Scroogenomics

I was thinking today about a book that's getting some attention, about how Christmas is the most wasteful time of the year. It reflects in some ways what is interesting about economists and how they think. They talk about efficiency, and allocations, and equity as if these were black and white comments. They claim to be objetive and then use the get out of free card "other things being equal" which usually means if my assumptions are correct.

However sometimes (many times) their assumptions are implausible or required to make the math in their elegantly complicated models work. Anyone who knows me, should know I'm not a big fan of economists. But sometimes as in this article they do provoke thought and provide a different perspective on things.

One of the interesting things about the book Nudge by Cass Sunstein and Richard Thaler is their description of the problem I just identified above. Early in the book, they talk about the difference betweens the "Econs" who represent the ideal of economist and basically work as cost benefit analysis machines, and the "Humans" who are sometimes able to make rational decisions but need help and are driven by emotions.

The key point that they highlight is that there are systemic cognitive biases inherent in our humanness. We make systemic mistakes in the same direction. Given this you cannot assume that humans are "rational". It will take some time for this to filter down to all economists but it seems interesting and may point the way for economists to get closer to real world predicitions. Their key assumption of course is that humans are "rational" and so it does represent a challenge to their discipline.