Some problems of behavioral economics

Abstract

Purpose: The objective of this paper is to examine five problems related to the behavioral economics. Design/Methodology/Approach: Logical reasoning based on relevant literature. Findings: Behavioral economics suffers from a few shortcomings that put the contribution of this research subfield into economics in question. First, it claims that people are not rational and that this discredits neoclassical economics, which is based on the homo economicus model. However, behavioral economics wrongly interprets homo economicus as a psychological model instead of an analytical device. Second, despite criticizing homo economicus as an inaccurate depiction of human behavior in the real world, behavioral economics wrongly adopts it as a normative standard. Third, it confuses individual (constructivist) with systemic (ecological) rationality, thus committing the fallacy of composition. Fourth, behavioral economics erroneously considers people’s irrationality as an argument for government interventions. Fifth, their research agenda leads behavioral economists to see biases even where there are none. Practical Implications: Policies based on behavioral economics might be not adequate. Originality/value: Thorough the examination of few important shortcomings of the behavioral economics neglected in the literature.