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What happens when we apply evolutionary psychology and allied materialist theories to economics?

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In “Behavioral Economics Foils an Obama Tax Cut?” (Bloomberg Businessweek November 10, 2011), Drake Bennett reports, “New research finds that a trendy economic theory backfired on the Obama Administration. Or did it?

In the past decade, this new set of ideas about economic behavior has gone from the margins of academia to the intellectual mainstream. In 2002 one of its godfathers, the psychologist Daniel Kahneman, won the Nobel Prize in Economics, and the years since have seen a growing list of best-sellers (Malcolm Gladwell’s Blink, Richard Thaler and Cass Sunstein’s Nudge, Dan Ariely’s Predictably Irrational) describing and drawing on its findings. Unlike neoclassical economists, behavioral economists don’t see people as rational actors coolly weighing costs and benefits. Behaviorists argue instead that people rely on a set of instincts, biases, and cognitive shortcuts to make decisions, which often lead them to choices they come to regret. We save too little and spend too much, we stick with the status quo even when it costs us money, we avoid smart risks and take dumb ones.

You don’t shop; your inner ape does?

In 2009 this theory held obvious appeal to the incoming Administration. If the country’s ills were in part the result of poor financial decisions people made unconsciously, perhaps those problems could be fixed through behaviorally informed public policy. The Administration’s first big legislative push, its stimulus bill, presented an opportunity to test some exciting new ideas on a national scale.

One of them was to give people tax rebates in dribs and drabs, instead of in lump sums, based on the behavioural economics theory:

A series of slightly bigger paychecks feels like an increase in income and is more likely to be spent.

(The government wished to encourage spending.)

That’s not what happened in practice, according to Sahm, Slemrod, and Shapiro. In a study of the 2009 stimulus, based on 500 telephone interviews, the authors found that only 13 percent of Making Work Pay recipients reported that the tax credit would lead them to increase spending. This was just half of the 25 percent spend rate the researchers found for the traditional lump-sum tax rebate in President Bush’s 2008 stimulus.

The reason the Making Work Pay program flopped is obvious: If a family gets a $750 cheque – and there is an outstanding need, like new laundry machines – they’ll probably spend it on the new machines.

If, however, the money comes in dribs and drabs, they may not even notice it because it is not solving any obvious problem. They neither spent it nor saved it; they just lost track of it. No wonder they reported that they wouldn’t increase spending on its account. This is not an instinct, a bias, or a cognitive shortcut; it’s a reflection of the fact that only the very poor have the time to deal in small change.

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The fact that no one even considered this possibility illustrates the problem with applying these new EP-driven theories to anything approaching reality.

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3 Replies to “What happens when we apply evolutionary psychology and allied materialist theories to economics?

  1. 1
    Eocene says:

    NEWS:

    “What happens when we apply evolutionary psychology and allied materialist theories to economics?”
    ====

    I’ll go with the title first. My wife and I were talking just commenting on the economic crisis over here in Europe and the total lack of understanding on the part of the experts on just how to turn it around for the better again. There really is no answer. The average world citizen seems to want to have a comfortable life(understandable), but they are holding back saving because they’ve lost faith in world leaders, be they politicians, economists and yes even religious leaders. There really is no answer.

    The world has been running and functioning on selfishness and greed(Evolutionary Psychology = The Selfish Genes coupled with raw animalistic behavior to acquire these at any and all costs). These are in direct conflict with Biblical admonishment to live simply and modestly.
    ====

    NEWS:

    “(The government wished to encourage spending.)”
    ====

    All governments want this, not just the United States and this supposed evil Obama administration(which I assume this post is ultimately directed at). The fact is no matter who will be running the show, neither side has the answers for what ails humankind today. Both sides play dirty and both sides impose and force rules on the the peoples they rule over, that they themselves are not willing to live by. It’s the same over here in supposedly EQUAL Socialist Empire Europa. The European Union over here is being run the exact same way as North America is. The so-called democratic way of ruling is no more superior than to anything that came before it. No matter what flavour of political party participating in such a self-determined course(and they are endless), all sides are run by imperfect human beings.

    I remember watching and listening to a speech by Margaret Thatcher in 1985 at the United Nations 40th aniversary event. She spoke of the failure of that organization to achieve it’s original goals to bring about peace and security for humankind. She said:

    “What are the reasons for the disappointments and shortcomings of the United Nations?”

    “The United Nations is only a mirror held up to our own uneven, untidy and divided world. If we do not like what we see there’s no point in cursing the mirror, we had better start by reforming ourselves.”

    This speech can be found on her Margaret Thatcher Foundation’s website. The bottomline is that there will never be any working solutions as long as people put their trust in humans. I assume the Bible believers here must already know this ??? I wonder ???

  2. 2
    News says:

    Eocene, honestly, you read too much into things. The post isn’t directed at the “evil Obama administration” but against evo psycho woo-woo and witch doctoring generally. Do you honestly think the news desk would feel any differently about this nonsense if it had been some other administration?

    It all comes of imagining that other human beings are generally more irrational and stupider than oneself. Sometimes they are, but never often enough.

  3. 3
    Eocene says:

    NEWS:

    “The post isn’t directed at the “evil Obama administration”
    ====

    Sorry, I must have misread it where it focused attention on the newer incomming administration taking over in 2009.

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