My predictions can be summarized quite easily: I am predicting that Homo Economicus will evolve into Homo Sapiens. This prediction shouldn’t be an outlandish one. It seems logical that basing descriptive economic models on more realistic conceptions of economic agents is bound to increase the explanatory power of the models. Still, a conservative economist might (emotionally) scoff: “If this were a better way of doing economics, we would already be doing it that way!” Why aren’t all my predictions already true? And why should I expect things to change? One reason economics did not start out this way is that behavioral models are harder than traditional models. Building models of rational, unemotional agents is easier than building models of quasi-rational emotional humans.
Nonetheless, each generation of scientists builds on the work of the previous generation. Theorems too hard to prove 20 years ago are found in graduate student problem sets today. As economists become more sophisticated, their ability to incorporate the findings of other disciplines such as psychology improves. Simultaneously, we can hope that new scholars in other disciplines can do for economics what cognitive psychologists such as Kahneman and Tversky have already done: offer us useful findings and theories that are relatively easy to incorporate into economic models. I will close with a very safe prediction. If some of my predictions about the future of economics come true, young economists will have done the work. (Old economists, like me, can’t learn new tricks any better than dogs.) A few of these young economists are already on the horizon. Others will follow.
The author would like to thank Colin Camerer, Peter Diamond, George Loewenstein, Jesus Santos, Andrei Shleifer, Cass Sunstein and all the editors for helpful comments.
Prof. Richard H. Thaler
Next: References
Summary: Index