Bicoastal Curious

bicoastal November 22nd, 2006

Over the last decade a group of economists and scholars in other disciplines have challenged the fundamental assumptions of neoclassical economics. Most notably, “behavioral economists” and their fellow travelers have presented persuasive evidence that people make consistent and fundamental errors in assessing risk, and that most people in many contexts place a high value on fairness and altruism relative to material well being.

I contend that this intellectual movement can be characterized as a shift from east coasterly to west coasterly scholarship.

I. First, check out some of the leaders from the old and new school. Here are Richard Posner and Richard Epstein, old line economists, in their faculty profile pictures:

Wow. Can you get more east coast? Now check out leading behavioral economists Matthew Rabin and Samuel Bowles, also in their faculty pictures:

Dude, where’s my slide rule? These guys fucking rock.

II. Second, behavioral economics is firmly grounded in reality at the same time that its goals are whimsically ambitious. This is very west coasterly.

The east coasterly approach is far more neurotic: you start with a handful of plausible but limited assumptions and then you let your mind fly off the handle generating insane prediction after insane prediction. Each new prediction is beautifully derived from the basic assumptions, but there is still a good chance it is false because the assumptions are flawed. In this way the neoclassical economist who concludes that markets clear by reasoning from the base assumption of rational wealth maximizing behavior is like the hypochondriac who analytically derives the conclusion that she has an STD from a foundational, plausible assumption, about how many germs are on any given toilet seat.

But if you want to know how people actually act, and how germs actually spread, you need to slow down a little bit and watch. This is the west coast approach to economics. It is no less ambitious and no less rigorous — behavioral economists also seek parsimonious theories of everything use modeling techniques that are often more advanced than the old school’s — it’s just a little bit more grounded in the complications of life.

III. West coasterly behavioral economists don’t assume that all people are selfish. In other words, they’re far less suspicious and far more trusting than their east coasterly peers.

If the behavioral economists are more correct than the neoclassicists, then that would suggest that human behavior is actually more west coasterly then many policy makers have long believed. Some time in the future I’ll try to identify some distinctly west and east coast approaches to policymaking that reflect the findings of behavioral economics.

• Scholarship