Irrational forces...

If our economy ever starts rolling along again, and people start making lots of money, behavioral economists say it might do us all well not to lose sight of human nature and its affect on the U.S. economy -- and the world's -- as we are expanding some new bubble.

Fear, overconfidence and irrationality are powerful forces that threaten the economy. But if you really want a zinger, consider that the economy -- as rational as it may be in theory -- is not rational at all in the world outside of a textbook.

It's entirely subject to human nature and our own fallibility, says Dan Ariely, professor of behavioral economics at Duke University and author of the book "Predictably Irrational."

"In fact, it's our lack of understanding of those irrational forces that brought us to this point," Ariely said.

If we could build an economy that accounts for those irrational forces, maybe we'd have a better world, he argues.

Take a look at Ariely's most recent blog entry at http://www.predictablyirrational.com/?p=305&date=1:

Isn't behavioral economics a depressing view of human nature?

16th October 2008, 06:42 am

It is true that from a behavioral economics perspective we are fallible, easily confused, not that smart, and often irrational. We are more like Homer Simpson than Superman.  So from this perspective it is rather depressing.  But at the same time there is also a silver lining. There are free lunches!

Take the physical world for example. We build products that work with our physical limitations. Chairs, shoes, and cars are all designed to complement and enhance our physical capabilities. If we take some of the same lessons we've learned from working with our physical limitations and apply them to things that are affected by our cognitive limitations-insurance policies, retirement plans, and healthcare-we'll be able to design more effective policies and tools, that are more useful in the world....