Left and Right united against Behavioural Economic Policy

Chris Dillow is my second favourite Marxist after Jon Elster. He here critiques Tim Harford on behavioural economics and economic policy.

Tim Harford's brilliant essay on behavioural economics highlights an ideological bias in the way the subject is used.

What I mean is that he presents it as "a hot idea for policy makers". This underplays two things.

One is that politicians themselves might be as prone to cognitive biases as the public. Indeed, it's possible that they are selected for such biases - because the overconfident are disproportionately likely to enter politics and because irrational consumers are likely to make irrational voters. The image promoted by behavioural economics (or its users) - of rational policy-makers operating upon irrational subjects - is therefore questionable.

The other is that there's an alternative use of behavioural economics. It could serve an educational function - of telling consumers what errors people commonly make, and of warning them against them. A lot of my day job is just this.

I made much the same suggestion in my review of Dan Ariely's book for the Christchurch Press. As a self-help guide, behavioural economics is really valuable. As a guide for policy, a bit less so.

Behavioural economics gives economists the chance to live up to Keynes' ideal of them, as dentists giving humble competent advice. And it's a chance they are blowing.

Now, you might reply here that it has always been so, Economics has long been pompous white men in suits speaking to other pompous white men in suits, rather than a dialogue with the public. That's true. But there's a big difference between telling politicians "people are rational maximizers so leave them alone" and telling them "people are stupid and here's how you can manipulate them."

In this context, there's both similarity and contrast between users of behavioural economics and Marxists. Both believe that ideology or cognitive biases (they're much the same) stop people pursuing their best interests. Where they differ is in how they respond to this. Marxists think people should be educated out of ideology and therefore empowered: "theemancipation of the working class must be the work of the working class itself”. Most users of behavioural economics, by contrast, see cognitive biases as just more policy tools, and thus ways of empowering rulers. But it needn't be so.

Strongly endorsed.