Mechanism in behavioural economics

ABSTRACT

Behavioural economics promises to bring economics closer to being evidence based. However, its ability to do this may depend on a methodological issue: whether the findings of behavioural economics are used to modify or extend standard theory, or to contribute towards replacing it where required – respectively the incremental and selective replacement strategies. I focus on the incremental approach, in terms of its implied causal mechanism. Two stages are involved, corresponding to the prediction of standard theory and to a separate component that aligns it with actual observations. In behavioural economics, one possible interpretation of the language of ‘biases’ is such a two-stage approach. More explicitly, Rabin advocates it in the form of PEEMs (Portable Extensions of Existing Models). A more direct, one-stage approach may have some advantages, at least for some research topics.

KEYWORDS:

• Behavioural economics
• biases
• economic methodology
• causal mechanism
• evidence-based economics
• PEEMs (Portable Extensions of Existing Models)

JEL CLASSIFICATION:

• B41
• D91
• G41

Acknowledgements

I would like to thank Alex Rosenberg and Helena Cronin for helpful comments on an earlier draft.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Michael Joffe trained in biomedical sciences in Cambridge, and worked as an epidemiologist at Imperial College before becoming an economist. He has published on evidence-based economics, growth and the capitalist firm, and economic methodology. He has also published on philosophy of causation, including on evidence discovery and causal inference.

ORCID

Michael Joffe http://orcid.org/0000-0001-6907-6183

Notes

1 However, the idea of modularity has been criticized (e.g. Panksepp & Panksepp, 2000; Uttal, 2003; Buller, 2005).

2 In addition, some studies have sometimes cast doubt on the interpretation that present bias is best represented in hyperbolic (or quasi-hyperbolic) form. See e.g. Rubinstein (2003) and Andersen, Harrison, Lau, and Rutström (2014).

3 The terms ‘balancing’ and ‘reinforcing’ feedback are preferable to use of the more familiar ‘negative’ and ‘positive’ feedback, respectively, because the latter pair are often misused. For example, reinforcing (positive) feedback may be wrongly termed negative because its consequences are harmful (e.g. in Acemoglu & Robinson, 2012).