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You're WRONG! (According to Behavioural Science)

Behavioural science, or behavioural economics if you’d rather, started as a subcategory of economics, rejecting the foundational assumptions neoclassical economics was built on. To repeat, in neoclassical economics, there are no humans, there is homo economicus, who is 1) rational, 2) transitive, 3) utility maximizing and 4) ego centric. Unsurprisingly, these core axioms have been shown to be false, or at least flawed, quite often. The empirical body of work is extensive, providing legitimacy to behavioural science as a field of study. One key item, almost a core axiom, that gets a lot less focus however, is the purpose of economics. Economics as a field of study, or as an endeavour is prescriptive in nature. It promotes an ideal: the homo economicus.


The homo economicus is, as described above, quite far removed from an actual human being. But it’s assumptions and decision-making processes are set up to be the ideal. This is how a rational human being makes choices. This is what leads to selecting the “optimal” choice. This leads to neoclassical economics approaching decision-making as prescriptive. It’s prescribing what would be ideal. What would be best. Behavioural science (or behavioural economics, pick one), is different, in that it rejects neoclassical economics, by showing that people make different decisions, that both the outcomes and underlying processes of decision-making are very different from what is prescribed. We deviate from the ideal quite a bit. As a result, behavioural science is descriptive.


These two different approaches to decision-making are often overlooked when talking about the differences between neoclassical and behavioural economics. They are, however, quite important. At the very beginning, the genesis of behavioural science, the focus was very much on just describing what was actually going on. This gave rise to OPT and CPT, loss aversion, reference dependence and a whole set of biases, which seems to be ever-expanding (that’s an issue in and of itself, stay tuned for that article…). However, what we see now is a deviation from descriptive, towards prescriptive. For every bias and heuristic added there is a guide somewhere to help you overcome it. You shouldn’t be biased. You should train yourself out of it. There’s a system 2 for a reason. But with that argument in mind, we can also justify system 1, as Gerd Gigerenzer has often done (bounded rationality, toolbox). But despite Gerd’s best efforts (and he has tried!), there is this drive to improve, to help out, to push towards an idealized or at least better outcome. Yes, there is the urge to nudge.


On the one hand this is a very natural path to take. The idea to help someone overcome their most primary biases and behavioural pitfalls is a noble goal of itself. Especially if it’s helping out the individual consumer against the massive corporate conglomerates who are trying their very hardest to separate you from your time, money and data applying insidious sludges and other behavioural scientific techniques in settings they were not designed for… That’s a good thing to strive for. HOWEVER, I don’t think all behavioural science is equal. When it comes to the protection of the individual for others, I think all bets are off and we should go 0-100 in less than 2.0 seconds. Fair play. But in this case, we’re not defending an ideal, we’re defending ourselves. But I’m starting to feel that we’ve been starting to run into some more risky territory lately: the idea that there is an objective better form of reasoning. The idea that we should continuously nudge ourselves to improve. Check our system 1, activate system 2, check all our biases, identify what’s going on, activate some type of anti-bias campaign, call a friend with a different perspective, ask an audience, and then do some more research. All whilst obviously nudging ourselves towards a more efficient and healthy lifestyle. In short, we have taken the best of behavioural science, and jammed it into neoclassical economics. Who said that was a good idea?


I feel like behavioural science is moving towards becoming prescriptive. We have gone way beyond the bat-ball problem, where there is a clear right answer: the ball is 0.05 and the bat is 1.05, not 0.10. The latter doesn’t work mathematically. But real life is a lot more difficult than a quick mathematics exercise, and we should keep that in mind. Moreover, what is “better” is such a loaded term. It’s often influenced by the culture of the time. Sure, there’s arguments to be made for health, biology and psychology. But we don’t even know what the long-term effects are of continuously telling someone they’re biased, their decision-making is flawed and they can and SHOULD improve this. If you have a science which actively rejects certain types of decision-making processes and labels them as flawed, non-normative, deviant or inefficient, what exactly are we doing? How are we better than neoclassical economics, the very field we try to reject?


Sometimes I want to stop being a homo behaviouralis. Let me wallow in my biases whilst I choose to eat some chocolate over a celery stick!


The topic for this article didn't come to me in a dream. A while ago I read an article by Jason Collins, in which he also humbles the behavioural science community, which is definitely a must read!


Behavioural Science

Personal Finance



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