| Peter Klein |
I suggested earlier that behavioral economics could use a dose of comparative institutional analysis. The New Paternalists are very worried about various biases and forms of “irrationality” on the part of consumers, managers, entrepreneurs, investors, etc. but have little or nothing to say about the rationality of regulators, legislators, judges, and other non-market actors. Josh Wright and Judd Stone offer a parallel critique of behavioral economics applied to antitrust law: the behavioralists focus on presumed bias and irrationality on the part of incumbents, while largely ignoring the cognitive attributes of rivals and potential entrants. Josh and Judd propose an “irrelevance theorem”: “If one assumes a given behavioral bias applies to all firms — both incumbents and entrants — behavioral antitrust policy implications do not differ from those generated by the rational choice models of mainstream antitrust analysis.”
Addendum: Steve Horwitz made the comparative institutional argument in an earlier post that I unfortunately missed.