A concise, scholarly account of the rise of behavioral economics and its theoretical advantages.
Since economists have traditionally presumed the rationality of the actors they study, the recognition of the limitations of this approach could be attributed to the limitations of reason itself. But in his first book, Schwartz discusses the ways in which behavioral economics, which focuses on the context of decision-making in all its variables, captures the exercise of reason in real human experience. For example, behavioral economics appreciates the impact that preferences, both rational and irrational, have on human judgments. Also, the study of “heuristics,” or the ways humans use various abridged strategies to understand a particular circumstance and make quick calculations, can significantly affect the choice made. Even if decision-makers ultimately identify that maximizing utility is their overarching goal, how this is interpreted precisely can vary broadly. What emerges is a reflection not only on how emotion and reason interact with each other, but also a look at the way emotion itself has rational content. “What traditionally have been regarded as emotional factors weigh heavily in decision making,” Schwartz writes, “and can be important in triggering decisions to use cognitive calculation as well as in the more commonly cited inclinations to counter cognitive reasoning.” Ultimately, the author contends, human choice is swayed by several factors, like altruism and bias, that are difficult to reduce to simple irrationality. He furnishes a short history of behavioral economics, which dates as far back, in one iteration or another, to Adam Smith. Additionally, Schwartz discusses the way in which paternal libertarianism, in which the government attempts to “nudge” its citizens toward better assessments, completes the gradual transformation of behavioral economics into a normative discipline. This is essentially a long academic paper as opposed to a full-length monograph. While written in generally accessible prose, this work will primarily appeal to those with a more specialized interest in economics. But this could still serve as a brief, effective introduction to the subject for the educated layperson as well.
A thoughtful examination of the state of behavioral economics as well as a defense of human rationality.