The behavioral economists’ researcher degree of freedom | Statistical Modeling, Causal Inference, and Social Science
https://statmodeling.stat.columbia.edu/2023/03/31/the-behavioral-economists-researcher-degree-of-freedom/
A few years ago we talked about the two modes of pop-microeconomics:
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People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.
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People are irrational and they need economists, with their open minds, to show them how to be rational and efficient.
Argument 1 is associated with “why do they do that?” sorts of puzzles. Why do they charge so much for candy at the movie theater, why are airline ticket prices such a mess, why are people drug addicts, etc. The usual answer is that there’s some rational reason for what seems like silly or self-destructive behavior.
Argument 2 is associated with “we can do better” claims such as why we should fire 80% of public-school teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.
The trick is knowing whether you’re gonna get 1 or 2 above. They’re complete opposites!