Neuroeconomics: big, fat hoax or no big deal?

missmarketcrash kindly alerted me today to Paul B. Farrell's hilarious screed on Marketwatch: "Five reasons neuroeconomics is a big, fat hoax".

I thought this was laughable all the way through. Let me just show the highlights:
  1. Page 1: "all their books are based on junk science, anecdotes, broad conclusions from small samples". Page 2: "Remember, 88% of our behavior is driven by the subconscious". This spuriously precise assertion is even worse than the "Only 7% of communication takes place through words" mantra beloved of marketing consultants everywhere. Do some research, folks! Understand the scientific method!

  2. Page 1: neuroeconomics doesn't work. Page 2: Wall Street is using neuroeconomics to con us out of hundreds of billions of dollars a year. Which is it, Paul?

  3. Equilibrium economists are mostly Republicans. Behavioural economists are mostly Democrats. Therefore both of them must be wrong. Huh?

  4. "Neuroeconomics: call it whatever name you want, they're all the same: Behavioral finance, psychology of investing, behavioral economics, the 'new science of irrationality.'" Admittedly this is a commoner misconception than it should be, but it's still nonsense. These categories are all distinct and clear - except for the 'new science of irrationality' which I think Paul made up.

  5. "Neuroeconomics is based on a false premise: That 'irrational investors' can teach themselves to become 'less irrational.'" Let's forget for a minute that this is precisely not the teaching of neuroeconomics - which attempts to identify fixed and (relatively) unchangeable brain wiring. Actually it's behavioural economics which has specifically found that people become more rational (in the conventional economic definition) when they have more time to think, and when their cognitive biases are pointed out to them.
And without even touching on the erroneous inclusion of books like Blink and Freakonomics in the behavioural economics literature, or the mischaracterisation of Richard Thaler's criticism of Wall Street as being an endorsement of it, or the amazing overblown language: "financial weapons of mass destruction", "like a CIA intelligence team", "all economists'...opinions are up for sale", I will give you one final quote.

this "virus" invaded everyone, including working economists in business, academia, regulators, risk assessment officers, think tanks, and a naive public, creating a "herd behavior, where everyone follows the crowd, giving rise to bubbles, panics and crashes [and] extreme instability" from the dot-com crash to the recent bank-credit meltdown.

Unfortunately, economists, quants and neuroeconomists mastered this numbers game so beautifully...
If only this were true. Economists wish they could have such power.


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