Behavioral finance’s noise-trader models left the neoclassical framework untouched.

Evidence

This purported “enrichment” of simpler concepts of rationality had even established a beachhead in the study of financial economics prior to the crisis; its most prominent advocate in the prelapsarian era was Lawrence Summers, which might begin to signal that its revolutionary potential may not have been all that transformative. Mostly, in finance it fostered models predicated upon the posited existence of a two-class world consisting of (a) stupid people, sometimes more charitably known as “noise traders,” who performed certain functions in financial markets (liquidity, smoothing of reactions to shocks) so that the (b) neoclassically “rational” agents could more readily find the “true” or “fundamental” values dictated by the prior orthodox theory. Nothing here substantially impugned the basic orthodox model. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 728

Categorization

• XREF: Connects to critiques of behavioral economics as neoclassical salvage, e.g. work by psychologists (Gigerenzer) that economists ignored. — connects to: Information-side patches to neoclassical economics remain epicycles never incorporated into the core model — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 1998
• QUESTION: What precisely did Lawrence Summers champion in behavioral finance pre-crisis, and how did it shape post-crisis policy debate?

Broader Connections

• Information-side patches to neoclassical economics remain epicycles never incorporated into the core model #expands (0.82) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 1998