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Kevin McCabe says that experimental economics offers three implications for policymakers trying to foster economic growth through the adoption of markets.

First, safeguards must be put into place to protect impersonal exchange from our innate desire for personal exchange. Second, policy must take into account the heterogeneity of individual cognitive strategies that are observed in economics laboratories. Third, policy must be test-bedded in economic experiments where the status quo is modeled as an ecologically rational response to the economic environment and the proposed policy change occurs in an environment where individuals have access to a full repertoire of personal exchange behaviors.

One challenge, McCabe argues, is to keep people from falling back on personal exchange, which is exclusionary and anti-competitive. I would also say that people's views on policy often interpret economic actions in personal terms ("tax cuts for the rich") rather than in impersonal terms ("a reduction in the tax on saving").

For Discussion. McCabe describes steps that might be taken to make impersonal markets more appealing to individuals. Is this a project to educate people, or could he be accused of trying to manipulate their preferences?

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CATEGORIES: Behavioral Economics and Rationality

COMMENTS (3 to date)

Latest Comment

Lawrance George Lux writes:

Am I the only One who sees the irony of this? It is obvious Peoples' personal preferences reside in personal and anti-competitive markets. They refuse to interact or purchase in an inpersonal market, waiting to some element of personal connection, and are willing to pay some premium for that connection. Economists must first of all understand People. lgl

Posted October 9, 2003 12:38 PM

Paul Jaminet writes:

Is it preferences that cause people to prefer personal relations, or do personal relations have objective advantages?

In general, I would expect that intimate relations should reduce the cost of transacting and improve the quality of the exchange, while shallow ("impersonal") relations would increase the cost of transacting.

Posted October 9, 2003 10:25 PM

dsquared writes:

Or to put it another way: you work for the economy, it doesn't work for you.

(btw, having seen "experimental economists" at work, the thought of running the entire world based on their hilariously fragile and context-sensitive results fills me with fear, as it would any reputable experimental economist)

Posted October 14, 2003 3:56 AM

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