Recently, I had this moment of enlightenment as to why I am drawn to behavioral economics and podcasts like Marketplace and Freakonomics. This goes back to high school where I was struggling to understand macroeconomics and microeconomics principles in the Economics elective I chose to take as a senior.
Why was I struggling? It boils down to the assumptions about related to Homo economicus which were that humans are portrayed as acting rationally, with little self interest to achieve a specific goal. Sure I understand this concept now years later. But seriously in high school, I was super confused. I couldn’t grasp the idea that microeconomics is based off individual’s rational decisions. And since macroeconomics is built on microeconomics foundation, understanding economics in general was difficult. I questioned the very foundation of microeconomics! What I knew at the time is that humans don’t always act rationally. Humans will make decisions considering both the most rational choice as well as their own self interests. And that was the world view that I had at the time. The questioning clearly affected my academic performances.
Good thing there were two psychologists who started questioning this supposed rationality of Homo economicus. These psychologist changed economics when they won a Nobel prize in 2002. Technically only Kahneman won the Nobel Memorial Prize in Economic Sciences as the other collaborator had died. But their work spawned a new field of economics called Behavioral economics. More recently in 2017, Richard Thaler, also an influential behavioral economist, won the Nobel prizes for his research work. The work done these academics in behavioral economics has had a bigger personal impact in people’s lives than the rational Homo economicus.
As for my class, I ultimately ended up just memorizing everything. Was that the most rational thing to do? Yes… probably… if only to get an A. Clearly behavioral economics hadn’t quite yet made their way into high school economics textbooks.