Arnold Kling  

Behavioral Economics Ready for (Sub) Prime Time?

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Richard H. Thaler and Cass R. Sunstein write,


government would achieve simplified transparency by requiring all lenders to provide borrowers with an electronic file that contains, in standardized form, information on every feature of the contract.

Instead of fine print, there would be electronic information. And because disclosure would be standardized, consumers could easily compare one mortgage, and one credit card or school loan proposal, with many others.

This fails to take into account evolution. Idiot-proof systems fail because they can always build a better idiot.

Speaking of behavioral economics, happiness research, and the like, it turns out that the most important finding in the field is not robust.


Betsey Stevenson and Justin Wolfers argue that money indeed tends to bring happiness, even if it doesn’t guarantee it. They point out that in the 34 years since Mr. Easterlin published his paper, an explosion of public opinion surveys has allowed for a better look at the question. “The central message,” Ms. Stevenson said, “is that income does matter.”

The other day, Will Wilkinson sang "Tomorrow Belongs to Me."

As happiness research becomes more fully integrated as normal social science, methods will continue to be refined, philosophical disputes will get hashed out, and results will become ever more informative. . .If Arnold doesn’t find an investigation into the causes and mechanisms of human flourishing useful, then I don’t know what to say. It’s called science.

I'll call it science when the practitioners adopt methods that can produce reliable results.



COMMENTS (5 to date)
8 writes:

I always liked the example of the steering wheel spike aimed at the driver's heart, for making safer drivers. Something along those lines is probably doable with mortgages.

Snark writes:

8,

I agree. Originally conceived by UCLA economist Armen Alchian, this is a perfect example of the power of incentives. But the spike was already present in sub-prime mortgages. Uncle Sam has unfortunately removed the spike and come to the rescue with seatbelts and padded dashboards.

Matt Wells writes:

In the second comment you said, i believe money can bring happiness as well. And you're right it dosnt always keep happiness. But sometimes it does. Yeh you have problems with wealth, but it seems without it you have more problems, which leads to more unhappiness. I am pretty much saying money brings you more happiness than not having it.

TDL writes:

I am shocked to find out that money can buy happiness!

It seems to me that it's only rich guys (or gals) and those who have insulated themselves from the markets (i.e. academics)that make these types of claims. Money might not buy love (also debatable,) but it certainly can purchase companionship. Money will also raise an individuals standard of living, which Mr. Wells succinctly said "brings you more happiness than not having it." I think these studies are merely attempts to contemporize the claim that money is the root of all evil.

Regards,
TDL

conchis writes:

"I'll call it science when the practitioners adopt methods that can produce reliable results."

So now nothing counts as science unless it's free of controversy? Wow. I'd hate to see what would happen if you applied this rule consistently.

In any event, as Will's so fond of noting, most studies do produce findings consistent with the Stevenson-Wolfers result; so it seems like you might have to change you mind sooner rather than later.

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