Tim Harford: "...[was too fascinated with] behavioural economics. But the financial system did not fail because of some psychological trait, but because it was riddled with damaging incentives"But behavioural economics is not about moralising, nor is it about blaming individuals for making mistakes in the hope that they won't make them again.
In other words, let's get over evil bankers and the belief that moralizing will change the world, and let's focus on incentives.
It's about understanding why and how people behave the way they do; so that when we do design incentives, they will work.
Of course people respond to incentives. What else would they respond to? But if you think they respond consistently, transitively, stably, and (in the technical economic definition) rationally*, to incentives, you'll be sorely disappointed.
Even the most famous examples of Nudge-style policymaking: choice architecture (the salad at eye level), pension or organ donation defaults, or the fly in the urinal: all of these are incentives. Cognitive incentives, which in many cases are more influential than traditional material incentives. But more important is the combination of the two. Any material incentive, because it has to be communicated to people in order to affect their behaviour, must carry with it a cognitive incentive of some kind.
If you want to design the right incentives for the financial system, or the business you run, or your family or yourself, what could be more important than knowing exactly how people will react to them?
* Note that just because people aren't rational, doesn't mean they are irrational or, for that matter, unpredictable. More on that another time.