Behavioral economics often treats people too much like information processors with predictable bugs.

The field should embrace how biology, lived experience, emotion, and development shape economic behavior.

The 'experience effect' shows that lived experiences can durably shape beliefs, expectations, and decisions.

A more biologically informed economics takes context and individual variation seriously.

The field of behavioral economics is facing several challenges and opportunities this century; the discipline is trying to find its own identity and position within science and applications. This includes debates around behavioral economics’ most fundamental idea—the causes of human decision-making. Human biology has a more important role in shaping the choices we make than behavioral science theories recognize.

UC Berkeley economist Ulrike Malmendier writes about Henry Wallich, who served as a governor of the US Federal Reserve System in the 1970s and 1980s. Wallich was born in Germany and experienced that country’s hyperinflation during the 1920s. As a result of this experience, he appeared unusually worried about inflation in his approach to interest rate policy. In fact, he dissented 27 times against proposed interest rate decisions by casting a hawkish vote (that is, endorsing a tighter monetary policy to reduce inflationary pressure). Malmendier and her colleagues found the same pattern in other board members—those who had personally experienced higher inflation in their lifetimes made more hawkish votes.

Malmendier writes that traditional economists would attribute choices that weigh personal experience too strongly to a lack of information. Relying only on knowledge derived from one’s own experience is limiting. But this explanation is clearly weak considering the amount of education and information at the disposal of Federal Reserve economists. Behavioral economics, on the other hand, would attribute those choices to biases shared by everyone:

[Advances in behavioral economics] gave us better models, better predictions, and better interventions: from automatic enrollment in retirement plans to........

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