Legal Commentary

The Behavioral Economics of Marketing Behavioral Economics:

By Todd Zywicki

Josh Wright discusses the concerns of behavioral economists about using and misusing behavioral economics to make policy.

Which leads me to a related question: Could it be that there is a bubble in the way in which behavioral law and economics has grown so rapidly in recent years?  Certainly the use?and more typically misuse?of behavioral economics to explain every problem (and even more imagined problems) provides a good example of the availability bias in action.  Ronald Coase?s observation that economists used to use ?monopoly? as the explanation for every economic practice that they don?t understand does seem to now be replaced with the use of ?behavioral bias? to explain every practice that an economist doesn?t understand.  Cautionary tales such as Plott and Zeiler?s research on the manipulability of the endowment effect seem to hardly deflate the bubble.

Moreover, the academic market for ideas itself seems like the sort of market that would be especially prone to bubbles.  For almost all academic research almost nothing at all rides on whether the content of the idea is correct or not, thus the self-correcting mechanisms of the market are not at work.  Scholars are often rewarded for novelty rather than correctness.  And there is a true bubble dynamic at work (at least in law)?your ideas are ?important? if others think they are ?important? not whether they have any underlying value.  By the time the market self-corrects (if it does), the original protagonists are well-ensconced in their endowed chairs.  In law, this tendency toward the promotion of idea bubbles is probably exacerbated by the institution of student-run law reviews, but that?s a topic for another day.

Behavioral economics might go a long way to explaining fads and bubbles in academia.  How well it explains the real-world, especially with respect to the topics that Josh flags, is a much more contestable issue.

Full post as published by The Volokh Conspiracy on July 17, 2010 (boomark / email).