an early entry into this interdisciplinary realm, one starting from the direction of psychology rather than economics. In particular, it approaches economic questions from the vantage point of clinical psychology, a perspective in which emotions, conflicted desires, and the complexities of subjective experience figure much more prominently than in the more cognitive perspectives that have thus far been the primary source of psychological inspiration for behavioral economists.
When this book first came out in 1983, I began it by noting that we are used to thinking of economic concerns as eminently practical and rational matters. Much of the book is devoted to questioning that assumption and to highlighting the ways in which our thinking about money, goods, and the psychological and ecological costs of our way of life is characterized not only by a lack of the rationality assumed by mainstream economic theory but by a range of ways in which we keep ourselves from noticing our dissatisfactions or understanding their causes. In a sense, the entire economy is organized around distracting us from these perceptions and understandings It is, therefore, an encouraging sign that at the very heart of the discipline whose ideas and assumptions have so powerfully contributed to the problematic path on which we find ourselves, a revolution has been brewing.
Rationalist economic theory has provided the intellectual foundations for a way of thinking in which whatever results from unhindered market exchanges is the ultimate arbiter of what “ought” to be: Each exchange is presumed to be engaged in by extraordinarily canny, self-aware individuals who know perfectly what will benefit them; so if they could have done better, they would have. Thus, from this vantage point, the market inevitably yields the best result available for free men and women; each has as much as he or she possibly could have, short of holding a gun to the head of others. In propagating the fiction that people make rational, flawless assessments of what is in their best interest, standard economic theory applies a patina of justice to unjust social relations and a patina of sanity to collectively insane ways of treating ourselves and our planet. In challenging that fiction, behavioral economics offers us at least a potential way off the treadmill.
It is certainly much too simple to equate standard economic theory with the status quo and behavioral economics with challenges to that status quo. There are many economists who operate from some version of the standard rationalist model who are deeply concerned about both inequality and the environment, and whose work is rooted in trying to tweak and harness market forces to address these issues more efficiently and with fewer unintended consequences. Moreover as a means of taking into account the impact on others and on the environment of market exchanges which, from a narrow vantage point, simply seem to benefit both parties, the concept of “externalities” is a long-established tool of economic analysis. But the concept of externalities is aptly named, because its focus is indeed external to the primary assumptions of a model of market exchanges between rational (and prescient) individuals. It also seems rather feeble when stacked up against the ferocious momentum of a market economy in which every day literally billions of individual decisions to buy and sell things generate the collective consequence of changing the very climate on which the well-being of all those buyers and sellers depends. In implicitly ceding our decision making about major social and environmental challenges so largely to the market, we essentially cede as well some of our capacity to solve those challenges.
Behavioral economics does not in itself provide an alternative model for organizing our society or for generating more socially just or environmentally benign outcomes. Indeed, most behavioral economists retain their parent discipline’s emphasis on the power of the market to efficiently sort things out. But behavioral economics introduces new questions, new ideas, and new data that have the potential to challenge the moral foundations of an economy that provides such strikingly disparate outcomes for different people. Given the mounting evidence that people depart substantially from the remarkable rationality assumed by standard economic theory and that we are not very good at anticipating what will make us feel good about ourselves or our lives,10 it is increasingly difficult to maintain that those outcomes simply reflect the free play of witting choices by fully informed agents who can calculate precisely what is best for them. Behavioral economics also offers new analytic tools that can better enable us to design our institutions and what Thaler and Sunstein11 call our choice architecture so that the presentation of the choices available to us better serves our needs. Viewed in its entirety, the development and accelerating progress of behavioral economics since the time this book first came out represents a hopeful sign in the midst of (and as a possible counter to) some rather discouraging social and ecological trends.
Changes in Our Work Life and the Challenges of Distribution
In the way we usually conceive it, work is something we need to do in order to produce the things people need. But increasingly, work is itself what we are most concerned about producing. The people we celebrate are not those who hammer the most nails or pick the most grapes or write the most lines of code; it is the people who create jobs.
How did the order of things get reversed in this way, and especially, how did it happen without our really noticing that we had turned things on their heads? Do we work in order to produce? Or do we, these days, produce in order to have work for people to do?
It is not a simple either-or matter, of course. Our economy is not simply a “make-work” economy, a mere excuse for generating jobs, whatever they might be. Work is still clearly needed to provide us with the goods and services we want and need. But it is nonetheless instructive to reflect on how absurd would be the image of our hunter-gatherer ancestors trying to figure out how to get people to eat more woolly mammoths in order to keep hunters busy hunting; or a “baron’s council of economic advisors” in the middle ages trying to figure out how to entice everyone on the manor to eat more bread and cabbages in order to keep peasants busy planting. The work was just there, and people needed to do it.
Over the last few centuries, as we have evolved from an agricultural to an industrial society, these relatively simple contingencies have become increasingly complicated. The range of goods and services we are able to produce, as well as their quantity, have expanded to a degree that would once have seemed unimaginable. But our ability to provide people with the work whose income provides access to that immense stock of goods and services has followed a more jagged course. Today, in the very parts of the world where this historical process had brought the most broadly positive results—what we generally call the industrialized or developed world—there is increasing anxiety. Jobs seem scarcer, and especially good jobs. The expectation of continuing progress, in the lives of each of us and over the generations, is less confidently assumed. And it is becoming increasingly apparent that there are significant side effects—both on the environment and on the social fabric—to an economy so dependent on growth and “creating” jobs. To address these interlocking anxieties and challenges, we need a fresh understanding of the role of work in our society and our lives. Work today is as important for providing a rationale for distributing the output of the economy as for producing it; and understanding of the differing implications of these two functions of work is critical.
“Job creation” and “growth” have become the tired platitudes of our age, the all-purpose answer for politicians of every stripe. But in the twenty-first century, this approach to meeting our need for jobs and income runs up against the very physics of our planet. We are more and more forcefully confronted with the damage we have already done and continue to do each day we proceed in our present fashion. Our prodigious productive capacities have brought us enormous benefits, but the price has been much higher than we had understood. Continuing to spew pollutants into our soil, air, and water and carbon into our atmosphere is an unsustainable course, and aiming to further increase our production, as the “jobs growth” strategy requires, is even more so.
To be sure, in principle, we can expand our capacity to produce desired goods and services in ways that do not damage the environment, and indeed new research and new technological advances are pointing us toward non-polluting modes of production and non-carbon-based energy sources. Someday
