The Dismal Science of Richard Thaler

We call it the Nobel prize in economics, but the Nobel that Richard Thaler won last week is technically a prize in “economic sciences,” and that bit of self-puffery (Oh, we’re scientists now, are we?) is fitting. Thaler is a pioneer of behavioral economics, the latest craze to sweep a trade not previously known for its runaway enthusiasms. The craze is scarcely the advance in human knowledge that its practitioners want it to be, but it is a tremendous leap forward in the pretensions to knowledge that an economist can’t do without.

Thaler is a professor at the University of Chicago and the author of countless technical articles and books, as befits a Nobel laureate. He is also a charming writer for general audiences, funny and whimsical, gifts that have helped fuel the craze. Malcolm Gladwell, Jonah Lehrer, and other pop science writers feast on his work and then, like a momma budgie regurgitating for her chicks, present the reading public with a smooth, easily digestible bolus of behaviorism. Thanks to Thaler and his colleagues, many technical-sounding phrases have become popular with the upper classes in America and Europe: the endowment effect, risk aversion, confirmation bias, and so on.

Most of these, when they do describe something real, are just renamings of truisms known to every sensible person since we scratched our way out of the Serengeti. If you think people believe pretty much what they want to believe, a behaviorist will tell you they suffer from confirmation bias. If you believe that a bird in the hand is worth two in the bush, the behaviorist will spy an instance of loss aversion. Now anyone can sound like a Nobel laureate.

All of these biases and effects and aversions (there are also heuristics and functions) have a binding theme: The view of human beings long held by neoclassical economists—that we are rational actors always acting in our own best interests—is hooey. To the contrary, Thaler says, the latest findings of cognitive, social, and behavioral psychology reveal our minds and hearts to be a bundle of misapprehensions. We don’t know what we’re doing half the time! And yet: There is a pattern to the mistakes humans make—the biases and effects are systematic and traceable. Science has proved we’re stupid, but the good news is that we are predictably stupid.

It’s good news to some of us, anyway, especially those in business and government who are in charge of manipulating the rest of us in our best interest. This is a reason why behavioral economics has become so popular. It seems most useful to a particular sort of person. It vastly expands what we think we know about how humans behave, and therefore it vastly enlarges the areas of life in which people can be effectively managed. That’s the theory, anyway. The Nobel economics committee seemed particularly impressed that governments throughout the developed world have impaneled teams of behavioral economists to advise regulators as they set about the task of making us better people. Marketers like it too.

Another reason the fad of behavioral economics has been so quickly taken up has to do with that delicious word cited above: science. Behavioral economics is based on the findings of science. Everybody wants to be scientific nowadays. Oddly, though, this reliance on science may be behaviorism’s undoing, for the science it relies on isn’t from the physical sciences, where hypotheses aren’t considered true until they have been submitted to repeated and rigorous replication, but the social sciences, which only ape the physical sciences without yielding any hard and provable truths.

The weakness of social science has become more obvious over the last decade. Even experimental psychologists have come to acknowledge that their discipline is “in crisis.” For a long time now it has been an open secret that many of the key findings of social psychology—the building blocks upon which newer findings are based—are very likely not true, or true only under limited circumstances. Most famously, in 2015, a team of social psychologists tried to replicate the findings of 100 of the most influential experiments in their field; 61 failed.

This doesn’t mean that the findings were necessarily false, only that they were much shakier than the experimenters had let on—and certainly not the solid ground upon which a parasitic discipline like behavioral economics could be confidently based. The methodology almost guarantees an epidemic of “false positives.” Experiments in social psychology rarely take place in the real world, with ordinary people going about their business. They’re conducted in highly artificial settings in university psychology labs, testing small numbers of students who are being paid or receiving credit for the privilege. Statistical sleight of hand is relatively easy and common. Replications are seldom attempted before the findings are published. Journals seek out and reward “positive” findings, the flashier the better, and experimental psychologists, under the mandate of publish or perish, are willing to conjure them up. The discipline itself is politically and culturally unitary, unsuited for skeptical self-policing, rendering the safeguard of “peer review” meaningless.

But skepticism only cramps the style of a behavioral economist like Thaler. He and a colleague collaborated a few years ago on a hugely popular manifesto called Nudge, counseling regulators and marketers in how to manipulate their marks. The authors swallowed whole—and blithely passed along—a smorgasbord of dubious social science. Phrases like “researchers have found” and “scientists discovered” recur with the innocence of a child reciting a catechism. Nudge includes a section on “priming,” for example, a seminal concept in social psychology and behavioral economics. It is based on experiments that have now been largely debunked. Thaler’s mentor, Daniel Kahneman, a psychologist who won a Nobel in economic sciences 15 years ago, included a chapter on priming in his bestseller, Thinking, Fast and Slow. A team of statisticians last winter examined the 12 studies Kahneman cites and discovered, according to their formula, that only one was likely to be replicable.

With its crippling intellectual defects, Thaler’s craze is unlikely to have much impact on the course of daily life, but it may yet become a staple in the world of policy-making, where the stubborn repetition of ineffectual activity is almost a point of pride. Ineffectual, but still worrisome: Behavioral economics abandons the old idea of “rational actors” in favor of an idea more amenable to the authoritarian impulse.

The assumption that we are all acting consciously and rationally in our best interests may be unrealistic, even if useful for certain kinds of economic modeling. But it is indispensable for self-government. It is rooted in democratic deference, the respect we owe one another as citizens. It is a restraint on rulers. “Ultimately,” the economist Brian Mannix wrote years ago, “we insist that our regulators start from a presumption of rationality for the same reason that we insist that our criminal courts start from a presumption of innocence: not because the assumption is necessarily true, but because a government that proceeds from the opposite assumption is inevitably tyrannical.”

The slow but steady expansion of the managerial state, costumed in the illusions of social science—future generations, feeling cute, may call it the “Thaler Effect.”

Andrew Ferguson is a senior editor at THE WEEKLY STANDARD.

This post originally appeared on Weekly Standard


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