Rubinstein on Behavioral Economics

3 January 2007 at 1:33 am 3 comments

| Peter Klein |

Ariel Rubinstein (discussed here and here) isn’t high on behavioral economics:

1. The behavioralists’ models are just as unrealistic as the traditional models. “[Matthew] Rabin goes out of his way to beat, if I may use his own phrase, the ‘dead parrot’ of full rationality. Of course there are many facts that are hard to reconcile with full rationality. But the psychology and economics literature has replaced a dead parrot with one that is equally dead. If the ‘time consistent’ model is wrong, then [Rabin's present-bias model] is equally wrong.”

2. The papers are long and messy. “A major drawback of the behavioral economics models is that they lack both the elegance and generality that characterize the literature of General Equilibrium and Game Theory. The typical paper is messy and terribly long. Simple ideas are lost in poorly formulated models and numerical examples.” (Of course, if you don’t rank elegance and generality as your top theoretical criteria, this criticism isn’t likely to be compelling.)

3. The empirical evidence — from experiments, animal behavior, and neuroeconomics — is weak. On experiments: “If there is value in doing experiments, rather than making do with causal empiricism, it is only when they are done and assessed very carefully. It is my impression that intuitive and ‘sexy’ results are gladly accepted by behavioral economists without sufficient criticism.” On animals: Chen, Lakshminarayanan and Santos’s (2005) monkey experiment is “[n]ot remarkable, nothing to do with prices and budget sets, nothing to quote. Just a story about three poor monkeys, three overly motivated researchers and some non-critical Behavioral Economists.” On neuroeconomics: “[B]rain studies are fascinating, probably more so than even… economics. I would not be surprised if brain studies eventually change our view of decision making. However, I have yet to come across a single relevant insight produced by these studies. The popularity of brain studies might have to do with the obsession among many economists of becoming scientists.” (HT: Tyler Cowen)

Entry filed under: - Klein -, Methods/Methodology/Theory of Science. Tags: .

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3 Comments Add your own

  • 1. srp  |  3 January 2007 at 3:28 am

    There’s no question that some of what is going on in behvioral and neuro econ is overhyped due to the gold rush dynamics in play. I’m pretty sure it’ll settle down in a few years.

    On the neuro stuff, there’s a huge problem with assumptions about localization of activity in the brain. When you look at their fMRI bar charts, it looks like lots of parts of the brain light up at the same time under each experimental condition, with only a small bias in magnitudes. Yet a lot of the interpretaion says “this part of the brain is objective” and “this part of the brain is impulsive.” That kind of hypothesis strikes me as naive and unsupported by the data. The whole brain probably participates in everything we think and do. Anyway, I thought Damasio had made a pretty convincing case that you can’t separate emotions from rational decision making, so.the whole spirit of the exercise is wrong.

  • 2. Tom Schenk  |  4 January 2007 at 1:52 am

    sjb,

    I find that I disagree with you on a handful of points. I don’t think it’s much as a fad. Frank Knight noted the rise in the role of psychology in economics in the 1950s. Since then, there seems to be a tug-of-war between rationalization (e.g., rational expectations) and behavioristic approaches (e.g., bounded rationality).

    Also, I don’t think the fMRI readings are random at all. Neuroscientists (not neuroeconomists) spend time focusing on which part of the brain is responsible for certain functions. Neuroscience has sufficiently shown that activity in certain regions correspond to functions or even dysfunctions of the person.

  • 3. Michael Greinecker  |  5 January 2007 at 12:13 pm

    I think Rubinsteins main problem is the way behavioral economists frame the debate (pun not intended): They give the image of a science that is purely empirical and only allows what has been shown to withstand rigorous testing. Rubinstein showed that they are in that respect not really different from the neoclassical orthoxy. For every behavioral theory, there is a case where people don’t act that way.

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