Tag: behavioral economics

Robert Shiller on narrative economics

Listening to Robert Shiller’s online lectures, I’ve often half-written him an email in my head on some point. I distract myself and have to rewind. If you go to the “Drafts” folder in my brain, a third of them are to Robert Shiller.

Essentially, I wanted to tell him something about the humanities. I’m not sure what. Maybe just that the humanities exists. Professor Shiller can be quite perplexing. On the one hand, he’s a hugely influential figure in behavioral economics, and behavioral economics is the field with a great track record in confronting the more brutal absurdities of mainstream economics. On the other hand Shiller still is, frustratingly, very much an economist.  Although behavioral economics may ameliorate some of the features of scientistic finance and economics which humanities scholars tend to find so frustrating, it never goes nearly far enough.

So I’m happy to see this article from him!

Behavioral economics was economics with an input from the psychology department. Every department has its own tool kit for approaching research; we were very much influenced by psychology. Maybe a little sociology, maybe a little anthropology, but nevertheless all social-science fields.

I’m starting now, with my more recent work, to think that we have to look at the humanities as well. There is something difficult to formalize about human beings, but something that we nonetheless have to understand, and I think one way to do that is with an approach that I’m calling “narrative economics”: taking economics and adding the study of the narratives that people transmit.

If Shiller is serious about narrative economics, he may want to give poststructuralism a whirl, and see if he can shake the set of intellectual habits that make “human instinct for storytelling” seem like an appropriate way of introducing an endeavor of this kind.

But it’s another step in the right direction …

See also: Shiller’s ‘Narrative Economics’ paper (2017).

 

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Paper: The Priority Heuristic: Making Choices Without Trade-Offs, by Eduard Brandstätter, Gerd Gigerenzer, and Ralph Hertwig

ABSTRACT: Bernoulli’s framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, we generalize the framework of fast and frugal heuristics from inferences to preferences. The priority heuristic predicts (i) Allais’ paradox, (ii) risk aversion for gains if probabilities are high, (iii) risk seeking for gains if probabilities are low (lottery tickets), (iv) risk aversion for losses if probabilities are low (buying insurance), (v) risk seeking for losses if probabilities are high, (vi) certainty effect, (vii) possibility effect, and (viii) intransitivities. We test how accurately the heuristic predicts people’s choices, compared to previously proposed heuristics and three modifications of expected utility theory: security-potential/aspiration theory, transfer-of-attention-exchange model, and cumulative prospect theory.

Read the full paper.

Excerpt: Amartya Sen, “Rational Fools: A Critique of the Behavioral Foundations of Economic Theory”

It is possible to define the interest of a person in such away that in every single decision they make they are seen to be following their own interests.

Amartya Sen, “Rational Fools: A Critique of the Behavioral Foundations of Economic Theory,” in The Self and the Political Order, ed. Tracy B. Strong (New York, 1992), p.121.