Welcome back to our eighth and final post on Pros and (E)cons! It’s been an amazing ride getting to this point, learning about everything from the purpose of government to the flaws in the argument to raise the minimum wage. I hope that you have enjoyed reading these posts and have maybe been able to take something away from them. Today, I would like to use our last post to talk about a topic still in the works. Yes, ground-breaking economics research that could soon politically affect you and me! This is, of course, the field of behavioral economics. More specifically, I will be focusing on describing the revolutionary advancements made by Daniel Kahneman, Amos Tversky, and Richard Thaler.
You may first be asking yourself, “What is behavioral economics? And why’s it important?” Well, behavioral economics takes economic theory and combines it with elements of psychology. Through the implementation of psychology, economists can begin to study the effects that human thoughts and behavior have on economic decision-making. Since one of the main assumptions of economics is that humans are rational and always act in their best interest, this has allowed for some interesting insights. Despite still being in its infancy, behavioral research has already begun to prove that humans, at times, are irrational creatures. This stems from the unique way in which the human mind is wired.
The field of behavioral economics is relatively new. Though the seeds were planted as far back as in Adam Smith’s The Theory of Moral Sentiment (1759), the field only started to bud in the 1970’s through the research of Amos Tversky and Daniel Kahneman (Kahneman would go on to receive the Nobel Prize in Economics in 2002 for his findings). In their combined research, they cowrote Judgement Under Uncertainty: Heuristics and Biases (1974) among many other papers and works. This book outlined the concept of heuristics, which are evolutionary mental shortcuts that allow us to make quick decisions. Unfortunately, these shortcuts can sometimes cause judgement errors which make our decisions irrational. Some of the heuristics that Tversky and Kahneman discovered were the availability, anchoring, representativeness, peak-end, and loss aversion heuristics. They are all very interesting and I encourage you to explore how they work. Many years later, Dr. Richard Thaler picked up where they had left off, further investigating the irrationality of human thought and behavior. Thaler discovered and formed the idea of mental accounting, but most importantly, he worked on developing the useful applications of behavioral economics and heuristics. He would go on to win the Nobel Prize in Economics in 2017.
Now that we have learned about behavioral economics and some of the leading researchers in the field, why should this matter to us? Due to the fact that the primary assumption of economic theory has fallen apart, how does this really help us? First, it helps researchers and the American public to better understand how economics and the human mind work hand in hand. Instead of falsely believing the previous assumption of rationality, we can now move forward and come closer to understanding the truth. Second, the field of behavioral economics has opened the door for many beneficial political implications. By further understanding the way the human mind works, the U.S. government can cater to people more efficiently. Dr. Richard Thaler recently brought this to our attention through his best-selling novel Nudge (2009). In this book cowritten with Dr. Cass Sunstein, Thaler details some of the ways in which we can nudge people to make the best decisions. For example, if we would like kids to eat healthier school lunches, we should place the salad bar first and put healthier foods and drinks at eye level, while putting less healthy options at the end and leaving them somewhat hidden. Even at Redifer Dining Commons, we have In a Pickle and Urban Garden right out front whereas City Grill is in the back! Another example has already been implemented. In Europe, Austria has made the switch to an opt-out organ donor program. This means that citizens must opt out of donating their organs instead of filling out the form to become an organ donor like we are required to do in the United States. Compared to Germany, which uses an opt-in system, and its 12% organ donation rate, Austria boasts a more promising outcome. Surprisingly, 99% of Austrian citizens are organ donors! By simply making it easier to be an organ donor through an opt-out system, more people chose to be organ donors. If we were to do this in the United States, we could save many people’s lives. Besides these two possibilities, there are many other ways that we can nudge people in the right direction. I would love to hear what ideas you can come up with in the comments below.
Thank you for reading this post and supporting my blog throughout the semester! I encourage you to learn more about the field of behavioral economics if this interests you. It’s a budding field that’s full of many potentially impactful findings and implementations. Thank you and have a great day! 🙂
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I really like this analysis that brings economics into the ways in which people think. it is interesting to look at the simple choices people make without thinking about it, and then see the economic implications of these choices. Your article explained and analyzed this perfectly!