Economics

Behavioral Economics Is Fine. Just Keep It Away from Our Kids

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A recent scandal within the field reminds of the benefits of plain old economics.

While universities exist to teach knowledge that stands the test of time, professors invariably face pressure to teach the new hot topic.

In economics, a field built on the premise that people rationally respond to incentives, there has been a push to incorporate more elements about psychology and human irrationality in our effort to understand why things work in the way that they do. The result has been to create a subfield called “behavioral economics.” Defenders of this field of study claim that such incorporation allows economists to better explain and predict behavior and improve policy.

This sounds promising enough, but students signing up for courses shouldn’t take the bait. While some results from behavioral economics are rock solid, other popular results are overturned within a few years. Indeed, most behavioral-economics results are based on research that is too preliminary for early college students, who ought to be learning proven insights within the field. For that established body of scientific knowledge, they should instead turn to plain old economics.

The most recent scandal within behavioral economics shows the problem of reflexively jumping on its often trendy results. Dan Ariely, a famous researcher within the field and author of the best-seller Predictably Irrational, allegedly fabricated data for a 2012 paper about dishonesty.

In August, Science reported that

some researchers are calling Ariely’s large body of work into question after a 17 August blog post revealed that fabricated data underlie part of a high-profile 2012 paper about dishonesty that he co-wrote. None of the five study authors disputes that fabrication occurred, but Ariely’s colleagues have washed their hands of responsibility for it. Ariely acknowledges that only he had handled the earliest known version of the data file, which contained the fabrications.

Ariely emphatically denies making up the data, however, and says he quickly brought the matter to the attention of Duke’s Office of Scientific Integrity. (The university declined to say whether it is investigating Ariely.) The data were collected by an insurance company, Ariely says, but he no longer has records of interactions with it that could reveal where things went awry. “I wish I had a good story,” Ariely told Science. “And I just don’t.”

Writing for Buzzfeed News, Stephanie Lee adds:

The imploded finding is the latest blow to the buzzy field of behavioral economics. Several high-profile, supposedly science-backed strategies to subtly influence people’s psychology and decision-making have failed to hold up under scrutiny, spurring what’s been dubbed a “replication crisis.”

Ariely is not the first big name in behavioral economics to have data issues. It’s common for research results not to replicate — meaning other researchers conducting the same experiment find different results. Even Nobel Prize–winner Daniel Kahneman admits that he placed “too much faith in underpowered studies” in a chapter of his best-selling book Thinking Fast and Slow.

Behavioral economics as a field of study still has merit. Over the years, its researchers have made positive contributions to economics writ large, earning many of them Nobel prizes. The question at hand, though, is whether it should be taught at the expense of timeless knowledge — i.e., theories of opportunity cost, trade-offs, and supply and demand.

Any science must start with the basics. In my physics undergraduate education, I learned classical mechanics before the weird world of quantum mechanics. This pedagogical approach helps for two reasons. First, most of the world is simply better understood through classical mechanics. Second, without understanding the baseline, the oddities that occur within quantum mechanics have no reference point against which they can be contrasted.

The same is true in economics — and countless others, I’m sure. Across the board, when teaching the basics, we should leave the fads out.

We’ve all heard the cliché: A course teaches students how to think, not what to think. Too often, college courses actually do neither. Still, students should walk away from their introductory course with a toolkit to better understand the world. In economics, that means that they know how to use the concepts of supply and demand.

Consider a real-world example. Let’s apply both plain and behavioral economics to, say, the car market. Prices have gone up wildly recently. Why? A student versed in the work of Nobel Prize–winner Richard Thaler — who is the co-author, with Cass Sunstein, of Nudge, a book onto which some governments have latched as a policy-making tool — may conclude that this spike in prices is a bubble driven by irrationality on the part of buyers and sellers. After all, that’s the explanation given for the rise and fall of prices in the housing and stock markets by another Nobel Prize–winning behavioral economist, Robert Shiller.

Plain old economics argues that there is generally no need to resort to buyer irrationality or bubble mentality to explain why prices move in the way that they do. Instead, prices are determined by the forces of supply and demand, where each person is rationally responding to her incentives. While that statement is true, it doesn’t actually tell us much. We need more details. Luckily, a student who has taken Econ 101 can explain to us that the computer-chip shortage affected the market through the supply side. When the supply is reduced, prices go up. That price change then spilled over into the used-car market. Prices go up and down, reflecting the forces of supply and demand.

The challenge of teaching basic economics is more important than ever. Last school year, we lost two giants in the world of economics education: Walter Williams and William Allen. Williams, a professor at George Mason, taught basic economics in the classroom and through his syndicated column. Allen did likewise through his textbook (co-authored with Armen Alchian) and on his radio show. Without these powerful voices, it is up to the rest of us to pick up some of the slack of teaching basic economics this school year.

Brian Albrecht is an assistant professor of economics at Kennesaw State University where he teaches introductory economics. He holds a Ph.D. in economics from the University of Minnesota. He is a Young Voices contributor and writes a weekly economics newsletter on basic economics, which can be found here.

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