Are Economists Human?

Abstract (Via Howard Margolis)

A controversy among economists and others interested in the limits of rational choice analysis, still running after an onset at least two decades ago, concerns whether intelligent people, and especially experts, can be subject to cognitive illusions. This note provides a striking illustration supporting that disconcerting conjecture. It analyzes the apparent inability of professional economists to give a better than chance response to a very elementary question about consumer surplus.

Fascinating Conclusion (via Howard Margolis)

Sometimes, as here, we don’t see something that is important for the question at hand because absent cues familiar enough to be effective, cognition works to inhibit attention. Both sorts of error can arise on purely private matters outside the range of normal experience with sufficiently prompt feedback. But cognitive errors can occur more easily and with more profound consequences in the context of social choices, which are so often well beyond the normal experience of an individual. Then the aggregate response of many individuals can have consequences that may be both large and perverse. Is a cognitive illusion affecting experts in their domain of expertise unprecedented? Not at all. As I’ve shown elsewhere (Margolis 1998), for 400 years the very best experts in early astronomy (from Kepler through Thomas Kuhn and beyond) uniformly misjudged a very simple technical issue due to an easily corrected cognitive illusion.

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02. September 2010 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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