Q: Why did the monkey sit in the tree?
A: That’s what he does. Its behavioural.
Today is a sad day for the field of Economics in particular and for Science in general. Richard Thaler, the populist champion of the embarassing branch of economics labeled ‘behavioural’, was named 2017 Nobel Laureate for Economics. It seems that the current passion for populist political personalities has spilled over into academia. The Noble awards committee should be ashamed of itself.
Behavioural economics is an ‘explain-all’ theory. Why do people leave their jobs? Its behavioural. Why do firms issue bonds rather than equity? It’s behavioural. Why do Europeans work shorter hours than Asians? Its behavioural. Why does the monkey sit in the tree…
The problem with explain-all theories is that by explaining everything, they actually explain nothing. Our monkey in the tree may well be there to escape predators on the ground or since the fruit he eats happens to be high up. A theory which delivers a testable hypothesis is able to discriminate between two or more possible explanations and successfully eliminating one possibility is a contribution. Behavioural economics has no such luck.
Behaviouralists often criticise mainstream economics for assuming that people are rational. Behaviouralists point out in their experiments that people are prone to make mistakes. Rational agents have expectations that are unbiased but there is no requirement that they do not make mistakes. In fact error is part of economic reality. Systematic error is where the rationalists and behaviouralists part ways.
Thaler is genuinely entertaining and his seminars are reminiscent of a stand-up comedy club in the West Village. He has had a ball with Finance. He started out on the correct foot graduating from Rochester, then it all went wrong. Making fun of scientists is age old but, dudes, it’s not Nobel prize-worthy.