We are not logical. Great! And?

I've written that you and I are not logical, so naturally it's no stretch for me to believe that behavioral economics is a pretty big deal. Harvard Magazine's The Marketplace of Perceptions opens with this thought: 

[Self defeating behavior is] a direct affront to the standard model of the human actor—Economic Man—that classical and neoclassical economics have used as a foundation for decades, if not centuries. Economic Man makes logical, rational, self-interested decisions that weigh costs against benefits and maximize value and profit to himself. Economic Man is an intelligent, analytic, selfish creature who has perfect self-regulation in pursuit of his future goals and is unswayed by bodily states and feelings. And Economic Man is a marvelously convenient pawn for building academic theories. But Economic Man has one fatal flaw: he does not exist.

Part economics, part psychology and part marketing, the new field analyzes how people really make decisions, and it might be particularly useful in prescriptive economics - how, for example, broad humanitarian goals might be reached, or how, simply, to get diabetes patients to take their medications as prescribed. Worthy goals.

But I also believe it's a big deal for another reason. My favorite libertarian, Virginia Postrel, sums it up. In the process of abandoning a clearly deficient economic macro model of human behavior, how, specifically, should society apply the new knowledge on a much smaller scale? Who determines my own good?


Technorati tags: cognitive psychology, neurology, behavioral economics, Virginia Postrel