Friday, December 11, 2009
Since assuming office, US President Barack Obama has attempted to assess why markets become overheated and then come crashing down. He read Cass Sunstein’s much acclaimed book Nudge to get a sense of how government regulation can wean people away from poor decision making. Using behavioural economics, Sunstein suggested “libertarian paternalism” as a weapon to help people nudge a herding tendency that often determines investor behaviour.
The critical question, however, is not whether people should be steered towards the right choice but to ascertain what indeed is right. Jonathan Aldred, a University of Cambridge economist, dismisses the idea of economic success as the indicator of right decision; he concurs that ethical economics is what determines smart decisions. In his revealing and entertaining book The Skeptical Economist, Aldred says that economics is not an agreed body of knowledge or an objective science. Instead, it is built on ethical foundations—how we ought to live, and what we should value....more