Tuesday, February 20, 2007

Jane Galt and Behaviorial Economics

Jane Galt's Asymmetrical Information gets attention from Greg Mankiw and Tyler Cowen for this post, which says:

The post below also applies to behavioural economics, which the left seems to believe is a magical proof of the benevolence of government intervention, because after all, people are stupid, so they need the government to protect them from themselves. My take is a little subtler than that:

1) People are often stupid
2) Bureaucrats are the same stupid people, with bad incentives.

I'm out of my depth, but I put together a thought from Dawkins in the Blind Watchmaker with economics. That is, it doesn't matter whether most people are stupid (in an economic, utility-seeking sense) or not for economic theory to work. If the mass of people act randomly irrationally, and a minority read the Consumer Reports and act rationally, the end result will be the same (but slower) as if everyone read the CR. (Dawkins said it didn't matter whether creatures had eyes or not, just so long as there was some variation in receptivity to light. The minority that had the better sensitivity would, through selection, lead to better eyes.)

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