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Will Javier Milei’s economic shock therapy alter Argentina’s behavioural fault lines?

Will Javier Milei’s economic shock therapy alter Argentina’s behavioural fault lines?
Lyal White and Annabel Dennison
By Lyal White and Annabel Dennison
21 May 2025
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Argentina’s libertarian president, Javier Milei, has launched one of the most radical economic overhauls in modern Latin American history. With inflation surging, poverty deepening and confidence in public institutions eroding, Milei has pursued a radical programme aimed at dismantling the state’s interventionist apparatus.

Since taking office at the end of 2023, the self-styled economic iconoclast has eliminated price controls, slashed subsidies, reduced government payrolls and even mooted the abolition of the Central Bank. His stated goal is unambiguous: restore economic freedom and curb inflation to revive growth.

While headlines have focused on Milei’s bombastic style and sweeping reforms, a more nuanced question is emerging within Argentina’s business and policy circles: are these policies shifting economic behaviour in ways that could anchor longer-term change?

A country haunted by economic trauma


Milei’s rise came after decades of chronic instability characterised by hyperinflation, fiscal mismanagement, social unrest and frequent interventions by the International Monetary Fund (IMF). This seeded a deep mistrust in the Argentinian peso, prompting citizens to hoard durable goods and stash an estimated $500-billion – equivalent to the country’s gross domestic product – in savings abroad.

Decades of political and economic dysfunction have taught people to be socially wary, economically resilient and commercially nimble while forging a culture of dependency on the state and external funders.

Milei’s shock therapy jolted this behaviour with immediate results. By mid-2024 monthly inflation had fallen from more than 20% to about 2% – its lowest level in three years.

While annual inflation remained stubbornly high, the dramatic monthly decline offered a powerful psychological reprieve. Consumer sentiment turned upwards, illustrating the grip of present bias or the human tendency to outweigh immediate gains and losses relative to long-term trends. Panic buying, associated with erratic pricing and inflation, was replaced by selective frugality.

In short, Argentinians began recalibrating their financial instincts. While a preference for dollar savings continued, a growing number of Argentinians turned to formal deposits and productive savings as a first step towards rebuilding trust in the economy and the Argentinian peso.

Countering behavioural friction


Unlike the conventional behavioural economist who favours gentle nudges and subtle policy instruments, Milei’s style is less paternal and more wrecking ball in nature. But by upending entrenched incentives and reducing regulatory constraints, his measures inadvertently reduced behavioural frictions. Tax simplification, subsidy removals and the removal of price caps created a clearer decision-making environment for households and firms. In a country where informal work and tax evasion are widespread, these reforms have started to shift compliance norms. A first in decades for Argentina.

Crucially, Milei’s programme has revealed a core behavioural insight: policy design not only guides decisions but reshapes the status quo, expectations and identity. Argentinians have been forced to reconsider their assumptions about the state, markets and their role in the economy.

The power of narrative


Psychological framing is the true essence of Milei’s Magna Carta of behavioural change. While arguably beneficial for expectation anchors and inflation psychology, dollarisation and radical proposals like eliminating the Central Bank are emotive in nature and extend well beyond behavioural strategies, verging on an attack on core institutions. These measures illustrate the dangers of implementing blunt policies primarily to induce behavioural change.

He brands taxes as “slavery” and the state as “the enemy of prosperity”, tapping into loss aversion and primal fears. His emotionally charged rhetoric has spilled over into a dangerous misuse of behavioural anomalies. This has extended beyond the hype and congressional outbursts to undermine core democratic institutions and processes by excessively using presidential decrees in passing new laws. While some voters celebrate this as a necessary break from political gridlock, critics warn it may erode the very institutional trust Milei seeks to rebuild.

Such tactics are not unusual in the populist playbook. Policy designs are manipulated into a human-centric delivery for emotional value and political gain.

From shock to strategy


Milei’s unconventional programme has produced early wins. Argentina has secured renewed IMF support – its 23rd arrangement, with a $20-billion facility – and garnered cautious praise from international investors. Despite growing criticism around his approach, most tend to agree that Milei has altered expectations and broken bad habits, and is redefining what ordinary Argentinians believe is economically possible. And herein, Argentina offers a compelling case study in behavioural economics.

The policy lessons are clear: changing laws can shift sentiments and incentives. However, lasting change requires altering the stories people tell about themselves and their future.

For all its audacity, Milei’s reform agenda is incomplete. Long-term success will hinge on whether Argentinians truly internalise a new mindset – one grounded in autonomy, risk-taking and long-term planning. A free-market revival demands more than deregulation; it requires a vision for deep behavioural change. The tangibles of local business activity and foreign investment must follow.

Deliberately reshaping habits and restoring trust is key. Milei’s shock therapy may have stopped the bleeding. Still, without a long-term development strategy embedded with behavioural responses, Argentina risks slipping back into its cyclical past, regardless of who is at the helm or which economic ideology is in favour at the time. DM

Professor Lyal White is the director of the Porter Institute at the Gordon Institute of Business Science (GIBS). Annabel Dennison is a researcher and intern at GIBS.

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