Why do we misbehave so often?

According to economists, we should all be cold, clear-eyed spenders who always choose what would benefit us the most economically.

In their economists’ world, we are all as emotionless, passionless, and predictable as the Vulcan Mr. Spock in Star Trek, since we are supposedly programmed to aim for equilibrium and uniformity.

Still, do you know anyone (yourself included) who behaves that way, every time, and all the time?

I personally have not met that perpetual rational personthat Homo Economicus, or Econ—as yet.

In reality, we (e.g. me) are not always logical or consistent, nor do we behave in the manner that gives us the best bang for our bucks.  Instead, we misbehave.

Why do you misbehave?

Now the challenge is that classic economists insist that human beings are Econs and hence base their theories on exactly that type of well-behaved Econs.

In order to achieve the same mathematical precision of hard sciences, economists have made a radically simplifying assumption that people are “rational optimizers” whose behaviors are as predictable as the speed of a physical body falling through space.

Unfortunately, that type of Econs can only be found in their imagination.

So, how can mainstream economic theories—based on that radical simplification— come close to the reality in the world around us?

The real world is made up of economics agents who are nonEcons, albeit humans.

Still, economic theories place Econs on the heart of all their equations.  They insist on certainty and accuracy while ignoring human biases, blind spots, and lack of willpower—in other words, regular human behavior driven by feelings.

I am convinced that no amount of number-crunching or modelling can ever replace the need to confront the complexity of human existence.

The somewhat frightening aspect is that economists have increasingly become the “go-to experts” on every manner of business and public policy issues facing society, but they have not been accurate experts.

The economics profession has been in the doldrums of late—its leading practitioners failed to anticipate the financial tsunami that crashed over the global economy seven years ago, and its economists were out of touch—lost in their complex mathematical models that were built on highly unrealistic underlying assumptions—because they were hiding in their ivory towers of academia.

(If you would like to read more about their shortcomings, check out this post “Why Economist is one of the worst professions one could choose” or the more detailed version, 30 Observations why Economists underperfom).

An extreme version of their view held that stock market prices were always correct and hence speculative bubbles were the stuff of fantasylike unicorns.  I guess we know better by now.

The good news is that economists are warming to the view that the marriage of economics and psychology would produce smarter economic policies rather than relying on the traditional pristine mathematical models based on Econs alone.

So, in rides the white knight “Behavioral Economics” to our rescue.

In spite of the fact that this interdisciplinary field is only 30 years old, it has already begun to go mainstream.  Evidenced by awarding Nobel Prizes to Daniel Kahneman and Robert J. Shiller (the poster child(ren) of Behavioral Economics/Finance ) in recent years.

Coupling recent discoveries in human psychology with a practical understanding of incentives and market behavior will help us to make smarter decisions in an increasingly mystifying world.

There are already some very interesting policy implications being implemented by “clever governments” that can make the world a better place.

For example: When people are behaving irrationally, a “prompted choice” (a fancy name for a nudge) can help.  Because by presenting choices in a better way, people can make wiser decisions without losing their freedom of choice (by placing healthier food at eye level in canteens; by changing organ donation forms from opt-in to opt-out; by changing how people chose their pension contributions).

But to get back to answering the question in the title post, we misbehave so often because the standard settings in our human brain make us do it, making us fail to behave in-line with those “rational optimizers” invented by those traditional economists.

Now, that’s a bit of an anti-climax, isn’t it?

And I am very confident though that you don’t misbehave in other aspects of your life, those that are outside the domain of those traditional economists.

 

“Isn’t it strange—the same people who laugh at gypsy fortune tellers take economists seriously.”  — Unknown

“Much of the ‘misbehaviour’ on Wall Street was/is perfectly rational from the bankers’ perspective: it earned them large bonuses.”  — Unknown

 

Interested to read more on this topic of Behavioral Economics? Then, check out Richard Thaler’s latest book “Misbehaving: The Making of Behaviroal Economics“.

 

5 Comments

  1. Hi Tacomob

    Great post again!!!

    I don’t think it’s just kids that aren’t able to control their misbehave activities. At times, my blind cognitive brain will entitled me to misbehave once in a while too, and it does feel rather great to be in once in a while.

    Rules are rules and they are meant to be broken by someone, don’t they? 😀

    • Thank you B for dropping by and leaving your praises.

      I strongly believe that we adults misbehave more often than children. We are just lacking that nagging parent wagging the finger and highlighting our misbehavior.

      No, no, we adults never break rules. We just bend them to fit our beliefs. And oops, sometimes they break while we are at it. So the rule was not strong enough in the first place …

  2. My daugther misbehave sometimes to get attention. It is part of growing up I guess.

    So sometimes I let her be, since I want her to grow up as a bubbly kid, though there must be a limit not to cause disruption or even danger to herself and others, which I will intervene.

    When she is calmed, I explain to her why her misbehavior will cause disruptions and lead to everyone unhappy. She seems to understand and not do it again.

    Guess it’s more difficult when it comes to adults misbehaving!

    • Congrats to being able to keep your emotional response under control. I was not always that successful when one of my kids misbehaved.

      The bigger the kids, the bigger the challenges. Especially when it comes to education …

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