The behavioral foundations of Austrian economics (original) (raw)

Behavioral economics and austrian economics: lessons for policy and the prospects of nudges

Journal of Behavioral Economics for Policy, 2017

This paper draws on Austrian Economics contributions and its criticism of interventionist policies and programs to assess the prospects of Behavioral economics nudges and libertarian paternalism in a world where fallible knowledge is pervasive. We go on to argue that one of the main problems underlying behaviorally informed regulations and nudging in the real world is epistemic. This is largely so because policy makers tend to underestimate “the importance of the knowledge of the particular circumstances of time and place” and their own cognitive limitations. It concludes with two advices to policy makers and regulators. One is that decisions over nudging are to be made on a case-to-case basis. Another is that it is worthwhile to dig deeper into specificities of institutional environments suggesting under which conditions nudges can(not) deliver what they promise

Revision or Revolution? A Note on Behavioral vs. Neoclassical Economics

SSRN Electronic Journal, 2018

Behavioral economics, the analysis of economic decisions, has made enormous progress over the last decades and become accepted as a major field in economics. How is behavioral economics to be compared to the neoclassical model? As a revision of the neoclassical model enhancing the set of variables for motivation such as fairness in the utility function which is then to be maximized? Or is behavioral economics a revolution, a departure from the neoclassical axioms, a new model? This paper argues that many of the findings in behavioral economics are incompatible with the neoclassical model and have paved the way for a revolution in economics.

Behavioral and Experimental Economics Can Inform Public Policy: Some Thoughts

2009

Experimental and behavioral economics are well established branches in the economic science. This essay presents and discusses some results and behavioral regularities from these fields which are of potential importance for public policy. After a brief introduction of what experimental and behavioral economics is, some behavioural regularities as presentation and framing effects, pro-social behavior, and reciprocity are introduced and it is reported how they interact with prominent trading institutions, taxation, and social and individual well-being. Throughout some implications for public policy are discussed. JEL-Code: C90, D00, H00.

Austrian economics and value judgements: a critical comparison with neoclassical economics

Icer Working Papers, 2003

The article points out the limits of Austrian economics in so far as the passage from positive to normative economics is concerned. We propose a comparison with neoclassical economics and discuss the different theoretical solutions adopted by these two schools of thought in their legitimization of the normative discourse. The bridge from positive to normative economics is analyzed as resting

Behavioral economics research and the foundations of economics

Five propositions on which economists and psychologists including behavioral economists are in agreement are presented, leading to a discussion about two kinds of rationality. After some comments on methodology and on concepts of fairness, I will discuss the question of wealth maximization versus the economics of survival, and their different implications for behavior.

As-If Behavioral Economics: Neoclassical Economics in Disguise?

SSRN Electronic Journal, 2000

For a research program that counts improved empirical realism among its primary goals, it is surprising that behavioral economics appears indistinguishable from neoclassical economics in its reliance on 'as-if ' arguments. ' As-if ' arguments are frequently put forward in behavioral economics to justify 'psychological' models that add new parameters to fit decision outcome data rather than specifying more realistic or empirically supported psychological processes that genuinely explain these data. Another striking similarity is that both behavioral and neoclassical research programs refer to a common set of axiomatic norms without subjecting them to empirical investigation. Notably missing is investigation of whether people who deviate from axiomatic rationality face economically significant losses. Despite producing prolific documentation of deviations from neoclassical norms, behavioral economics has produced almost no evidence that deviations are correlated with lower earnings, lower happiness, impaired health, inaccurate beliefs, or shorter lives. We argue for an alternative non-axiomatic approach to normative analysis focused on veridical descriptions of decision process and a matching principle -between behavioral strategies and the environments in which they are used -referred to as ecological rationality. To make behavioral economics, or psychology and economics, a more rigorously empirical science will require less effort spent extending 'as-if ' utility theory to account for biases and deviations, and substantially more careful observation of successful decision makers in their respective domains. B nomics with «more realistic assumptions» is perhaps the guiding theme of behavioral economists, as behavioral economists undertake economic analysis without one or more of the unbounded rationality assumptions. These assumptions, which count among the defining elements of the neoclassical, or rational choice, model, are: unbounded self-interest, unbounded willpower, and unbounded computational capacity.

Essays in Behavioral and Experimental Economics

2006

Behavioral economics aims to provide more realistic psychological foundations for economic models. Experimental methods can contribute to this effort by providing the ability to identify causal processes and motivations that can be confounded in field settings. The essays in this dissertation examine three critical issues in behavioral economics using lab and field experiments. The first two essays examine two core elements of economic rationality; expected utility theory and Bayesian updating. The essays consider, respectively, ambiguity, and information cascades, in environments in which limitations of the theories can be studied. The third essay examines a contracting game in which other-regarding preferences are explicitly considered. Decision making under ambiguity has been of interest to economists since the 1920's (Knight (1921), Keynes (1921)). It has received renewed attention due to the work

Normative behavioral economics

The Journal of Socio-Economics, 2003

This paper addresses the question of why, in spite of its recent success, behavioral economics does not influence most discussions about how economic policy ought to be made. Failing to penetrate into contemporary discourse on leading policy issues is a serious problem, because behavioral techniques often point to policy prescriptions that are at odds with the prescriptions which follow from models using more standard behavioral assumptions. By comparing how the universe of possible policy implications changes when different methodological approaches are used, this paper demonstrates a systematic link between methodology and the range of policy prescriptions that can be socially desirable. Because of this link, the methodological multiplicity of behavioral economics, and the ideological pluralism which it supports, favor the use of normative behavioral economics. This follows from the basic economic principle of diversification: a policy prescription that reflects averaging over a number of distinct kinds of errors (one for each methodology) is less likely to wander far off target than one generated by a single method.