Pete Lunn and Tim Hartford debate the question in Prospect:
12th August 2008
These are exciting times to be an economist. The whirligig of international finance has come crunching to a halt. The British housing market inflated until we could hardly bear to watch, then popped in a destructive, sticky instant. The prices of food and oil are yo-yoing on speculative strings. And the textbooks still tell us that markets populated by rational, selfish, independent agents allocate resources efficiently.
Meanwhile, a revolution is under way in economic thought. Behavioural economics is no bell or whistle on the contraption of traditional economics; it is a big departure which will deliver a revolutionary new way of understanding the world. The founding assumptions of orthodox, neoclassical economics—that people can be thought of as rational, selfish and independent—are collapsing under the weight of empirical refutations…
13th August 2008
I’m disappointed. I had assumed, given your opening paragraph, that you were going to explain how behavioural economics might have predicted the credit crunch and the commodity boom, or offered a new way to regulate banks. That really would have been revolutionary. Instead, you offer the dear old ultimatum game. I was not surprised to read your lop-sided and unconvincing caricature of orthodox economics (“textbooks” are such a convenient straw man), but I was astonished to see you present a caricature of the subject you claim to be championing…
More from both men here.