PhD defence B. (Blaž) Remic

Dissertation in short:

What motivates people to do something? What are the implications for economic analysis, based on incentives, of intrinsic motivation? Economists now accept that an answer to this question must be sought at the intersection of economics and psychology, but the precise relationship between economics and psychology is still unclear. This thesis starts from the observation that the rise of behavioral economics means that the question is no longer whether psychology belongs in economics or not. The relevant question is what kind of psychology found its way into economics, and whether it is the right and most appropriate form of psychology for economic analysis.

At the beginning of the thesis, I argue that economists developed two fundamentally different types of behavioral economics, each based on a different type of psychology. What I call Type I behavioral economics is an approach that seeks to identify anomalies in the applications of standard rational choice theory. The most obvious proponents are Herbert Simon, Daniel Kahneman and Richard Thaler. In contrast, Type II does not start from the premise that the theory of rational choice is descriptively flawed and thus we need a correction, but from the premise that rational instrumental action does not lead to satisfaction and personal growth. Examples of this can be found in the work of Tibor Scitovsky and Bruno Frey. Apart from differences in theory and analysis, the two types differ significantly in their normative implications. Behavioral economics Type I is about the satisfaction of "real" preferences, free from cognitive biases and other psychological constraints. Behavioral Economics Type II is about the need to express inner autonomy and identity, with economic costs and benefits taking second place.

The overarching theme of the following chapters is that a different kind of behavioral economics is both possible and necessary. The behavioral economics I propose does not focus exclusively on the cognitive capacities and needs of the individual, but is based on the fact that people are embedded in a social world. By taking this embeddedness seriously, we must take into account the entanglement of individuals and their social and institutional environment. This is a perspective that is in the realm of social interactions, between the two extremes of Type I's instrumental perspective and Type II's expressive perspective. It resonates with Kenneth Boulding's memorable quote that "economic man is a clod, heroic man is a fool, but somewhere between the clod and the fool, human man, if the expression may be pardoned, steers his tottering way" (Boulding, 1969, p. 10). People who live between these two extremes act and interact by and with the help of their institutional and social environment. In figuring out what is the right thing to do, they are guided not only by their inner impulses, or by responding to an external standard of rational action, but primarily by a constant process of discovery and learning-through interaction with each other and with their environment-about how to properly evaluate the situation. To study this, we have little use for a behavioral economy that reasons purely from individual cognition or from individual psychological well-being. We need the behavioral economics of social interaction. An approach that focuses on the study of intersubjective meaning and builds on an insight from recent cognitive science that individual minds and their environments are epistemically and ontologically intertwined.