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Social capital and behavioral economics – rationalizing irrational choices

Exploring Social Capital Podcast
Exploring Social Capital Podcast
Social capital and behavioral economics - rationalizing irrational choices

Ep 11. Social capital theories have similarities with behavioral economics. Since the early theories of social capital, it has focused on the actions of individuals and groups that deviate from neoclassical economic theorising – when economic agents “misbehave” or make “predictably irrational” choices. This is similar to behavioral economics, which is the study of the psychological, cognitive, emotional, cultural and social factors involved in the decisions of individuals or institutions, and how these decisions deviate from those implied by classical economic theory. In this episode, we discuss the relationship between social capital and economic thinking, including behavioral economics, and what social capital theories attempt to resolve.

The following article explores this issue:

Robison, L.J., Oliver, J.R. Rationalizing predictably irrational choices: the social capital synthesis. Ann Reg Sci 70, 611–631 (2023).

In this episode, Tristan Claridge and Lindon Robison explore the intersection of social capital and behavioral economics, examining how the concept of social capital can address discrepancies in classical economic theory. They start by discussing the limitations of neoclassical economics, particularly its assumption of rational, self-interested agents, and how social capital can fill the gaps left by this model.

Lindon shares his journey of incorporating social capital into his economic perspective, noting that it helps explain behaviors that appear irrational under classical economic assumptions. Tristan highlights that social capital, much like behavioral economics, considers psychological, cognitive, emotional, cultural, and social factors influencing decisions.

They discuss how social capital theory emphasizes the importance of relationships and connections, both personal and broader social connections, and how these impact decision-making. Lindon explains that relationships matter because they involve the exchange of relational goods that satisfy social-emotional needs, a concept often overlooked in traditional economic models.

Tristan and Lindon also touch on the dynamic nature of social capital, its ability to appreciate or depreciate over time, and the role of maintenance in sustaining social capital. They consider how low-cost mechanisms like social media can help maintain social capital by keeping relationships current.

They conclude by discussing the potential for a more comprehensive theory that integrates social capital with behavioral economics, aiming to provide a better understanding of human behavior by acknowledging the role of relational goods and social-emotional needs. This approach could lead to more effective strategies for influencing behavior, moving beyond merely recognizing cognitive biases to understanding the deeper social connections that drive actions.

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