Behavioral Economics
Popular-Press Article about Psychology
According to the New York Times article titled “Why is Behavioral Economics so Popular,” the author expounds on the behavioral economics topic where he notes that it has gained tremendous popularity in the recent past (Gal, 2018). The author also states that the behavioral economics’ lexicon of “the endowment effect,” “framing bias,” and “nudging” has been incorporated in the vernacular of policymaking, finance, and business. Importantly, the author is right when he defines behavioral economics as being economics that is undertaken with good psychology’s strong injections as noted by one of the founders of the topic, Richard Thaler. He further articulates that behavioral economics is a method of making economics more appropriate through integrating more realistic assumptions regarding the manner in which human beings behave (Gal, 2018). Subsequently, these sentiments are also supported by Chetty (2015) where he notes that behavioral economics has effectively incorporated psychology insights into the economics topic.
In reference to Chetty (2015), behavioral economics is mostly framed as being a question regarding the foundational economic models’ assumptions. Chetty (2015) in his peer-reviewed article named “Behavioral Economics and Public Policy: A Pragmatic Perspective,” he presents a unique behavioral economics’ pragmatic perspective. The author primarily focuses on the value of behavioral economics for improving policy decisions and empirical predictions. Notably, these notions are also backed by Gal (2018) when he states that a huge section of behavioral economics utilizes psychological insights that eventually influence behavior, which assists in policy decisions and policy change.
In addition, according to Gal (2018), the popularity of various low-cost “nudges” or psychological interventions, which are behavioral economics’ labels, have become part of a marketing triumph. As such, this reflects the prevalent view that behavioral economics is a combination of the fun and cleverness of pop psychology together with the relevance, as well as the rigor of economics. Notably, Lavecchia, Liu, & Oreopoulos (2016) in their article “Behavioral Economics of Education: Progress and Possibilities,” they provide valuable information about the behavioral economics topic. The authors note that behavioral economics strives to incorporate insights from sociology, neuroscience, and psychology, which significantly assists in better developing more effective policies and predicting individual outcomes (Lavecchia, Liu, & Oreopoulos, 2016).
On the other hand, Bhargava & Loewenstein (2015) in their article “Behavioral Economics and Public Policy 102: Beyond Nudging,” also back the notions that Gal (2018) provides in his popular-press article. Bhargava & Loewenstein (2015) state that policymakers are presently embracing behavioral economics as being an alternative approach that acknowledges the consequences and limits of human decision-making. According to Gal (2018), he also provides a valuable insight about loss aversion whereby he suggests that losses possess a huge psychological impact as compared to gains. For instance, losing $5 would feel extremely worse as compared to gaining $5. As such, behavioral economists perceive this loss aversion phenomenon as being a psychological glitch, which can be utilized in explaining numerous human conducts. Notably, these notions are also supported by Thaler (2016) in his article “Behavioral Economics: Past, Present, and Future” where he also expounds about loss aversion.
Importantly, the author of the popular-press article, Gal (2018), also suggests that behaviors that are mostly associated with loss aversion primarily result from other causes. The author provides a classic experiment, which he conducted to provide evidence regarding loss aversion. The findings of the experiment showed that losing a mug was anticipated as being more painful as compared to the gain that was anticipated as being pleasurable. In particular, the article addresses an alternative explanation for the loss aversion phenomenon whereby the author notes that the participants lacked a clearly defined notion about the worth of the mug to them. Hence, these participants were disinclined to either sell or buy the mug, which meant that the mug non-owners and mug owners maintained the current situation out of inertia. According to Gal (2018), the loss aversion evidence was consistent and constant with the explanation about inertia, which is a key explanatory difference. Thus, the author suggests that it is imperative to comprehend the reasons why a particular behavior takes place, which will significantly assist in creating generalizable knowledge that is the goal of science.
Furthermore, Gal (2018) argues that the lack of enough attention to understanding the reasons why particular behaviors take place should matter in practical contexts. For instance, advertisers that are influenced by the loss aversion idea will focus on designing their messages using the terms of loss instead of framing them using the gain terms. The author also provides findings from a meta-analysis that comprised of 93 studies. The meta-analysis showed that there existed no substantial statistical disparities in the persuasive public-health messages power when they were designed using the loss terms as opposed to the terms of gain (Gal, 2018).
The author further states that the impacts of this type of intervention have proved to be small. In another example, the author provides research findings of electricity usage in households, which showed that "nudging" only resulted in electricity consumption reduction of 2%. As such, the author states that it is appropriate to achieve small victories specifically when minor interventions are utilized. However, he worries that the perceived efficacy and simplicity of such tactics can distract policy or decision makers from attaining additional substantive efforts (Gal, 2018).
As noted by Bhargava & Loewenstein (2015), early BE (“nudges”) applications produced successes that were notable, which assisted in setting the stage for additional aggressive “nudges” applications. Notably, these aggressive “nudges” applications were focused on tackling deeper policy problems’ causes. Subsequently, the authors note that policies, which aim to simplify incentives and products instead of choice environments, assist in attaining different positive concepts. These concepts include aggressively protecting consumers from what is referred to as behavioral exploitation (Bhargava & Loewenstein, 2015). These notions are also supported by Gal (2018) in his popular-press article.
In summation, the author of the popular-press article, Gal (2018) has provided valuable insights regarding behavioral economics by addressing an alternative explanation for the loss aversion phenomenon. The article does not ignore important implications of the research it discusses because the author provides in-depth explanations and findings to back his sentiments. The author also articulates the behavioral economics topic deeply leaving no unanswered questions. In particular, the author notes that it is commendable that the topic is gradually receiving prominence and the behavioral economics' field has contributed substantially when understanding the manner in which individuals behave. He also states that the behavioral economics’ lexicon of “the endowment effect,” “framing bias,” and “nudging” has been incorporated in the vernacular of policymaking, finance, and business. Nonetheless, he cautions that it is essential to always focus attention to the limits despite the excitement that the topic has attracted in the recent past.
References
Bhargava, S., & Loewenstein, G. (2015). Behavioral Economics and Public Policy 102: Beyond Nudging. American Economic Review, 105(5), 396-401.
Chetty, R. (2015). Behavioral Economics and Public Policy: A Pragmatic Perspective. American Economic Review, 105(5), 1-33.
Gal, D. (2018). Why is Behavioral Economics so Popular? Retrieved from https://www.nytimes.com/2018/10/06/opinion/sunday/behavioral-economics.html?rref=collection%2Ftimestopic%2FPsychology%20and%20Psychologists&action=click&contentCollection=health®ion=stream&module=stream_unit&version=latest&contentPlacement=2&pgtype=collection
Lavecchia, A. M., Liu, H., & Oreopoulos, P. (2016). Behavioral Economics of Education: Progress and Possibilities. In Handbook of the Economics of Education (Vol. 5, pp. 1-74). Elsevier.
Thaler, R. H. (2016). Behavioral Economics: Past, Present, and Future. American Economic Review, 106(7), 1577-1600.
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