A Liberal Challenge to Behavioral Economics: The Case of Probability

Abstract

This paper argues that Behavioral Economics (BE) needs to be liberally inclusive in formulating its criteria for rationality against which to evaluate people's cognitive ability and performance. The paper focuses on BE's assessment of people's probabilistic reasoning. It examines the famous Blue Cab experiment upon which several behavioral studies have grounded their assessment of an average person as probabilistically challenged. The paper identifies a number of flaws in that experiment. The most serious of these flaws is the confusion between cognitive performance and cognitive competence.

Keywords: Behavioral law and economics