Is Behavioral Economics Doomed?: The Ordinary versus the Extraordinary

It is fashionable to criticize economic theory for focusing too much on rationality and ignoring the imperfect and emotional way in which real economic decisions are reached. All of us facing the global economic crisis wonder just how rational economic men and women can be. Behavioral economics – an effort to incorporate psychological ideas into economics – has become all the rage.

This book by well-known economist David K. Levine questions the idea that behavioral economics is the answer to economic problems. It explores the successes and failures of contemporary economics both inside and outside the laboratory. It then asks whether popular behavioral theories of psychological biases are solutions to the failures. It not only provides an overview of popular behavioral theories and their history, but also gives the reader the tools for scrutinizing them.

Levine’s book is essential reading for students and teachers of economic theory and anyone interested in the psychology of economics.

Since publication this book has been viewed over 8000 times. Last updated March 2013.

Title: Is Behavioral Economics Doomed?: The Ordinary versus the Extraordinary
Author: David K. Levine
Publication date: September 2012
Number of pages: 152
Dimensions: 6.14” x 9.21’’
BIC Subject Codes: BUS (Microeconomics and Economic Theory)

Is Behavioral Economics Doomed?: The Ordinary versus the Extraordinary, by David K. Levine, is licensed under a Creative Commons Attribution-ShareAlike Unported Licence

1. Introduction

2. Does Economic Theory Work?

3. Why Is The World So Irrational?

4. Does Economic Theory Fail?

5. You Can Fool Some Of The People...

6. Behavioral Theories I: Biases and Irrationality

7. Behavioral Theories II: Time and Uncertainty

8. Learning and Friends

9. Conclusion: Psychology, Neuroscience and Economics

David K. Levine is John H. Biggs Distinguished Professor of Economics at Washington University in St. Louis. He is currently serving as President of the Society for the Advancement of Economic Theory. He is also a fellow of the Econometric Society, an Economic Theory Fellow, a research associate of the NBER, and of the Federal Reserve Bank of St. Louis, managing editor of NAJ Economics, and co-director of the MISSEL laboratory. His scientific research is supported by grants from the National Science Foundation. He is the author of Against Intellectual Monopoly (with Michele Boldrin) and Learning in Games (with Drew Fudenberg) and the editor of several conference volumes. He has published extensively in professional journals, including The American Economic Review, Econometrica, The Review of Economic Studies, The Journal of Political Economy, The Journal of Economic Theory, The Quarterly Journal of Economics, and The American Political Science Review.

Levine's current research interests include the study of intellectual property and endogenous growth in dynamic general equilibrium models, models of self-control, of the endogenous formation of preferences, institutions and social norms, learning in games, evolutionary game theory, virtual economies, and the application of game theory to experimental economics. At the graduate level, his teaching focuses on economic dynamics; at the undergraduate level, he teaches intermediate level microeconomics, focusing largely on elementary game theory.

This lively and combative book examines some of the myths that behavioral economists have invented about the success of their discipline when compared with neoclassical or mainstream economics. Our predecessors were indeed mistaken to exclude psychology and laboratory experimentation from economics, but the vagaries of fashion have resulted in things moving too far in the other direction. Drawing on his wide knowledge of the whole field of economic endeavor and almost never resorting to equations, Levine demonstrates that mainstream economics is not the narrow sectarian failure of common repute. Nor are the more ambitious claims that behavioralists make for the economic applications of their theories founded on anything genuinely robust.

Any behavioral economists wondering why behavioral economics is not widely embraced by the traditional areas of economics should read this book. Any traditional economists feeling some skepticism about behavioral economics but not sure why should read this book. Levine looks at major results claimed by behavioral economists. He argues that behavioral economists often ignore a long history of similar ideas already present in traditional economics. He points to serious empirical weaknesses in behavioral theories arguing that behavioral economists have fallen short in interpreting experimental data and have built theoretical frameworks based on results that are not replicable.