New reports on Richard Thaler, who received the “Nobel Memorial Prize in Economic Sciences” this year usually mentioned, albeit in passing, Thaler’s doctoral dissertation on the topic of estimating the value of a human life. This topic is often taken to represent economics at its worst: economists trying to place a monetary value on something that is of infinite value.
As everyone knows, Richard Thaler has won the Nobel Prize in economics. Thaler’s prize was mainly for behavioral economics, which built upon the work of the earlier nobel laureate Daniel Kanneman.
This work has been controversial. Many rational choice economists have strongly criticized it and some of those people have been free market advocates. But free market advocates come in different stripes and certainly the Austrians would criticize the rational choice perspective as well. For an interesting exchange on these matters, take a look at this symposium on behavioral economics on the Truth on the Market Blog and the response from Richard Thaler himself.
While I find some of the work of the behavioral economists quite interesting, my main concern is with their failure to apply the same methods to government in general and to administrative agencies in particular. What could possibly justify this failure other than political bias?
The catchy phrase is as important in academic writing as it is in popular writing. In motivating their constitution-making stage in The Calculus of Consent, James Buchanan and Gordon Tullock assumed “that the individual is uncertain as to what his own precise role will be in any one of the whole chain of later collective choices that will actually have to be made.” A few years later John Rawls made the same assumption (albeit with different results), but phrased it more quotably as the “veil of ignorance.” Rawls’ terminology stuck. Buchanan and Tullock’s terminology remained just theirs.
Richard Thaler deserves the Nobel Memorial Prize in economics. But media treatments of Thaler’s work, and of behavioral economics more generally, suggest that it provides a much-deserved comeuppance to conventional microeconomics. Well . . . Not quite.