Chapter 3 - Biases: Mistaking Intuition for Irrationality

Summary

Behavioral economics began with the promise to fill the psychological blind spot in neoclassical theory, and ended up portraying intuition as the source of irrationality. The portrait goes like this: people have systematic cognitive biases causing substantial costs, biases are persistent like visual illusions and hardly educable, therefore governments need to step in and steer people with the help of “nudges.” The biases have taken on the status of truism. In contrast, I show that this view of human nature is tainted by a “bias bias,” the tendency to spot biases even if there are none. This involves failing to notice when sample parameters differ from population parameters, mistaking people’s random error for systematic error, and confusing intelligent inferences with logical errors. I use celebrated biases to explain the general problem. Getting rid of the bias bias will be a precondition for a positive role of human intuition and psychology in general.