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"[homo economicus is] a lightning calculator of pleasures and pains, who oscillates like a homogenous globule of desire of happiness under the impulse of stimuli.." Thorstein Veblen 1898

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Is Behavioral Economics Doomed?

The Ordinary and the Extraordinary

A book based on my Max Weber Lecture at the EU Institute on May 20, 2009
Available from Open Book Publishers and everywhere.

Those of you who have read about – and who has not? – the current economic crisis may wonder just how rational economic man or woman is. Behavioral economics has become the modern rage. So is rational economic man – homo economicus –  dead? Has the economics profession moved on to recognize the true irrationality of humankind? Read it online.

     

Acknowledgements

I owe an immeasurable intellectual debt to my coauthors Michele Boldrin, Drew Fudenberg, Tom Palfrey, and Jie Zheng with whom I’ve worked, discussed and debated the issues discussed here for many years. Tim Sullivan encouraged me to write this up in the form of a book, and took the time to read and comment on the draft. Rupert Gatti, economics editor of Open Book Publishers, and his two exceptional referees have enormously improved that original draft.

This book originated as a Max Weber lecture presented at the European University Institute. Much of it was written while on sabbatical leave in the Economics Department there. I am grateful to the EUI and the Economics Department there. I also owe a special debt of gratitude to the Max Weber program and to Ramon Marimon, Karin Tilmans and the Weber fellows for the invitation to speak, for a very constructive presentation, and for encouragement and assistance in writing up the lecture.

I have presented variations of this lecture in various venues including FUR, the NYU Experimental Workshop, and the Neuroeconomics Meetings. I am grateful to Glenn Harrison, Guillame Frechette, and Colin Camerer for those invitations and to them and the meeting participants for helpful comments and criticism. Like Guillame and Colin, Rosemarie Nagel disagrees with practically everything written here – but her constant provocation has resulted in a much more coherent book.

I am also grateful to my daughter Milena Davidson-Levine and to my many students both graduate and undergraduate at Washington University in St. Louis. To the outstanding faculty there and the fine research organization at the Federal Reserve Bank of St. Louis I am also indebted for constant feedback and support.

Finally, I would like to thank the National Science Foundation and grants SES-03-14713 and SES-08-51315 for financial support.