Edit: I recommend reading Scott’s response to this essay in addition to the essay itself.
I’ve been tracking the replication crisis and how it affects a bunch of behavioral economics for a while. I found reading this post useful for a particularly negative take. Some key quotes:
It sure does look alive… but it’s a zombie—inside and out.
Why do I say this?
Two primary reasons:
Core behavioral economics findings have been failing to replicate for several years, and *the* core finding of behavioral economics, loss aversion, is on ever more shaky ground.
Its interventions are surprisingly weak in practice.
Because of these two things, I don’t think that behavioral economics will be a respected and widely used field 10-15 years from now.
It turns out that loss aversion does exist, but only for large losses. This makes sense. We *should* be particularly wary of decisions that can wipe us out. That’s not a so-called “cognitive bias”. It’s not irrational. In fact, it’s completely sensical. If a decision can destroy you and/or your family, it’s sane to be cautious.
“So when did we discover that loss aversion exists only for large losses?”
Well, actually, it looks like Kahneman and Tversky, winners of the Nobel Prize in Economics, knew about this unfortunate fact when they were developing Prospect Theory—their grand theory with loss aversion at its center. Unfortunately, the findings rebutting their view of loss aversion were carefully omitted from their papers, and other findings that went against their model were misrepresented so that they would instead support their pet theory. In short: any data that didn’t fit Prospect Theory was dismissed or distorted.
I don’t know what you’d call this behavior… but it’s not science.
This shady behavior by the two titans of the field was brought to light in a paper published in 2018: “Acceptable Losses: The Debatable Origins of Loss Aversion”.
I encourage you to read the paper. It’s shocking. This line from the abstract sums things up pretty well: ”...the early studies of utility functions have shown that while very large losses are overweighted, smaller losses are often not. In addition, the findings of some of these studies have been systematically misrepresented to reflect loss aversion, though they did not find it.”