To All the Incentive Haters
The essence of economics is its focus on incentives, and how they affect consumers’ utility maximization and firms’ profit maximization to generate price and quantity outcomes. This is such a powerful engine for predicting behavior!
It’s what makes non-economists hate us and seek to find reasons to ignore standard economic analysis. No doubt behavioral economics has something to offer; and the attraction of culture — the role of social norms — is appealing too. Certainly without resorting to something like social norms it’s hard for me to explain why Germans will not cross a street when the “Don’t Walk” sign is lit and give me dirty looks when I act like an American and blithely proceed to cross.
Indeed, even a dyed-in-the-wool Chicago-type economist like me is willing to explain some phenomena as being culturally determined when all else fails.
Nonetheless, in the end the essence of the economic approach and economic research, and an extremely powerful way of analyzing behavior, is our standard analysis. It can use fixing, but it certainly isn’t broken; and those who fail to heed it while devising policy are likely to make our country, and the world, worse off.
(It isn’t just Germans who are reluctant to jaywalk; Dubner found the same to be true in Vancouver.)