Sunday, June 10, 2012
Thinking: Post#5 - Econs vs Humans
Econs vs Humans: Traditional economists believe that people are rational, reasonable people not susceptible to the foibles of mere humans. That is to say, traditional economists predict that people will make rational choices. Behavioral economists, like the author and Richard Thaler (U. of Chicago), believe that people make all sorts of decisions with grave impacts which are based on emotion (System 1) and not rational thought (System 2). They argue that the federal government, the state, and other leaders should “nudge” people in the direction of decisions that will help them, such as creating a default selection of a 401K plan or having only opt-out selections for health care or other beneficial choices. This benevolent process is called “libertarian paternalism” and is a subset of the overall process called choice architecture (Richard Thaler). Others in the opposite camp want markets to operate freely and see any intervention as wrongheaded, even immoral (Milton Friedman).