Monday, October 25, 2010

Studying the Biases of Bureaucrats

By MATT RIDLEY
Wall Street Journal

There is a fashionable new science—behavioral economics, they call it—which applies the insights of psychology to how people make economic decisions. It tries to explain, for instance, the herd instinct that led people during the recent bubble to override common sense and believe things about asset values because others did: the "bandwagon effect." And it labels as "hindsight bias" the all-too-common tendency during the recent bust to imagine that past events were more predictable than they were. Behavioral economics has also brought us notions like "loss aversion": how we hate giving up a dollar we have far more than forgoing a dollar we have not yet got.

No comments:

Post a Comment