Is Behavioral Economics Doomed? The ordinary versus the extraordinary
By David K. Levine

“… behavioral economics is all the rage these days. The casual reader might have the impression that the rational homo economicus has died a sad death and the economics profession has moved on to recognize the true irrationality of humankind. Nothing could be further from the truth. Criticism of homo economicus is not a newtopic. In 1898 Thorstein Veblen wrote sarcastically described rational economic man as”a lightning calculator of pleasures and pains, who oscillates like a homogenous globule of desire of happiness under the impulse of stimuli.” This description had little to do with economics as it was practiced then – and even less now. Indeed, for a long period of time during the 60s and 70s, irrational economic man dominated economics. The much criticized theory of rational expectations was a reaction to the fact that irrational economic man is a no better description of us than that of a “lightning calculator of pleasures and pains.” In many ways the rational expectations model was a reaction to”[t]he implicit presumption in these … models … that people could be fooled over andover again,” as Robert Lucas wrote in 1995.

The modern paradigmatic man (or more often these days woman) in modern economics is that of a decision-maker beset on all sides by uncertainty. Our central interest is in how successful we are in coming to grips with that uncertainty. My goal in this lecture is to detail not the theory as it exists in the minds of critics who are unfamiliar with it, but as it exists in the minds of working economists. The theory is far more successful than is widely imagined – but is not without weaknesses that behavioral economics has the potential to remedy.”

You can read the whole thing here.