Roman Frydman and Michael Goldberg at the FT’s Economist’s Forum:
Behavioural economists have uncovered much evidence that market participants do not act like conventional economists would predict “rational individuals” to act. But, instead of jettisoning the bogus standard of rationality underlying those predictions, behavioral economists have clung to it. They interpret their empirical findings to mean that many market participants are irrational, prone to emotion, or ignore economic fundamentals for other reasons. Once these individuals dominate the “rational” participants, they push asset prices away from their “true” fundamental values.
I’ve been harping on this error for years, but it has seemed to me that economists generally don’t grok what the error is. It’s good to see economists who get it.