy 50 (2018) as part of a special issue on The political economy of development economics: A historical perspective, edited by M
From the earliest work in economics, many writers recognized that people are not always rational and that institutions and cultural contexts shape their character (Smith, 1982 [1759]; Hirschman, 1982)
Summary
From the earliest work in economics, many writers recognized that people are not always rational and that institutions and cultural contexts shape their character (Smith, 1982 [1759]; Hirschman, 1982). It shows that asymmetric information and costly enforcement explain the emergence of non-market institutions. It has given rise to ‘behavioral development economics’: 7) Behavioral development economics— Behavioral development economics studies problems of economic development using psychologically realistic models of both decision making and preference formation, rather than rational choice theory.
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