Knowing and Making

It seems that some people from outside behavioural economics are, like me, getting frustrated with the lack of progress within the field. Eric Falkenstein says here : I read Kahneman, Tversky and Slovic's Judgement under Uncertainty in the 80's (published 1982), which mainly discussed a series of papers published in the 1970s, and found it fascinating, but now it's now 30 year old stuff and pretty boring. There's a couple hundred academically based confirmed biases which are all kinda true, but not very profound This part of the posting is quite right. A commenter at the bottom sums up the problem with state-of-the-art behavioural "economics": Behavioral economics is not economics but psychology. It focuses on individuals instead of exchanges and markets. Economics makes assumptions about actors to make market predictions. BE makes predictions of actor choices just like psychologists. The question BE must address is how do biases create market conditions. ...

Eric Falkenstein has an interesting post  which highlights some of the problems in the study of behavioural economics (in this case, behavioural finance). I have to agree with his premise, though my conclusions are a bit different. I've just reread some of Nudge  and am partway through Animal Spirits . Both books cheerlead for the behavioural cause - though in each case, one author - Thaler and Shiller respectively - seem to be much more closely associated with it than the other - Sunstein and Akerlof. However both books exemplify the problem that Falkenstein identifies. The field is full of effects without explanations. You can easily list a whole string of cognitive biases which can be easily demonstrated - I show the effect directly to audiences in presentations, by running a price anchoring experiment. But the behaviourists rarely seem to propose a good underlying model of how these effects arise. Having just completed another book, The Making of an Economics, Redux , I can see...