Monthly Archives: June 2009

One of the benign side effects of the credit crunch has been the boom in popular awareness of behavioural economics – a discipline that brings psychological insights to bear on economic theory. Behavioural economics books, such as Nudge and Predictably Irrational, have sold well and become influential. That is partly because they are good books, but it is also because a superficial reading of both behavioural economics and the credit crunch can lead to the same conclusion: people are crazy.

Yet, while popular awareness of behavioural economics was overdue, the links between irrational behaviour and the credit crunch are more subtle than they first appear. To see this, one need only re-read the behavioural economics books published before the crisis became severe. Nudge has a section on subprime mortgages, but it focuses on consumer protection. Predictably Irrational is being revised in the light of the credit crunch, but the first edition took a similar line, focusing on the vulnerability of naïve consumers. It does not seem to have occurred to the behavioural economists – even after they had seen the first glimmerings of the credit crunch in 2007 – that the banks would need protecting from themselves. The thought did not occur to many other economists, either.

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Next Wednesday, 10 June, at 7pm, I’ll be on home turf in Hackney, talking about “The Logic of Life” and perhaps a little about my forthcoming book too. Pages of Hackney is an intimate venue, which would be a big attraction if I were Mick Jagger. But it should be fun: I understand that if you buy a book, the wine and the talk are free. Otherwise, the wine and the talk are £3. Can’t be bad.

Tim Harford’s blog

This blog is no longer updated but it remains open as an archive.

Tim, also known as the Undercover Economist, writes about the economics of everyday life.