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What is the future of behavioral economics?

Behavioral economics is a fast growing field within economics. We caught up with Sanjit Dhami to discover how he came to specialise in behavioral economics, how it has developed, and what he thinks is in store for the field in the future.

Could you tell us a bit about yourself?

I did my BSc Honours and MSc Honours in economics from the Punjab School of Economics in India. I left home for the first time to pursue my MPhil in Economics at the Delhi School of Economics in University of Delhi. This was followed by a second Masters in economics and a PhD in economics from the University of Toronto in Canada.

Having completed my PhD in 1997, I took up my first academic job, a lectureship at the University of Essex in Colchester. After spending two years in Essex, we moved to the University of Newcastle and in 2003, I took up a lectureship at the University of Leicester, where we have lived ever since.

In a few words, could you describe what exactly behavioral economics is?

Behavioral economics models human behavior by using insights that are drawn mainly from economics and psychology but also, critically, from socio-biology, sociology, anthropology, and neuroscience. Its domain encompasses both market and non-market behavior.

How did you become interested in this field?

When I arrived at the University of Leicester in 2003, I chanced upon a talk by a colleague Professor Ali al-Nowaihi on behavioral decision theory, a branch of economics that deals with situations of risk, uncertainty, and ambiguity. Ali argued that the existing mainstream decision theory, expected utility theory, is rejected by a large body of evidence, while prospect theory, the leading decision theory in behavioral economics, explained the empirical facts much better.

I decided to test prospect theory on the well-known “tax evasion puzzles” that were outstanding for more than three decades. This successful experience convinced me that I ought to explore behavioral economics more fully. This led, in due course, to a variety of papers that I published jointly with Ali in many diverse areas such as behavioral decision theory, other-regarding preferences, behavioral time discounting, and behavioral game theory. Like me, he is happy to explore any interesting research question in economics. This accounts for why our research straddles so many diverse areas in behavioral economics.

Hopefully, the prefix behavioral in “behavioral economics” will be shed in due course. After all, what other kind of economics is there? 

How has behavioral economics developed over the years?

Behavioral economics has its roots that go back, at least to Adam Smith’s Theory of Moral Sentiments that was published in 1759, although it is the other book by Adam Smith, The Wealth of Nations that gets cited more. Despite much interesting work in the interim, modern behavioral economics really began in the 1970’s with the work of Daniel Kahneman, Amos Tversky, and Richard Thaler. The work done in the 1970’s was the first attempt at stringently testing the basic features of the classical model in economics. This, and subsequent empirical attempts, have found the classical model seriously wanting, which has given impetus to more realistic behavioral models.

It is fair to say that behavioral economics is the fastest growing and most exciting field in economics. The development of behavioral economics is simply in the nature of scientific progress in economics. It currently appears that the steepest gradient for progress in economics is provided by behavioral economics. Hopefully, the prefix behavioral in “behavioral economics” will be shed in due course. After all, what other kind of economics is there?

What do you hope to see in the coming years from the field?

I would like to see progress in many areas of behavioral economics. After all, it is still a relatively young field and the best is surely yet to come. We must continue to stringently test behavioral theories and be prepared to shed those that do not work—taking a religious position with respect to theories never works in science. One of my favourite quotes is by the Nobel Prize winning physicist Richard Feynman, who said: “We are trying to prove ourselves wrong as quickly as possible, because only in that way can we make progress.” Economists would do well to heed his advice.

What is one thing people would find surprising about behavioral economics?

Humans can hugely underestimate their future self-control problems. The result is that some of us find it difficult to get things done and we procrastinate too much. We like to believe that in the future we will have fewer self-control problems so we often put off making decisions, such as cleaning our rooms/cars or visiting an ailing neighbour. Often, in the future, we tend to have the same self-control problems; the result is that in many cases things never get done.

This is not to say that we are not trying to discover ourselves. We often engage in good deeds and acts of piety to convince ourselves (and others) that we really are good people. We also try to take actions to bind ourselves in the future. For instance, we are reluctant to raid a children’s education account or a book account.

Are you attending any conferences or events in the next year or so?

I have just accepted an invitation to be one of 5 international experts on the Finnish Academic Council that disburses research money. I have accepted a research fellowship in residence at the Centre for Economic Studies in Munich during the next summer. During this time I will also be giving a seminar at the University of Innsbruck in Austria. I am also presenting a paper at the 2nd psychological game theory conference in the University of East Anglia in July 2017.

Featured image credit: Cube red lucky number by caro_oe92. Public domain via Pixabay.

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