Behaviouralists like Kahneman, Tversky, Thaler et al have demonstrated using field experiments that the economic decisions we make will vary depending on how their potential outcome is framed. In other words, the idea of loss and gain affects us differently. Essentially, we are loss averse, so if an outcome is framed as a potential loss we will chose differently than if it is described as a profit. Neuroscience, according to the Economist this week, appears to confirm these findings, demonstrating that patterns of activity show different parts of the brain are at work, depending on this framing of loss or gain.

Ultimately, the pressing question is why, despite a wealth of human experience to the contrary, economists have persisted with such a rationalist model of economic behaviour, when every one from Plato (as the Economist observes) to your everyday marketing manager knows that is not the way people think and act.

What further compounds this paradox is, despite classical economists famously’ disastrous record for forecasting, their levels of employment show no signs of declining; likewise our readiness to cling to the certainties they produce. No doubt a simple matter of supply and demand, as they would have it.

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