Paradigm Change or Assimilation? The Case of Behavioral Economics

3.1. Old behavioral economics

Discussing the 20th century history of behavioral economics, scholars refer to old behavioral economics, traced back to the 1940s and 1950s, and new behavioral economics that emerged in the 1970s (Heukelom 2014; Sent 2004). The beginnings of old behavioral economics coincide with the onset of the post-war formalist revolution and the gradual consolidation of the neoclassical paradigm. The period witnessed the ascent of rational choice theory and the proliferation of quantitative tools, which reinforced the belief that optimization models can explain all kinds of human behavior; published in 1944 Von Neumann and Morgenstern’s Theory of Games and Economic Behavior mathematically defined rationality and advanced an axiomatic framework to measure utility in decision-making games where participants choose strategies to maximize their expected utilities (Amadae 2003: 6–7, 77).

In this intellectual climate, George Katona (1951) and his colleagues at University of Michigan studied the behavior of consumers and businessmen in macroeconomic perspective, emphasizing the disregard for psychological insights in neoclassical theorizing. Katona (1953: 307–9) explicitly criticized the apriorism of deducing human behavior under assumptions “known to be unreal and not testable” such as complete information and foresight, pure competition, certainty of future, and complete mobility, which allows the omission of institutional and psychological elements involved in translating rational choice into action. The critique of unrealistic neoclassical assumptions such as virtually omniscient individuals with unlimited computational skills was also central to Simon’s (1957: 202) work on decision making as a dynamic process. Questioning the neoclassical modeling of uncertainty, Simon (1986: 210) rejected the idealized assumption of “one world” where rational behavior is universally consistent across time and space—“present and future environment.” To address these shortcomings, Simon (1957: 198–200) introduced the concept of bounded rationality, which considers “the cognitive limitations of the decision maker.” To replace utility maximization, Simon (1957: 204–5) proposed the notion of satisficing: adjusting our aspiration levels until we settle on a “good enough” choice rather than seeking the “best move.” Criticizing Friedman’s (1953) defense of unrealistic assumptions, Simon ([1963] 2007: 179–81; Simon 1986: 223) argued that “unreality of premises is not a virtue” but an unavoidable evil that led economists to make numerous auxiliary empirical assumptions, even unverified ones, to compensate for the uselessness of utility maximization, a practice that yields a weak theory grounded on assumed facts, which “cannot be rationalized and made consistent with it.”

Notwithstanding different lines of inquiry, old behavioral economists had a great deal in common. Setting out from nonmainstream premises, they defied the neoclassical assumption of omnisciently rational agents and sought to address failures of knowledge, cognitive limitations, and uncertainty; instead of a given utility function and maximization, old behavioral economics emphasized empirical evidence about the form and content of the utility function (Sent 2004: 742). They opposed positivism and deductive reasoning, favoring disequilibrium analysis rather than static equilibrium; rejecting the uncritical use of fallacious assumptions, old behavioral economists urged for the drastic revision of the assumptions of optimally processed perfect information, and utility maximization (Gilad, Kaish, and Loeb 1984: 2–3).

This explicit challenge to key neoclassical tenets indicates that old behavioral economics attempted to articulate a credible alternative to the mainstream paradigm, revealing important anomalies, or counter-instances to rational choice. Were these to be recognized as such, they could have allowed “the emergence of a new and different analysis” (Kuhn 1962: 78). As the following section intimates, however, the old behavioral approach was selectively appropriated and marginalized by new behavioral economics (Earl 2016; Heukelom 2014; Sent 2004: 742). Still, the old behavioral tradition did not disappear, influencing the fast and frugal heuristics approach of Gigerenzer and Selten, anthropologists such as Boyd and Henrich, and experimental economists such as Vernon Smith and Charles Plott who elaborated an ecological conception of bounded rationality that considers environmental factors in decision making (Davis 2011: 25, 143).

3.2. New behavioral economics

The beginnings of new behavioral economics go back to the 1970s and the work of Amos Tversky and Daniel Kahneman on prospect theory, heuristics and biases, and framing effects. Examining mechanisms underlying decision making, Tversky and Kahneman (1975) identified three main heuristics, or mental shortcuts, which can lead to cognitive biases and systematic deviations from rational choice theory. Questioning the descriptive adequacy of utility theory, Kahneman and Tversky in “Prospect theory: An analysis of decision under risk” (1979) analyzed various choice-making contexts where preference-related anomalies violate expected utility theory and proposed prospect theory as a new descriptive model of choice under uncertainty. Acclaimed for its experimental emphasis, parsimonious mathematical models, and mastery of the economics language, prospect theory propelled the new behavioral program into the mainstream while other nonrational approaches “were being squeezed out”; Thaler played a key role in these developments, easing the acceptance of behavioral economics by the mainstream of the discipline (Laibson and Zeckhauser 1998: 19).

Building on Kahneman and Tversky’s work, Thaler (1980: 740) sought to make consumer choice theory empirically adequate and more descriptive by studying various “economic mental illusions” or errors, which can lead consumers to “deviate from the predictions of the normative model.” In the 1980s, Thaler extended his research to anomalies beyond finance and popularized the results in a column titled “Anomalies” in the Journal of Economic Perspectives. In sum, starting at the turn of the century, Thaler and other behavioral economists ⁵ expanded new behavioral economics into a prominent field comprising methods and research paths beyond decision making. This undertaking conceptually redefined the field as the influence of Kahneman and Tversky gradually declined and the focus shifted to engineering individuals to express their preferences in a more rational manner conforming to full rather than bounded rationality; Simon’s work on bounded rationality was selectively reintroduced into new behavioral economics by adding psychological insights to the mainstream conception of rationality in line with Kahneman and Tversky’s perspective (Heukelom 2014: 196–97, 171–72). The resulting psychology brought models of bounded rationality closer to standard economics moving away from Simon’s radical outlook; this psychology is also informed by neuroscience and neuroeconomics that use imaging of brain activity and other techniques to observe directly the “ultimate black box” of the brain (Camerer 1999a; Camerer, Loewenstein, and Prelec 2005: 9).

To conclude, over the past three decades new behavioral economics represented by Kahneman and Tversky’s research program, and revamped by Thaler, emerged as the foremost contender to change the mainstream paradigm. It acquired prominence in terms of academic and public recognition, extending its influence to policy and rewarding its practitioners with access to tenure and journals, prestigious prizes, awards, and grants (Sent 2004: 735–37). As Kuhn (1962: 180) emphasized, “any study of paradigm-directed or of paradigm-shattering research must begin by locating the responsible group or groups.” Scrutinizing the methodological practice of new behavioral community, the next section seeks to assess the quality of the change behavioral economics can bring to the dominant paradigm.

4.1. Rationalizing the irrational: Methodological individualism, homo economicus, and equilibrium

In the words of experimental economist Smith (2005: 135), the “image of economists and psychologists as protagonists obscures their underlying agreement on foundations. Both rely upon the same underlying interpretation of economic rationality.” What does this agreement imply? Do the two scientific communities agree in their conception of rationality, disagreeing on the degree that human behavior diverges from the rational model?

Using the mainstream conception of rationality as a yardstick, new behavioral economists seek to locate deviations from this conception (Sent 2004: 750). To do so, they scrutinize instances of irrational behavior that emanate from a host of anomalies such as aversion, altruism, preference reversals, endowment effects, framing effects, anchoring effects, and availability bias. Alternately, selectively incorporating insights from Simon’s work, people are conceived as flexibly rational and goal-oriented but inclined to cognitive and computational limitations. These premises suggest the possibility of virtually limitless behavioral anomalies, considering the multiple, conscious or automatic psychological processes, physiological factors, contextual parameters, biases, cognitive limitations, and other mental variables that affect human behavior. After all, people are prone to conflicts of decision and identity; they are emotional and influenced by ephemeral states of mind, they do not learn from past mistakes, they experience stimulus–response compatibility problems, and so on; even “trivial contextual features” will generate greatly varying perceptions and reactions, and yield dissimilar preferences (Shafir 2007: 335, 348). In other words, the new behavioral approach conceives individuals as consistently irrational and prone to numerous cognitive errors and biases in their decisions. This carries two implications: (1) people are irrational because their choices deviate from what neoclassical norms consider rational, leading to suboptimal decisions, and (2) behavioral anomalies should be corrected and directed towards efficient outcomes.

New behavioral economists, then, strive to challenge the rationality postulate on empirical grounds by demonstrating how human behavior deviates from the neoclassical norm in every conceivable way, and subsequently they seek to model individuals back into the mainstream norm of rationality. In doing so, the new behavioral approach, much like neoclassical economics, embraces logical deduction instead of inductively deriving descriptions of how people behave (Berg and Gigerenzer 2010: 149). Thus, instead of describing and explaining economic behavior, an “explicitly normative microeconomics” seeks to locate behavior that is irrational with respect to instrumental rationality and propose ways to set straight people identified as irrational (Hands 2007: 10). As Thaler (1991: xvi) explains, “no matter how strange a particular economic action might seem to be, some economist can usually construct a rational explanation for it.” Conflicts between individual and collective rationality can be remedied with expert help, particularly when people are “irrational without regret” and fail to change their behavior (Frank 2008: 88). This normative approach yielded choice architecture policy templates, mainly deriving from the concept of “nudging” (Thaler and Sunstein 2008) that proposes anchoring, simplification, reminders, and similar commitment devices to nudge people into making better choices without “significantly changing their economic incentives” (5–6).

Notwithstanding that homo economicus has evolved into a homo sapiens specimen whose behavior can be rectified, new behavioral economics maintains the framework of methodological individualism. Whether irrational, boundedly rational, or cognitively impaired, the individual still provides the building block of microfounded explanations that purport to account for complex socioeconomic phenomena. “Aggregated into groups,” the new less-idealized individual “carries his psychology with him,” extending nonrationality to organizational behavior (Gilad and Kaish 1986: 6). Notably, to make experiments conform to the assumptions underlying methodological individualism and rationality, self-interested behavior is tested in experiments where subjects are isolated from social interaction (Dow 2013: 33). Rather than moving away from methodological individualism, neuroeconomics and neuroscience techniques such as functional magnetic resonance brain imaging take the brain as the unit of explanation, seeking to crack the “forbidden” black box of the skull cavity (Harrison and Ross 2010: 186). In light of the affinity of behavioral research to artificial intelligence since Simon’s cold war days (Crowther-Heyck 2005), recent computer simulations of rational behavior evoke Jevons’s mechanistic vision; the prospect of economic man as an algorithmic information processor vanishing in a “welter of cyborg machines” invites disquieting reflections as to the kind of change one can expect in economics (Maas 1999; Mirowski 2002: 37–38, 555).

The preferred habitat of the behaviorally reconfigured homo economicus is still the neoclassical competitive market conceived as an efficient allocation mechanism. Market equilibria are reconstructed in experiments by randomly designating subjects as buyers or sellers (Cartwright 2011: 54). As Smith (1991b: 880, 894) notes, experiments that simulate the trading environment in stock market auctions demonstrate how prices and allocations quickly attain “the predicted rational expectations of competitive equilibrium”; should individuals tested in isolation deviate from rational choice, the social context of the market “as though by magic” aligns their decisions with rationality. This is not entirely surprising given Smith’s (1991b: 881) view that “institutions serve as social tools that reinforce, even induce, economic rationality.” So, not only markets converge toward equilibrium but they are now endowed with rationality imparted by suitably modeled rational agents and “given induced cash values, whatever are the cash values—rational, irrational, or nonrational,” which are supplied by individuals (Smith 2005: 136).

Ultimately, Dow (2013: 39) remarks, the proclaimed empirical improvement of partial theories developed under the new behavioral label emerges as inconsistent with attempts to fit these theories into constructions of general equilibrium that are deduced from rationality axioms. It is perhaps worth noting here that Smith’s laboratory experiments, which simulate the stock market, are credited with rendering the invisible hand visible:

Finally, other research on the physiology of the brain explains the invisible hand by analyzing the behavioral tension (B/T) between “the tug and pull of ego and empathy,” which represents demand and supply; markets are conceived as the “institutionalized product of the ego/empathy dynamic of our evolved neural architecture” where “neural algorithms of our social brain” converge toward equilibrium, promoting “social harmony and cooperation” (Cory Jr 2006: 36−38).

4.2. Formalism, mathematics, and models

To recall Blaug (2003: 396), the degree of formalism is central to a critique of the mainstream paradigm, denoting preference for form over content, which often entails reliance on mathematical modeling. Does the new behavioral paradigm usher a change away from the formalism and the mathematization of the dominant one?

Simon (1977: xiv) invites practicing scientists to liberate theory and philosophy from an excess of formalism. Still, high levels of formalism characterize new behavioral models, experimental methods, and neurophysiological research. Protocols used in lab experiments indicate a preference for rigorous form over content. For example, the laboratory protocol used by Smith (1991a: 223) to test his “Hayek Hypothesis,” positing that markets provide all information needed for exchange, is structured to yield the desired outcome: “strict privacy together with the trading rules of a market institution” ensure nearly 100 percent efficiency in competitive outcomes. Formalized experimental protocols help render subjects “as close to neoclassical agents as inhumanly possible” by controlling the data they receive, minimizing their communication and running preparatory conditioning sessions in machine-like behavior (Mirowski 2002: 549). Notably, in formalized laboratory experiments, representative subject samples manifest economic, social, and cultural homogeneity, casting doubts on the validity of generalizations resulting from these tests; 90 percent of the subjects come from the category described as WEIRD—Western, Educated, Industrialized, Rich, Democratic (Henrich, Heine, and Norenzayan 2010). Ultimately, overcontrolling subjects to preclude behavior falling outside of the prevailing dictates of economics situates the experiment in “the world of the model rather than the laboratory of the real world” (Morgan 2012: 295).

Does new behavioral economics mark a respite in the forceful trend for mathematization that characterizes mainstream economics (Milonakis 2017)? Whereas mathematical methods were used by old behavioral economists, Simon (1957: 88−89; 1977: xiv) opposed the indiscriminate use of mathematics without empirical grounding. Yet, for new behavioral economists, the use of mathematics defines their field as economics, distinguishing it from psychology (Heukelom 2014: 188). In other words, new behavioral economics does not merely use mathematical methods and models but pursues mathematization as a goal to formulate mathematical alternatives that provide “firm psychological foundations to rationality assumptions” (Camerer 1999b: 10575). Mathematics and the modeling techniques of economics are also central to neuroeconomics, which takes aboard constrained maximization and equilibrium analysis to model certain parts of the brain, perceived as market-like networks that process and distribute information on a massive scale (Ross 2008: 473).

4.3. The treatment of anomalies

In Kuhn’s (1962: 52–3) account anomalies constitute drivers of change and innovation: “discovery commences with the awareness of an anomaly,” which violates “the paradigm-induced expectations that govern normal science.” Recurrent failure to address intractable anomalies prompts a state of crisis followed by the transition to a new paradigm: a scientific revolution that shatters the “tradition-bound activity of normal science” (Kuhn 1962: 6). The detection of virtually limitless anomalies as deviations from optimizing behavior is central to behavioral research. For Thaler (2015: 170), “a real paradigm shift… would require a whole series of anomalies each calling for its own ad hoc explanation.” The methodological mainstreaming of most behavioral research, however, evokes Kuhn’s (1962: 78) account of how scientists contrive numerous “ad hoc modifications of their theory in order to eliminate any apparent conflict” as a way of addressing stubborn anomalies.

Instead of addressing anomalies as beacons of scientific discovery, new behavioral economists respond with Kuhnian mop-up operations, engaging in strategies that ensure the conceptual continuity of the dominant paradigm. Used also by mainstream economics, such strategies include relaxing certain neoclassical assumptions to accommodate anomalous findings, construing obstinate facts to align them with the assumptions of the paradigm, or dividing the social world to realms of behavior that fit neoclassical tenets and other exogenous realms governed by different rules, which can explain away anomalous findings (Etzioni 2011: 1103–8). As intimated previously, the typical strategy to address obstinate deviations from rational choice can be summarized as rationalizing irrationality. One way of achieving this reconciliation has been the normative refashioning of rational choice theory to prescribe how individuals can become rational instead of describing their behavior (Hands 2007). Another strategy entails the addition of numerous auxiliary assumptions to compensate for the uselessness of the utility maximization postulate and insulate rational choice from disagreeable evidence (Simon 1986: S217, 220). As Kahneman (2003: 1469) observes, anomalies are addressed by introducing assumptions regarding cognitive limitations while preserving the fundamental architecture of the rational model. By piling various psychological parameters upon the expected utility framework, however, new behavioral theories such as cumulative prospect theory, inequity-aversion theory, and hyperbolic discounting function as repair programs for expected utility maximization (Gigerenzer 2016: 38). While such repair operations are customary in normal science, Kuhn (1962: 68) evokes Ptolemaic astronomy to warn that successive layers of adjustment ultimately created a system “whose complexity was increasing far more rapidly than its accuracy” as a discrepancy fixed in one place would likely show up elsewhere.

Thus, new behavioral economics opts out of a radical departure from the mainstream paradigm. Accordingly, the scientific community conceives its scientific mission as reforming the dominant paradigm “on its own terms” without rejecting its “great” methods and assumptions, namely “utility maximization, equilibrium, and efficiency” (Camerer and Loewenstein 2004; Rabin 2002). This campaign of reform implies that new behavioral economics “will cease to be a distinctive label… as it becomes part of mainstream economic thinking, evincing a healthy reunification of psychology and economics” (Camerer 1999b: 10577).

5.1. The price of dissent: The case of radical political economics

As early as the 1890s, nonconformity was seen as heresy, resulting in the persecution of economists like Richard Ely, Edward Bemis, and Edward Ross for holding views perceived to be hostile to private wealth and business interests (Bernstein 2001: 32; Goodwin 1998). Schrecker (1986) meticulously documents the repression of academics, including economists, from the Great Depression to Senator McCarthy’s Cold War crusade that turned university authorities and academics into FBI informants. In economics, any dissent from neoclassical theory would be identified as politically subversive, leading to purges of non-neoclassical and Marxist economists and to the marginalization of heterodox or critical traditions; surviving the anticommunist hysteria, cold war ideology left a legacy of academic discrimination, which helped consolidate the neoclassical tradition and rewarded its practitioners with funding, prestige, and safety while debilitating any scholarship perceived to contest the values of the dominant scientific community (Bernstein 2001: 121, 105–106; Cravens 2012).

The changing political and social climate in the 1960s with the rise of the New Left, the civil rights and women’s rights movements, and the anti-Vietnam war protests brought a partial respite to outright political repression. These developments underscored the emergence and maturation of a distinct radical alternative to the neoclassical paradigm that emphasized a pluralistic, interdisciplinary approach, criticizing the inadequacy of neoclassical economics to address issues such as inequality, poverty, relations of class and power, gender, racism, imperialism, nuclear war, and the environment (Mata 2005; Sherman 1984). Founded in the summer of 1968, the URPE Secretariat (1969) brought together radical economists who were motivated by the need to connect socially relevant scholarship with social activism toward a critique of capitalism and neoclassical economics.

Dissenting scholars aiming to change academy and society surely found inspiration in Kuhn’s (1962: 92−94) explicit analogy between scientific and political revolutions, which “aim to change political institutions in ways that those institutions themselves prohibit,” in response to dysfunctions within the system. From early on, radical economists engaged with Kuhn’s account of scientific change to call for a revolution that would replace “the paradigm that provides the world view for current economic thought” (Peabody 1971: 1; Sweezy 1971; Zweig 1971). ⁷ Calling for a “substantive upheaval” in the profession with a new approach to social problems, research and curricula, and bonding with social movements, the radical paradigm rejected an economics that seeks to scientifically legitimize capitalism, disguises its ideological charge as value-free theorizing, and avoids studying the root of problems so as to preserve extant structures of power and interest (URPE Secretariat 1969). Challenging the established conceptual and institutional architecture of the discipline, radical political economics articulated a well-defined alternative to neoclassical economics. It provided publishing, research, and discussion outlets that helped foster a nonhierarchical open scientific community where “radical economists could rethink economics and produce important, paradigm-changing work” as an antidote to professional isolation; 50 years later, the founding principles of URPE retain their relevance and continue to inspire radical political economics (Kim 2018: 469, 475–80; Wachtel 2018).

As suggested by Kuhn, and the history of economics, political shifts, institutional constraints, and power dynamics determine the success or failure of paradigms and scientific communities. The marginalization of radical political economics paralleled the decline of student unrest and the rise of conservatism in the late 1970s and 1980s, which spread to universities as major corporate players, such as Coors, Dow Chemical, and Wal-Mart, financed research and campus activities geared to enhance the prestige of capitalism and free market vision (Phillips-Fein 2009: 263–64). Notwithstanding the radical challenge, most US economics departments maintained a conservative pro-free enterprise outlook accentuated by the post-cold war institutionalization of McCarthyist values, “red scare-repression,” and antipluralism; driving the marginalization of Marxist and non Marxist radical economics, an insular hierarchical mainstream community set paradigmatic boundaries for “thinking like an economist,” namely deductive reasoning, neoclassical models, and abstracting from reality with equilibrium as a central organizing concept (Lee 2009: 66−69). This conceptual configuration underwrote the “drastically restricted vision” of the dominant scientific community (Kuhn 1962: 24) and the worldview of increasingly intolerant experts professionalized around a free market consensus (Backhouse 2005; Fourcade 2009: 128).

In this hostile environment, radical economists who refused assimilation experienced intellectual intimidation and professional discrimination in terms of tenure, and access to grants, journals, and doctoral programs, while the modification or outright elimination of graduate programs coupled with the ranking of economic journals and departments provided further social control mechanisms (Lee 2009: 69−76, 42). Indeed, Stigler (1959: 522) was hardly exaggerating when he warned that:

For Stigler, the suitable candidate should advocate laissez-faire and believe in private enterprise and competition as entitled organizers and regulators of the economy.

5.2. The pathways of assimilation

The fortunes of the behavioral scientific community followed a trajectory that sharply contrasts that of radical political economists. Despite political/ideological shifts, exercises of power, and often “shaky” funding patterns (Solovey 2013), the institutional positioning of the behavioral community decisively fostered the mainstreaming of the field and molded the worldview of its practitioners.

From the 1950s pioneers Simon and Katona to Thaler’s 2017 Nobel Prize, the field developed under the shelter of a powerful “politics-patronage-social science nexus” that in various ways shaped and rewarded behavioral research, providing a sense of community to its practitioners (Crowther-Heyck 2006; Goodwin 1998; Pooley and Solovey 2010; Porter and Ross 2003). Social scientists willing to accommodate the imperatives of the Cold War national security state found generous patrons as US military and government authorities refurbished the wartime propaganda apparatus, mobilizing think tanks (especially RAND Corporation) and private institutions such as the Ford Foundation that advanced the behavioral sciences label to avoid socialist connotations (Amadae 2003; Bernstein 2001: 91−100; Cravens 2012; Pooley 2016: 47).

Examining in detail the postwar “politics-patronage-social science nexus” supporting behavioral research and the key role of individuals like Herbert Simon who successfully acted like brokers in complex patron–client networks, Crowther-Heyck (2006: 429–36; 2005) identifies a patronage system that emerged in the early 1950s to become dominant by the 1970s, overseeing a great expansion in social science research. With interlocking director boards, advisory committees, and scientific bodies, ⁸ this system contributed to a reward regime that molded the scientific community, shaping the scale, the scope, and the nature of research; over the first two postwar decades, 250 new interdisciplinary institutes that accommodated mathematically oriented behavioral research were established (Crowther-Heyck 2006: 430–37, 421). Institutional and financial support by the Alfred P. Sloan Foundation and subsequently by the Russell Sage Foundation crucially empowered a mainstream approach setting up a behavioral economics program, which ran from 1984 to 1992, directed by Eric Wanner with Kahneman and Thaler playing leading roles (Laibson and Zeckhauser 1998). In line with the strategy of US foundations to fully support selected individuals or small scholar groups, Sloan and Russell Sage increased funding explicitly directed to behavioral research, provided support mechanisms and publishing outlets, cultivating in their beneficiaries a sense of mission in terms of steering economics to a new direction (Heukelom 2012).

Concluding, the pathways of money and power can explain how scientific traditions are consolidated or marginalized. A glance to the profiles of 25 top new behavioral economists ⁹ gives an appreciation of their solid academic, personal, and institutional connections. Structures of patronage direct intellectual commitments, careers, and policy advice, determining “what gets studied, by whom, how, under what conditions, and for what purposes” (Solovey 2013: 203). Accordingly, the patronage system examined earlier has imposed constraints, favoring or censuring:

5.3. The politics of behavior: a question of change

Access to the hallways of political power enabled the extensive application of behavioral research to numerous policy domains. ¹⁰ As Kuhn (1962: 111) observes, “when paradigms change, the world itself changes with them” so that “after a revolution scientist are responding to a different world.” Bearing in mind the institutional and methodological constraints examined so far, it is pertinent to examine how new behavioral economists proposes to change the world.

As intimated previously in this inquiry, behavioral insights that inform policy are elaborated within a framework that retains methodological individualism, formalism, equilibrium analysis, and pro-market concerns. These commitments, first, denote an asocial, microeconomic analytical framework, which takes the behaviorally revised individual—consumer, employee, voter, poor person, or otherwise—as the entry point of analysis and as a utopian benchmark for behavioral change interventions. Second, they underscore a lack of engagement with questions of class, power, conflict, gender, and race, avoiding both the root causes of social problems and the social nature or determinants of behavior. So, a “truncated” understanding of the social reduces explanations of behavior perceived to be suboptimal to individuals—or their brains—and ignores institutions, which underrates social contingency and carries conservative policy implications (Frerichs 2011). These constraints inevitably affect the potential of new behavioral economics to provide accurate and socially relevant representations of reality that are prerequisite for any policy that aims to bring transformational change in society.

The direction of the social change in behaviorally informed policy mainly stems from (Thaler and Sunstein 2008: 252−53) nudging strategies, presented as “libertarian paternalism”: a third way between statism and laissez-faire neoliberalism. Centered on government initiatives geared to improve maximizing choices and outcomes in markets, “asymmetrical” paternalism aspires to help the “least sophisticated people in society” while minimizing “costs imposed on the sophisticated” (249). Mutating from homo economicus to “Homer Simpson,” fallible individuals/consumers daily confront private and public choice architecture; all kinds of choice architects “have incentives to nudge people in directions that benefit the architects (or their employers) rather than the users” (Thaler and Sunstein 2008: 22, 239). The invisible hand and “accountable” government nudges, however, will neutralize “evil nudgers and bad nudges” (239). Bypassing the structures and power relations involved in shaping behavior, nudging deploys place-based, small-scale interventions, which imply that improving our everyday behavior suffices to resolve major social problems. So, the state is depoliticized as another technocratic nudger (Leggett 2014: 10), marking the shift from the market to the individual, “from market failure to behavioural failure, and from market regulation to behavioural engineering” (Berndt 2015: 569).

The conceptualization of poverty and development exemplifies the constraints besetting this normative approach. In various contexts of scarcity, uniform explanations are suggested to elucidate “why the poor stay poor, why the busy stay busy, why the lonely stay lonely, and why diets often fail” (Shafir and Mullainathan 2013: 14). For this mind-set, the poor share with everyone else the same behavioral flaws and cognitive biases; amplified by poverty, however, these become counterproductive, ¹¹ perpetuate poverty, and call for correctives (Mani et al. 2013). While studying the links between poverty and mental states to improve banking and saving behavior among the poor may deserve merit, the assumption that fixing the irrational behavior of poor people suffices to address poverty without engaging with its structural determinants remains at best a utopian option (Berndt 2015; Whitehead et al. 2018). Perceiving decision-making deficiencies as obstacles to development and poverty mitigation, the behaviorally informed policy advocated by the World Bank’s 2015 World Development Report decontextualizes poverty and fails to address the structural factors that make it inescapable; it favors minor repairs to existing structures and choice contexts that nudge poor people to learn to live with deprivation (Fine et al. 2016: 13−14). The implication is that a bit of nudging can set the market right—just as a few corrective patches can set a flawed theory right.