Robert Heilbroner’s “Twenty-First Century Capitalism” is published by House of Anansi Press in Toronto.
To download the article by Buturovic and Tasic (from Critical Review) click on the link below.
The original link to the article is here.
It is clear that in making real-world decisions people rely on various authorities—family members, media reports, experts such as school counselors, therapists, and real-estate agents; that they succumb to peer pressure or conform to childbearing, lifestyle, and other norms of their immediate environment; and that they sometimes fail to anticipate changes in their situations and themselves as they age. In many cases, the mistakes one makes are essentially due to a failure of the imagination (creativity, divergent thinking): a failure to picture possible scenarios accurately enough or, alternatively, a tendency to weigh, however precisely, a too-limited set of options or to construct a restrictive and overly abstract set of outcomes. This could happen for various reasons, from lack of critical thinking to limited exposure to diverse possibilities to poor memory of various scenarios. Relying too much on statistical knowledge as a substitute for contextual understanding of future possibilities would exacerbate instead of ameliorating these tendencies; there is a reason why concern with creative thinking is a staple in business, clinical, and educational contexts, to the point where phrases like “thinking outside the box” have become clichés. It is in the discovery of options and possibilities where most of the challenge of decision making lies, not in precisely comparing predefined and given options.Like orthodox neoclassical economics, behavioral economics does not tackle any of these important aspects of decision making; its findings, ultimately, tell us very little about how people think. Artificially induced quirks of human cognition are examined in excruciating detail while everyday decision making of great individual and social consequence are ignored.Kahneman’s undue focus on cognitive blunders that are defined as departures from the rational-choice norm is symptomatic of his failure to liberate his decision theory from simple consequentialism. His book’s illustration of the “endowment effect” (292–93) is one of the most striking examples of the closure of his research agenda within the narrow neoclassical framework. “Professor R” (later known to be Richard Rosett at the University of Chicago) bought wine at auctions at a price not higher than $35. Professor R would, however, not sell the bottles he already bought unless he was offered more than $100, which Kahneman interprets as evidence of a bias towards overvaluing an object simply because one owns it. The endowment effect has been documented in other cases, of course, although its importance in economic contexts has been disputed (List 2003and 2004). Regardless of the existence of the effect itself, however, it is baffling that Kahneman would in the first place assume, for example, that Professor R is supposed to be a profit maximizer when it comes to his wine collection. The same is true of other behavioral economists; Richard Thaler (2015, 17) describes Rosett’s behavior as “not rational.” Yet the professor is obviously not a wine trader; he collects wine for pleasure. If we see an error in his actions, that is only because we implicitly treat him as a rational maximizer—and only in order to show that he is not a particularly good one.