Why Al Doesn't Get It

Or maybe it's just one confused NYT writer. Or maybe both have no idea what they're talking about.

From Sunday's NYT Magazine article on Kleiner Perkins (under the wry headline "Capitalism to the Rescue", an attitude that is likely to accelerate NYT's impending demise):

And when the governments of the world assign a price to carbon, [Albert Gore] added — as [Albert] believes they will within a year or two — demand for carbon-free electricity will explode.

I assign homework. Markets abet price discovery.
Governments hopefully won't be as naive (as NYT writers apparently are) to imagine they could "assign" anything that functioned like a price to carbon.

Then again, maybe some of those fantastic Russian economists are out of work and available for Albert's pet project. I simply suspect that they aren't on Kleiner Perkins' payroll. After all, that hardly sounds like capitalism.

Book Review: Predictably Irrational

Synthesizing the theory of Samuelsonian economics with demonstrated but non-conforming decision tendencies is the great challenge of behavioral economics. Dan Ariely does not present a comprehensive theoretical framework for us to consider actual decision-making, but he does present a variety of research results in an informal setting that highlight particular environments in which humans tend to make decisions that are not "rational." In particular, he highlights the types of decisions in which we regularly make decisions that diverge from textbook rationality. For example, people have a hard time making decisions based on absolutes, instead relying on comparisons. Therefore the initial reference point matters a lot. Another chapter focuses on how people make different decisions when sexually aroused than they would if not. Big surprise. The effect of social and market norms, how people cheat, and the role of expectations are other chapters. The material is drawn from scholarly papers by Ariely and his colleagues, which straddle the economics and psychology literatures. As a well-written collection of many of the main experimental results in behavioral economics, the book is delightful mind candy.

Behavioralists have carved out a niche in economics, just as many other subdisciplines have. But continuing to dream up experiments that are interesting is different from formulating a testable theory of behavioral economics. The former will eventually grow pedantic, while the latter represents a major stride in improving the study of choice. Certainly there are many great minds bent to this very task. Until we can understand where and why behavior matters, and when our standard expected utility models are functional, we are distracting ourselves from the central issues of economics--choice under scarcity and uncertainty. Ariely's chapter on the hazards of distracting options should serve as adequate warning.