
The Bias Bias in Behavioral Economics - AnIdiotOnTheNet
https://www.nowpublishers.com/article/Details/RBE-0092
======
abnry
On this topic: It's always bugged me when behavioral economists start going on
about "irrational human behavior." Many times they are simply not accounting
for cognitive or longterm costs. Using your precious energy on too many system
2 calculations will not help you live a good life. So compromises are made.
Thinking is hard work. It is entirely reasonable to minimize hard work.

~~~
ggm
I think "rational" and "irrational" have taken on domain-specific meaning in
economics. This is not unusual. Ontologies and DSL are kind-of a way of life
now, in any information-theoretic field.

In my space, we refer to some things as "portable" or "non-portable" which has
very specific intent, which doesn't relate to if you can pick them up or not.
I think loan-words which have close analogies in a few minds rapidly diverge.

So a "rational" actor in economics seem (to me at least) to mean the typical
selfish bastard who only acts to maximise their own profit outcome, no matter
how its defined, and excludes a green warrior buying a good or chattel to NOT
use it, or somebody buying it to give to charity, or buying it to round up
another charge to get north of a shipping fee but its a nonce purchase and has
no intent or purpose..

its a narrow, domain-specific meaning. I think that word doesn't mean what you
think it means _inconceivable_

~~~
thaumasiotes
> So a "rational" actor in economics seem (to me at least) to mean the typical
> selfish bastard who only acts to maximise their own profit outcome, no
> matter how its defined, and excludes a green warrior buying a good or
> chattel to NOT use it, or somebody buying it to give to charity, or buying
> it to round up another charge to get north of a shipping fee but its a nonce
> purchase and has no intent or purpose.

This is completely unrelated to what economics means by referring to a
rational actor. A rational actor is just one who, given a choice, will take
the action that produces the all-inclusive result they most prefer. You're
talking about someone whose only preference is having the greatest amount of
money, but economics contemplates all possible preference sets, which is why
it measures benefit in "utils".

~~~
ggm
So what you're saying is, that in the domain of study it means something which
in common parlance, nobody understands. Because when any politician gets on
their hind legs to bray about rational actors and efficient markets, they sure
as hell aren't talking about "utils" to the taxpayer, are they?

Let me ask you a question. Do you think the word "rational" in rational actor,
rational investor and rational market, has _exactly_ the same meaning? Do you
think as people commonly understand these terms (I don't mean economists) the
answer would be the same?

~~~
jerf
"Because when any politician gets on their hind legs to bray about rational
actors and efficient markets, they sure as hell aren't talking about "utils"
to the taxpayer, are they?"

Do you even mean this as a serious argument? Can your favorite field survive
politician's ( _politician_ , from "polis", city, and "-tician", "person": 1.
professional liar 2. scumbag 3. one who professionally holds office) handling
of their terminology?

Nor can I find it a terribly serious argument that "common people", i.e.,
people who aren't in the field and don't know the definition, don't know the
definition. That's just shy of begging the question, except there's a small
sliver of people "in the field" who don't yet know the definitions, called
students.

I'm trying my best to unpack your words into some sort of actual argument but
I can't find it.

~~~
thaumasiotes
> _politician_ , from "polis", city, and "-tician", "person"

I know you didn't really mean this, but polit/ic/ian -- "polit" is from
_polis_ , city; "ic" is a Greek adjective-forming element; and "an" or here
"ian" is a Latin adjective-forming element. "Polit" is the only part of the
word that bears any semantics (in the etymology). The Greek root for person
would be "anthrop", which isn't present.

(The root for "man", an adult male, is "andr", which is why it's so hilarious
to Italians that English speakers think Andrea is a girl's name.)

------
richardhod
The author, Gerd Gigerenzer is a giant in social psychological research into
bounded rationality, and especially heuristics. His books are worth a look. He
provides an interesting counterpoint to Kahneman and Tversky, other giants in
the field that you may know better. As usual, maybe start with Wikipedia
[https://en.wikipedia.org/wiki/Gerd_Gigerenzer](https://en.wikipedia.org/wiki/Gerd_Gigerenzer)

Edit: and here's a great HN comment with more detail on this from 18 days ago,
which I just came across -
[https://news.ycombinator.com/item?id=18988316](https://news.ycombinator.com/item?id=18988316)

~~~
notahacker
For all that Gigerenzer is a giant in social psychological research, the
article doesn't half sound like two fields talking past each other. The entire
_purpose_ of behavioural economics is not to reinvent Gigerenzer's own field
but to point out that humans frequently deviate from "rational expectations"
outcomes predicted by orthodox economic models. Modelling deviations from
rational choice theory is not "all that keeps it erect", it's its _raison d
'etre_ in critiquing a field where rational choice theory and unsystematic
error is the default assumption. The crux of the "great rationality debate" is
that Kahnemann is talking about rationality as "making correct predictions
with random error" (or in terms of policy implications, "making predictions
which lead to preferable outcomes to those which could be achieved by any
other conceivable model") and finding examples where humans do not do this,
whereas Gigerenzer is talking about rationality in terms of whether human
intuitions and heuristics are justifiable in an evolutionary sense (and
improvable upon by learning).

Gigerenzer is undoubtedly correct that Bayesian reasoning is something that
can be learned by many people, and yet all that Kahnemann needs for the
implications of his statement that "the human mind is not Bayesian at all" to
be relevant in behavioural economics terms is for some portion of the
population to reach systematically different conclusions from the correct
Bayesian one using an inferior heuristic. (A point Gigerenzer essentially
_demonstrates_ by citing a study which show how outcomes improved after
gynecologists already motivated to make correct predictions were taught
Bayesian reasoning). Perhaps it's sloppy wording on the part of Kahnemann that
Gigerenzer is taking exception to, but the core claim is not that humans
cannot learn statistics, but that at a population level, some humans will
continue to rely on less accurate heuristics which deviate from those
predicted by rational expectations models in a systematic [and predictable]
manner which are not simply eliminated over time due to financial incentives
to be correct.

The one claim which really ought to be of serious concern to behavioural
economists is that their experimental studies frequently mistake random error
(acknowledged by 'rational expectations' orthodox economics) for systematic
error, so it's perhaps unfortunate that the Kahnemann example Gigerenzer
highlights in this paper as not being replicable is an abstract demonstration
of the availability heuristic with zero direct economic implications.

~~~
SomethingOrNot
> Gigerenzer is undoubtedly correct that Bayesian reasoning is something that
> can be learned by many people, and yet all that Kahnemann needs for the
> implications of his statement that "the human mind is not Bayesian at all"
> to be relevant in behavioural economics terms is for some portion of the
> population to reach systematically different conclusions from the correct
> Bayesian one using an inferior heuristic. (A point Gigerenzer essentially
> demonstrates by citing a study which show how outcomes improved after
> gynecologists already motivated to make correct predictions were taught
> Bayesian reasoning). Perhaps it's sloppy wording on the part of Kahnemann
> that Gigerenzer is taking exception to, but the core claim is not that
> humans cannot learn statistics, but that at a population level, some humans
> will continue to rely on less accurate heuristics which deviate from those
> predicted by rational expectations models in a systematic [and predictable]
> manner which are not simply eliminated over time due to financial incentives
> to be correct.

Indeed, the possible result that only _some_ people are _irrational_ would be
very good for the paternalistic policy makers. In fact it would be better than
the result that _all_ people are _irrational_ ; if all people are _irrational_
, what gives some irrational people the right to guide other irrational
people’s lives.

Economists are always oh-so-sorry to inform us that _some_ people just can’t
run their own lives without the help of the “free” market or the government.
So very sorry. Happily they know some technocrats that will bravely shoulder
the burden of being Bayesians.

------
AbrahamParangi
It might be my ignorance of the topic but it seems to me that behavioral
economics seems to have a major blindspot with respect to the computational &
informational complexity costs of decision making processes (which are as real
as any other kind of cost).

This could also be because it's more "interesting" to come to conclusions like
"here's a pernicious irrational bias that most people have" instead of "people
are essentially rational within their informational and computational limits".

~~~
nullc
Also robustness costs, -- many heuristics that get poked at by champions of
behavioral economics are behaviors that tend to give improved results when
reasoning with noisy inputs (and, in particular, inputs with unknown levels of
noise or even malicious distortions) compared to a formal decision theory that
doesn't handle low quality inputs well.

These limitations are only a concern when people attempt to suggest that
behavioral economics is telling us to rework how we live our lives. Generally
such claims are unjustified extrapolations from _very_ basic studies which in
no way support the pop-economics advice. Like if someone did some experiments
and determined that submersing people in water often killed the test subjects,
then other people ran to the presses recommending that no one drink anymore
because water was proven to kill in scientific studies... :)

------
mpweiher
One of my favourite "bias-biases" is the one that is now very, very popular:
the idea that people's largely accurate perception of some reality is instead
a bias that is the cause of that reality (see "stereotype threat" and
related), which is as close to a "wet roads cause rain" fallacy, and magical
thinking[1] as you can get.

See also: _Stereotype Accuracy_ [2]

[1]
[https://en.wikipedia.org/wiki/Magical_thinking](https://en.wikipedia.org/wiki/Magical_thinking)

[2] [http://www.spsp.org/news-center/blog/stereotype-accuracy-
res...](http://www.spsp.org/news-center/blog/stereotype-accuracy-response)

------
gbhn
The authors' point seems to be "if you ask people questions whose real answers
correspond to informal statistical judgments, then they will give the right
answers."

This isn't really that informative, but the strongest form of this argument is
"informal statistics is better in a lot of real-world cases." This sounds to
me quite a bit like the case the behavioral economists make -- that these
intuitions aren't crazy, or stupid, but they do exist. They were constructing
tests specifically to isolate them, and succeeded.

A further point is that these kinds of situations when intuitions are
challenged happen regularly. I don't know what behavioral economics says
specifically about causes, but it seems to me they take a fairly neutral view:
such situations can occur by chance, due to hostile intent, or by mistake.
Whether the outcome is positive or negative depends as well. The point of
"nudge policy" (opposition to which seems to be the main point of the article)
is to see about making these situations positive -- that is, arranging the
world through policy such that making intuitive considerations actually yields
positive outcomes. I don't think the authors' argue successfully for the point
that since everyone is rationale and no-one ever gambles when presented with
the opportunity, that therefore arranging policy such that intuitive choices
yield positive outcomes is unwarranted interference.

------
rocqua
> governmental paternalism is called upon to steer people with the help of
> “nudges.” These biases have since attained the status of truisms. In
> contrast, I show that such a view of human nature is tainted by a “bias
> bias,”

Is it me, or does this sentence (from the abstract) seem very non-academic? It
uses the first person, and seems rather political.

~~~
roenxi
It is clearly political, but economics is inherently political - it justifies
how society is organised. I would put it that someone having firm ideas of how
an economy should be run doesn't in any way disqualify them from making a
point and if an economist doesn't have firm opinions on how to organise an
economy ... well, that would be fine, but surprising.

The abstract is putting forward a very important point in light of the
environment that has developed where governments are expected to 'fix' the
economy when a 'crisis' occurs. Both of those words are highly, highly
political and also central to the practical branch of modern economics.

The core of this abstract is that there is evidence people have 'fine-tuned
intuitions about chance, frequency, and framing' compared to what is currently
believed by economists. If that is true, then that should have a bearing on
the quantity and quality of regulation being recommended by economists.

------
SubiculumCode
Poverty entails non-optimal choices.

It is more efficient to go to the gas station and fill you tank all the way.
If you do, you are less likely to accidentally run out of fuel somewhere, you
can choose better where you fill up for the best price, you do not waste time
that could be devoted to other profitable endeavors.

So why is it rational for the poor to only put in a few dollars at a time? It
is not often the case that they don't have enough money to fill the tank; No,
they don't fill it all the way up because come end of the month, gasoline in
the tank is not as liquid as cash, and other needs may arise. Filling your
tank is a statement about the predictability of your financial needs and the
availability of credit to offset hard needs.

~~~
YorkshireSeason
If you can afford a car, you are not poor. I recommend spending some time in
e.g. Democratic Republic of Congo, Mozambique, Uganda, Yemen or Malawi, so
learn about poverty.

    
    
       Poverty entails non-optimal choices.
    

Looking at the drug addicts around where I live, non-optimal choices often
lead to relative poverty too.

~~~
paganel
There's poor people living in wealthy countries like the US, too, and
especially in the case of the United States its lack of public transport
infrastructure basically means that you need to have a car even if you're
poor, otherwise you can't get to your job, plain and simple.

I'd say a similar phenomenon has started happening in Western Europe, too, see
the recent "gilets jaunes" movement. The French Government wrongly presumed
that increasing the cost of gas by a few euro-cents won't matter, because,
like you said, they thought that "if you can afford a car, you are not poor"
so that a few euro-cents per liter won't matter, but the reality bit them in
the posterior as lots and lots of poor French people have had to move out to
the suburbs even exurbs because the downtown areas of cities like Paris or
Bordeaux are expesneive af so that those poorer masses had to go wherever the
real-estate was cheaper. And when you live 30 to 50 km outside of Paris you do
need a car.

~~~
YorkshireSeason
The 'poor' living in wealthy countries like the US or France are not poor in
the sense of Democratic Republic of Congo, Mozambique, Uganda, Yemen or
Malawi, where by-and-large there are not even paved streets to drive. It's
_deeply misleading_ to compare poverty in the developing world with how the
bottom third of the US live. Think available health care, education etc.

~~~
SubiculumCode
No one said they were poor in that sense. However, there are still poor, even
if they are not starving. Economic stress of living on small paycheck to small
paycheck is poverty.

Sure if you took their several dollars to another poorer country they would be
considered well off, but they can't get there and spend it. They are here,
paying for food and lodgings that take almost their entire income.

~~~
YorkshireSeason

       Economic stress of living on small 
       paycheck to small paycheck is poverty.
    

No it's not.

There is a gigantic qualitative difference between living in a western country
"paycheck to paycheck" enough money to afford driving a car, (not to mention
all the other benefits that come with living in a first-world country, top
health care, pension, unemployment insurance, working primary schools, working
secondary schools, low corruption etc etc) in comparison with the crushing
poverty one finds in poor countries, no streets, no schools, civil war, high
corruption, no running water, no electricity etc.

What cognitive benefit do gain from conflating two entirely distinct
phenomena? It's like calling both, a heart attack and flu, a heart attack,
because both are unpleasant.

Once more, I invite you to spend some time in very poor countries.

------
fanzhang
This is not new. Behavioral Economics has always recognized biases as the
result of _heuristics_ \-- rules of thumb that are _mostly_ correct,
especially with regards to our evolutionary history. However, in specific,
predictable contexts, it can be very wrong, and lead to a person being
manipulated.

For example, the anchoring bias is actually a useful heuristic in many
situations. If you ask someone about the length of the Nile and a third person
guessed 5000 miles, you probably would guess closer to 5000 miles to integrate
the third person's information, which is usually somewhat informative.

The bias comes when an outside marketer manipulates you by saying "how much
should the iPad cost? $2000? No! $1000? No! It's only $500!".

~~~
AstralStorm
Ultimately, the reasonable price for an iPad is as the cost (including labor,
figuratively) - obviously nobody wants to sell at such price. Everyone wants
to get richer, irrationally so.

------
netcan
When Karl Popper popularized the "testability" definition of scientific
theory, he had two targets in his sights: Freud and Marx.

Freudians and Marxists were promoting what was, in his view, scientism: a
dangerous middle ground where theories and studies appear scientific but
aren't.

These two fields (psychology & economics) are still having a lot of problems
with that middle ground. On one hand, they aren't willing to cede the science
label, and join the other humanities like history and philosophy. On the
other, very few of their important theories are scientific. IE, the big
debates in economics & psychology are about theories that will never be
tested. They'll fall into and out of fashion due to anecdotes and other
intellectual trends.

The Keynesian paradox of thrift, Friedman's monetarism... these will never be
tested, confirmed or denied. They are likely to fall out and maybe back into
fashion. Neither will historical materialism, etc.

Same exact thing in psychology.

It's a more aggressive conclusion than I'm happy with but.. behavioural
psychology is pseudoscience.

------
skywhopper
Every subject has its own slant or “bias” if you choose based on how it
defines itself and the sorts of problems it tackles. That’s certainly worth
examining, but maybe not particularly good fodder for takedown articles.

This sentence in the abstract is probably the most revealing about the goals
and yes biases of the article’s author: “meaning that governmental paternalism
is called upon to steer people with the help of ‘nudges.‘“

In other words this isn’t really about examining whether the field is
productive on its own terms but it’s about picking a political fight under the
guise of a methods critique. The author seems convinced that behavioral
economic results demand governmental intervention, and so he attacks the
premise of the entire field.

Maybe better material for a polisci journal.

~~~
bedobi
I can see how you would think that, but the author is Gerd Gigerenzer from
[https://en.wikipedia.org/wiki/Max_Planck_Institute_for_Human...](https://en.wikipedia.org/wiki/Max_Planck_Institute_for_Human_Development)

