Moneywatch Writer Misunderstands Economics

A certain estimable writer for Moneywatch.com seems to have a fundamental misunderstanding of economics. While I have mentioned his news reporting positively on a prior occasion, I find it necessary to educate our readers on a couple of points about Economics 101.

First, the writer rightly claims that traditional economics assumes perfectly rational human beings. This means that in all circumstances, people will choose the option that gives them the highest reward. Another belief is that given the relevant information, people act independently, and not relying on the decisions of others. This is the underpinning belief behind the notion that free markets can and should regulate themselves, instead of requiring government intervention.

Needless to say, traditional economics has trouble understanding people's motivations and actions.

Next, the author discusses how a boy's rational decisions to save for retirement while still in high school showcase behavioral economics. He states that the boy is making a wise choice beyond his years, showing the "motivation and decision support systems" that are "aspects of what is called behavioral economics," as shown below:

It takes a combination of information, motivation and decision support systems, and these are aspects of what is called behavioral economics. Once you put these pieces together, they can have a profoundly positive impact on your financial life. So let’s take a look at how they came together for my nephew, what it means for his future, and what we can learn from that.

MALARKEY.

Behavioral Economics discusses systematic DECISION ERRORS and IRRATIONALITY in populations, not wisdom. This brand of economic thought shows that people suffer from overconfidence and numerous other biases that create SUBOPTIMAL choices. It is used as a basis for inefficient markets, including price bubbles and crashes.

In other words, how does irrationality explain prudent commendable savings? It doesn't.

I recommend that future mainstream media finance articles separate human interest stories from economics theory, because this oversight ruins good story material.