the audacity of data February 26, 2008Posted by KG in 2008 Elections, books, econ, politics.
Tags: austan goolsbee, behavior, behavioral economics, economics, richard thaler, robert reich, the winner's curse, university of chicago
noam scheiber with an excellent piece about obama’s economic advisors:
But what’s really interesting is how Thaler and his fellow behaviorists responded to this fairly critical insight. Though rational self-interest was the central tenet of neoclassical (i.e., modern) economics, they didn’t take a wrecking ball to the field and replace it with some equally sweeping theory of human behavior. Instead, they labored to bring economics closer in line with how the world actually works, one small adjustment at a time. “‘Discovery commences with the awareness of anomaly,'” Thaler wrote in the introduction to The Winner’s Curse, quoting the philosopher Thomas Kuhn. “I hope to accomplish that first step–awareness of anomaly. Perhaps at that point we can start to see the development of the new, improved version of economic theory.”
As it happens, Thaler is revered by the leading wonks on Barack Obama’s presidential campaign. Though he has no formal role, Thaler presides as a kind of in-house intellectual guru, consulting regularly with Obama’s top economic adviser, a fellow University of Chicago professor named Austan Goolsbee. “My main role has been to harass Austan, who has an office down the hall from mine, ” Thaler recently told me. “I give him as much grief as possible.” You can find subtle evidence of this influence across numerous Obama proposals. For example, one key behavioral finding is that people often fail to set aside money for retirement even when their employers offer generous 401(k) plans. If, on the other hand, you automatically enroll workers in 401(k)s but allow them to opt out, most stick with it. Obama’s savings plan exploits this so-called “status quo” bias.
And, yet, it’s not just the details of Obama’s policies that suggest a behavioral approach. In some respects, the sensibility behind the behaviorist critique of economics is one shared by all the Obama wonks, whether they’re domestic policy nerds or grizzled foreign policy hands. Despite Obama’s reputation for grandiose rhetoric and utopian hope-mongering, the Obamanauts aren’t radicals–far from it. They’re pragmatists–people who, when an existing paradigm clashes with reality, opt to tweak that paradigm rather than replace it wholesale. As Thaler puts it, “Physics with friction is not as beautiful. But you need it to get rockets off the ground.” It might as well be the motto for Obama’s entire policy shop.