Hacking Behavioral Economics - Ignorance, Uncertainty and Confusion


You don’t need a PhD to engage economics any more than you need to be a botanist to shop for fruit. Anyone who knows people can (and should) deal with economics intentionally and beneficially. So let’s jump right in.


Because economics influences all of human life, it’s important to pay attention to how human life also influences economics. This is a two-way street. People are not only subject to economic realities—we’re also creatures whose decisions and behavior create our economic realities.


Our decisions and behaviors have many variables. Humans aren’t walking calculators who automatically take the “ideal” course of economic action as it may be calculated theoretically according to the mathematical models of classical economics. Behavioral economics takes human psychology into account for economic decisions and behaviors. This is good. It’s helpful to consider how we, as human creatures rather than mathematical machines, actually behave economically. This also is unflattering. In the real world we very often don’t make ideal economic decisions.


So how do we humans actually behave economically? Three major factors shaping our real-world economic decisions and behaviors are ignorance, uncertainty, and confusion. Hmm, we should’ve warned you that exploring behavioral economics isn’t flattering. Ignorance simply means we’re unaware of economic matters. Uncertainty means that, when we do have some awareness of economic facts, we’re uncertain of how to interpret and make sense of those facts. Confusion means that, when we have some awareness of economic facts and also some understanding of their meaning, we’re confused about how to put that understanding into practice—we aren’t sure what to do.


Photo Credit: Morgan Housel on Unsplash.com


Classical economics assumes that people have all the relevant information, understand all of that information, and are willing and able to act on that understanding. Behavioral economics, helpfully but unflatteringly, shows that those assumptions are exactly that—hopeful assumptions at best and not realities. The reality of behavioral economics is that we don’t have all the relevant economic information, and we’re affected by ignorance, uncertainty, and confusion.


Beyond psychology, human handling of economic matters is also influenced by theology and morality. It’s important to recognize that everyone has an embedded sense of theology. It’s like personality—everyone has one, whether or not you analyze it or are even aware of it. It simply is there, part of who we are. Indeed, to deny a theological perspective is to make a theological claim and stake one’s ground on the basis of beliefs framed as what they aren’t. Because theology affects us—whether consciously or unconsciously, whether stated as what one does believe or what one doesn’t believe—it’s better to develop awareness of it than to have economic behavior subject to ignorance.


If you love theology but aren’t comfortable mixing it with economics, well, that is a “norm” that needs to change. Better to develop understanding of how theology and economics intersect than to have economic behavior subject to uncertainty, and better to develop practices from the overlapping insights of theology and economics than to have economic behavior subject to confusion. Too often economics and theology are treated as unrelated, or even harmful to each other. Whether you find yourself in the why-does-theology-need to-get-involved-with-economics camp or the economics-is-better-off-without-theology camp, we encourage you to read on. Failure to consider how economics and theology combine only worsens the behavioral economic problems of ignorance, uncertainty, and confusion.


Because we as human creatures are ignorant, uncertain, and confused both about economic facts and what to do with them, we rely on convention and frequently make sub-optimal economic choices. We tend to do what’s considered normal and/or conventional and/or convenient, going with the flow of pre-made defaults (even when the default “norms” are destructive) rather than making intentional, helpful economic choices. (How many times have you signed a service order or agreement without reading it, or carried expensive credit card debt “because everybody does.”) We tend to underestimate costs and risks and overestimate benefits and potential, a dangerous combination. As unflattering as behavioral economics is, it provides clarity. Its truths can set us free. Acknowledging that there are such powerful human behavioral aspects to economics makes economics relatable to anyone who has some familiarity with human behavior, which is all of us humans.


You don’t need a PhD to engage economics any more than you need to be a botanist to shop for fruit. Anyone who knows people can (and should) deal with economics intentionally and beneficially. Our intention with our book Better Capitalism and these Partnership Economics blogs is to help each reader move away from economic ignorance toward awareness, away from economic uncertainty toward understanding, and away from confusion toward confident action. This will benefit each reader individually and those with whom they interact, which is the gateway to Partnership Economics.



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