Slavisa Tasic and Zeljka Buturovic write,
While it is difficult to gauge the cost of various decision-making errors with any precision, it may be worth contrasting them against the costs of mistakes that clearly have nothing to do with cognitive biases: the cost of choosing a profession one ends up hating, the cost of not finding a suitable mate, the cost of having children too early in life or too late, the cost of moving to a place one ends up disliking, the cost of adopting a pet or sending children to a private school, and so on. These types of decisions–i.e., actual, important decisions in which errors are genuinely costly–are not typically studied in depth. . .Faced with difficulties in assessing the accuracy of the outcome of social judgments in the real world, the field [behavioral economics] has produced various norms of judgment against which to judge human performance, but only in highly artificial settings.
My view:
1. Economics is non-experimental. Instead, we work with interpretive frameworks that cannot be falsified empirically. This means that economic models do not have the epistemic status of models in the physical sciences, which can be falsified through experiments. All of our interpretive frameworks have some degree of plausibility but also are challenged by real-world anomalies. Economists can differ in their willingness to tolerate anomalies in their preferred interpretive frameworks.
2. Behavioral economics is experimental, but the experiments test people making minor decisions in peculiar, isolated settings.
3. Therefore, I go back to (1).
The law of supply and demand is very much experimental, and has been tested to an extraordinary degree. It is surely by far the most thoroughly tested theory in the social sciences. Like Newton’s theory of gravity, it is not precisely correct: there are exceptions. And, like Newton’s theory of gravity, the exceptions rarely matter, so that any theory that contradicts Newton’s is almost always wrong.
Inasmuch as the shape of supply and demand curves are different for everything, almost every instance could be considered an exception.
Arnold, the full article is available to non-subscribers here:
http://www.tandfonline.com/doi/pdf/10.1080/08913811.2015.1068512
3. By definition any kind of experiment in any field is conducted in a peculiar, isolated setting. A double-blind clinical trial is most certainly peculiar, and “isolated.”
The question is whether the results have external validity. This is true of the results of conventional statistical empirical economic studies as well. Do they generalize?
Asset bubble experiments have tried with everybody from college students to professional traders, with quite remarkable consistency in results. Furthermore the patterns of behavior mimic what we see in the real world. Which suggests we are capturing some fundamental, true and significant in the lab.