What Traditional Management and Economics Theories Have In Common

In a recent news article titled We Told You So, author Dan Gardner writes about Robert Shiller's books (The Subprime Solution and Irrational Exuberance) and the author's accurate predictions of both the housing crisis and the tech crash. Gardner's article points to Shiller's positioning of two flaws in conventional economics thinking that was a major factor in both economic events (and the Dutch tulip mania of 1637 as it turns out):

• Flaw number one - the premise that people are always rational, and make rational decisions based on facts and what is in their best interests as opposed to "buy a house at grossly inflated price and expect its value to keep rising."
• Flaw number two - "efficient markets theory" - prices are always reasonable and correct based on all publically available information, and markets are never wrong.

Gardner also references the emergence of behavioural economics over the last 12 years or so, and coincidentally I just stumbled across a Tom Davenport article titled Voting for Behavioral Economics (And Against My Own Self-Interest) that references same.

I haven't ready any of the above mentioned books yet, but what I find fascinating in the article is the link between what is referenced as conventional economic theory, and traditional management thinking that leading management writers and thinkers like Gary Hamel and Henry Mintzberg are attempting to break away from - that the world, its systems, and people are predictable.

It would appear to be the contrary.

(PS: Mintzberg talks about the current economic situation as a A Crisis of Management not Economics, and states that "... everything was short-term and everybody is under pressure and everybody is meeting their targets for each short-term period and so they were not managing. It is a management problem from beginning to end, and I do not think this is a banking problem or a finance problem. "