The Community of Advantage: A Behavioural Economist's Defence of the Market

"The Community of Advantage addresses the same kind of unease I have about economic policy that made me like my first choice—this idea that the policymaker knows better than everybody else. The policymaker stands outside and figures out what to do and then applies the policy to make things better for everybody else. That raises a lot of questions, such as, ‘Well, how do you know what’s better for everybody else?’ And ‘Who are you to say this is the way things should be?’ Rather than game theory, this book looks at behavioural economics . It’s an area that’s become incredibly popular in recent years, and policymakers are trying to adopt behavioural economists’ policies. In a way, that’s even worse than applying the conventional kind of economics, because it’s derived from Skinner’s behaviourist psychology and operant conditioning. It’s been doctored by advertising and marketing people over the years and it’s trying to manipulate people. I’m uncomfortable about saying that not only do policymakers know better, but also that everybody else has these quirky, behavioural biases which mean they make bad decisions for themselves—so we’re going to manipulate them to make them do what’s right for them. “When you get an academic writing about the area on which they have spent years of research and thinking and they can do that in a way that the general public can understand, then that’s going to be a very powerful book” What Sugden is arguing is that of course behavioural economists are onto something. There are many contexts in which people make decisions that are not like the rational, calculating homo economicus myth. But we need to think about that in a way that’s not paternalistic and manipulative, as so many behavioural economists do. His approach is in the spirit of someone like Thomas Schelling, who urges us to think about ways of approaching policy. We know it’s in the interests of people to act in their own interest. This is why I link it to the Kaushik Basu book, because you can very easily frame that in a game theoretical way. You’re trying to figure out what happens when everybody looks out for their own interests, but also responds to what they think everybody else is going to do."