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From Homo Economicus to Homo Sapiens


Responding to a request for a forecast is especially tricky for someone like me, who specializes in other people’s biases. Research in psychology suggests that certain biases are very likely to creep into my forecasts about the future of economics (or anything else).

1. Optimism (and wishful thinking). We all tend to be optimistic about the future. On the first day of my MBA class on decision-making at the University of Chicago, every single student expects to get an above-the-median grade, yet half are inevitably disappointed. This optimism will induce me to predict that economics will become more like I want it to be.

2. Overconfidence. In a related phenomenon, people believe they are better forecasters than they really are. Ask people for 90 percent confidence limits for the estimates of various general knowledge questions and the correct answers will lie within the limits less than 70 percent of the time. Overconfidence will induce me to make forecasts that are bolder than they should be.

3. The False Consensus Effect. We tend to think others are just like us. My colleague, George Wu, asked his students two questions: Do you have a cell phone? What percentage of the class has a cell phone? Cell phone owners thought 65 percent of the class had mobile phones, while the immobile phoners thought only 40 percent did. (The right answer was about halfway in between.) The false consensus effect will trap me into thinking that other economists will agree with me—20 years of contrary evidence notwithstanding.

4. The Curse of Knowledge. Once we know something, we can’t imagine ever thinking otherwise. This makes it hard for us to realize that what we know may be less than obvious to others who are less informed. The curse of knowledge will lead me to think that others will have read the same articles I have, and have learned the same lessons from them (lessons I now take for granted), when in fact others have been busy reading entirely different material, and have never even heard of the findings that have so influenced my thinking.

In making some forecasts for the future of economics, it would be embarrassing to commit (in writing) all the mistakes I spend weeks warning my students to avoid. However, the alternatives are not very attractive, either. Rationally, I realize that the forecast most likely to be right is to predict that economics will hardly change at all. (Have I mentioned status quo bias?) Although such a forecast has the virtue of brevity, it would not make very interesting reading (or writing). So, with trepidation, I am going to make six bold predictions about how economics will develop over the next couple decades, forecasts that are guaranteed to contain every bias mentioned above, as well as some others. You have been warned.

Prof. Richard H. Thaler

Next: Homo Economicus Will Begin Losing IQ, Reversing a 50-year Trend

Summary: Index