AS HOMO ECONOMICUS GOES THE WAY OF PILTDOWN MAN:

Human Nature: The X Factor in Economic Theory: Irrationality plays a part in economic behavior. For example, people who took on too much mortgage debt helped cause the housing collapse (Marshall Goldsmith, 1/20/09, Business Week)

According to Dan Ariely, author of the recently released book Predictably Irrational and the James B. Duke Professor of Behavioral Economics at Duke University, behavioral economics is an important and useful tool for society because it takes into account the irrationality of human nature. I loved this book—and highly recommend it. I've asked Dan to give us his take from a behavioral economics perspective on the current economic situation. Edited excerpts of our conversation follow:

How is behavioral economics different from standard economics?

Standard and behavioral economics are interested in similar topics, i.e., the choices people make; the effects of incentives; the role of information; etc. However, the starting point for behavioral economists is how people behave, often in a controlled lab environment, which often leads to different conclusions about the logic and efficacy of many things, including mortgages, savings, and health care in both business and personal realms.

It's kind of the difference between libertarianism and reality.

Posted by Orrin Judd at January 21, 2009 11:36 AM