From the comments, on the political implications of behavioral economics

The classical MU [differential marginal utility of money] argument has, in my view, been moderated by the findings of behavioral economics, namely loss-aversion. Taking from the higher-incomes to give it to the lower incomes may be negative utility as the higher incomes are valuing their loss at an exaggerated rate (it’s a loss), while the lower income recipients under value it.

Many on the Left are too quick to grab on to the findings of behavioral economics as a critique of neoclassical economics, but while they often do point away from simplistic free-market views, they do not necessarily point towards left-wing solutions. They are just as likely to point to non-market conservative views.

For example, isn’t it another consequence of the asymmetry of the utility function with respect to the status quo (loss aversion) that social mobility destroys utility? I mean, if the tide is lifting all boats, then you can argue that it’s still better for everyone (the libertarian view), but if your utility function is heavily rank-based (a standard left-wing view) and you accept loss-aversion from the behavioral literature, then social mobility is suspect from an utility point-of-view.

This sounds shockingly old-school conservative when we discuss our own societies (“why should the children of the poor compete with my kids for a place in a good university? they have lower expectations, after all, State U is a step up for them. My kids, on the other hand, would be crushed if they had to go to their safety school”), but is quite acceptable when discussing international inequalities (“it doesn’t morally matter that people in Mexico have much less material wealth, their society has lower expectations”).

That is from Luis Pedro Coelho.


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