Criticisms of behavioural theory

News


House price latest

House prices up by 6.9%.

Read more
Model agencies collude to fix rates

Regulators find leading model agencies guilty of price fixing.

Read more

Criticisms of behavioural economics

Critics of behavioural economics offer several arguments against the application of behaviour economics to public policy. Firstly, the use of small nudges might not be as effective as more traditional blunt-weapon policies, including raising taxes to deter unwanted behaviour.

Small nudges are not enough

There is school of thought that many of the well-established and tried and tested policies which behavioural economics has challenged (by suggesting that small nudges are better than large scale interventionist measures) provide more effective types of behaviour change. For example, some argue that higher fuel taxes yield a better result than small nudges towards better environmental decisions.  Other critics argue that much of the impact of nudge-type policy is short term, and does not lead to long lasting changes in behaviour.

Gerd GigerenzerOne of biggest critics of behavioural economics, Gerd Gigerenzer, of the Centre for Cognition and Adaptive Behaviour at the Max Planck Institute is critical that, paradoxically, the default view of behavioural economists is that humans are generally easily manipulated and easily yield to biases and distortions. He goes further to suggest that decisions based on heuristics and rule of thumb influences can be just as valid as those shaped by a more rational approach. What Gigerenzer proposes is that individuals are provided with more opportunities to learn the skills of critical thinking, especially when making complex financial decisions, as well as promoting the use of risk averse rules of thumb like ‘if it sounds too good to be true it probably is’.

The problem with experiments

A further criticism is that interventions suggested by the results from controlled lab experiments may not necessarily work as effectively in the real world. Small nudges might work well under controlled conditions, but will be subject to much more 'interference' when tried in 'live' situations. It is possible that the effect of subtle nudging is so small that governments  have to spend much more money implementing such policies in comparison with traditional policies. 

Conclusion

Despite criticisms of the use of behaviour economics to shape policy, one clear effect is to raise the value of the importance of controlled experiments prior to the implementation of a new policy initiative. There is also a feeling that behavioural economics has regenerated interest in economics, and in public policy, and to this extent it is making a significant impact on economic theory and policy.

See Also:

Bounded rationality

Decision making bias

Bias in financial decisions

Decision making systems

 


Alternative finance

Report on the growth of alternative finance.

Read more
GDP latest

UK grows by 0.3% in 1st quarter of 2017.

Read more
Customs unions

Costs and benefits of customs unions.

Read more
New materials

Multiple choice papers for Paper Three.

Read more
Brexit update

Article 50

What trading options are available to the UK?

Savings ratio

Savings ratio falls to lowest level on record.

Read more
Tax avoidance

Double Irish - and a Dutch Sandwich more..

The OECD presents its final package for reform of international tax rules..more

OECD - reducing income inequality will boost growth..more