Rich and Co.

Asking Hard Questions of: Behavioral Econ and Finance

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It is well to take any and all of the behavioral ideas and theories with great critical thinking and skepticism.  It’s appropriate to ask hard basic questions.  “Where is the evidence?” is one. 

Behavioral theories and ideas are largely a pop media phenomena.  There is very little (if any) hard, peer-reviewed, double-blind study evidence for even the preliminary theories let alone practical applications.  BTW, there was no “Nobel” prize for these ideas —- there is, in fact, no Noble Prize for economics. A bank in Sweden gives out a prize in economics which they “spin” and is mislabed as a “Noble Prize” in economics. 

The idea that some of the most pervasive, self-harming and intractable problems of human behavior and policy can be solved by simple “nudges” is sadly silly and simple.  But silly and simple ideas are always hugely popular.   In fact, the British government has made a serious investment in these ideas and found them a dead end.  British ministers, it turns out, are sensible and properly skeptical of fashionable ideas of the moment. 

Here is some evidence contra BE –

“Demographic Time Bomb”
This is a massive and increasingly complex and accelerating global problem – how to fund extended lifespans with increasing health care costs, for hundreds of millions of adults – living for extended decades after their work lives?  Yikes!! 

There seem to be a few determining factors in this “wicked problem:”

  • Historically unprecedented lifespans – longer for women.
  • No historical precedents or models for coping – in any domains.  We effectively have to get out and repaird the “airplane” “in-flight.”
  • Increasing realization of the serious limits in the human brain’s, and therefore policy, groups and institutions, to cope with problems that are inevitable but in the future.   

We have been studying and posting on this primacy of hyperbolic discounting or sole focus on the “moods of the moment” in driving behaviors.  There are additional age and life –stage complexities,  For example, younger people are more impulsive and focused on “dating and mating” priorities; older adults suffer from brain capacity declines – especially men. 

Finally, there simply is no money to pay for even basic living and health expenses for the vast numbers of people entering retirement.  The retirees don’t have the money, employers and companies don’t, governments don’t.  Add in health care which is inflating at 5% a year….it’s serious. 

There are historical precedents for periods when population growth has exceeded the current “carrying capacity” of the “local ecologies” (economies).  These are often accompanied by the serious challenges to the social fabric and warfare.  It is said Hitler was helped to power by the German government’s inability to pay WWI vets pension guarantees — leading to hyper-inflation. 

Our hope would be that any solutions be expert-advised, evidence-based and experimented with before being enacted.  Realistically, there will need to be much trial and error – with the majority of the ideas failing.

However, predictably, our brains won’t “stand still” for problem analysis or problem-solving.  They will treat with disgust any careful or thoughtful processes and policies and just “grab” at whatever our moods of the moment demand.  Thus, it has always been so.


Written by Rich and Co.

April 26, 2011 at 11:55 pm

Posted in Behavioral, Retirement

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