Hayekian behavioral economics

From Cass Sunstein:

A neo-Hayekian approach would seek to reduce the knowledge problem by asking not what outsiders want, but what individual choosers actually do under epistemically favorable conditions. In practice, that question can be disciplined by asking five subsidiary questions: (1) What do consistent choosers, unaffected by self-evidently irrelevant factors, end up choosing? (2) What do informed choosers choose? (3) What do active choosers choose? (4) In circumstances in which people are free of behavioral biases, including (say) present bias or unrealistic optimism, what do they choose? (5) What do people choose when their viewscreen is broad, and they do not suffer from limited attention? These kinds of questions can be answered empirically. An ongoing program of research, coming from a diverse assortment of people, explores these questions, and can be seen to be producing a form of Hayekian behavioral economics – Hayekian in the sense that it can claim to be respectful of Hayek’s fundamental concerns.

In my vision of Hayekian behavioral economics, people draw excessively upon local information, because they did not evolve with technologies that sometimes allow them to see global or at least non-local considerations.  The properties of the price system mean this often works just fine, but the corny recommendation to “expand your horizons” is nonetheless often good advice.  Also along Hayekian lines, people apply small group norms (atavism!) to large groups settings (Twitter!).  “Don’t be so neurotic!’ is thus also at the margin usually good advice.

Overall, I view Hayekian behavioral economics as an underexplored area, so I am very happy to see this paper come into existence.

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