DP11786 | Behavioral Economics and the Atheoretical Style

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01/16/2017

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Abstract

Behavioral economics is perceived by many to be part of a general shift in the culture of economics toward a less theoretical style. I present a critical discussion of certain manifestations of this trend: a preference for an anecdotal style of exposition (illustrated by Akerlof and Shiller's Phishing for Phools), reduced-form modeling (illustrated by Campbell's Ely Lecture), and the method of capturing psychological forces using parametric modifications of conventional functional forms. I argue that the subject of "psychology and economics" is intrinsically foundational, and that a pure-theory component is essential for it to realize its transformative potential.