Producer and Organizational Decision-Making

Behavioral economics is descriptive economics, it is claimed; it describes the results of actual human decision-making. This chapter deals with the difference between the traditional approach to economic analysis and behavioral economics.

If behavioral economics describes actual human decision-making, how is it that the field had so little to offer in extricating us from the most serious and prolonged recession of recent times? Moreover, how can we explain the striking success of entrepreneurs like Steve Jobs, Elon Musk, and Jeff Bezos, whose decision-making seems to have been very nearly maximizing, running counter to many of the much-less-than optimal findings of behavioral economics outlined in chapter 2? Never mind that there are other individuals, well described by the empirical findings of behavioral economics, who have fallen by the wayside or have barely achieved even meager results. Is it that traditional economics was right in declaring that the models of the discipline need not concern themselves with accuracy in describing human decision-making, but only with the predictions of the models? Or is it that we need at least two behavioral models? One of these indeed would be limited with respect to traditional economic rationality, and that is the one that would apply for most of us and most of our transactions, certainly as consumers and individual investors. The other (or others) might be more along the lines of traditional economic rationality, reflecting few exceptions to optimal maximizing behavior (though not always the same exceptions). Moreover, the enterprises that correspond to the more maximizing model might not so much be taking advantage of human frailties as simply ignoring them--and becoming more dominant in their industry in the process. (Perhaps we need more than two models of economic behavior if we are to take account of producer behavior, as well as consumer behavior and the behavior of many organizations.)