by Mario Rizzo
Behavioral economists have an embarrassment of biases. They have discovered many cognitive and behavioral biases which plague human decisionmaking. By one count there are nearly a hundred of them.
A cognitive bias is a systematic departure from rational decisionmaking. For example, a person may react differently if he is told that a drug has a 90% cure rate or that it has a 10% failure rate. A behavioral bias is the systematic inability to act in accordance with one’s true preferences. For example, I resolve to stop drinking but I don’t have the willpower.
But what does all of this add up to? I suggest that behavioral economics has missed the forest for the trees (itself a bias). There is an academic myopia that looks at each bias in isolation and then tries to generalize about the impact on human decisionmaking. But if you list (or sing about, as in the attached YouTube clip) many of these, you understandably wonder:
1. How is it that we ever make good decisions?
There are so many biases and little evidence about when, in real-world decisionmaking, they are present. There is also scant evidence on the degree to which they are present. But if we simply look at the results of experiments and generalize to everyday life, we get a very pessimistic view of the ability of people to adapt to their current or expected environment.
2. What is the effect on decisionmaking of a number of biases interacting?
People may be subject to optimism bias (“Bad things won’t happen to me”) and availability bias (“Wow, what an awful plane crash”) and myopia (“The future is so far off that it is irrelevant”) and hyperopia (“Work today, no fun until some day far down the road). So should I get on an airplane to go on vacation next week? Who knows?
3. If policy-makers are human they also must have these biases. How does that affect their de-biasing activities?
Politicians and myopia, optimism, and availability biases: perfect together. So what puts them a position to debias the rest of us?
There is nothing wrong with psychologists and behavioral economists studying the quirks of human decisionmaking. But they ought to be very careful using these results to form the basis for government policy.