What Is Behavioral Economics?

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Richard Thaler, described by The Spectator as ‘the godfather of behavioural economics’, will be in conversation with LSE Director Craig Calhoun about his book Misbehaving, an authoritative and entertaining history of behavioural economics.

Richard Thaler has spent his career studying the radical notion that the central agents in the economy are humans—predictable, error-prone individuals. Traditional economics assumes rational actors. Early in his research, Thaler realized these Spock-like automatons were nothing like real people. Whether buying an alarm clock, selling football tickets, or applying for a mortgage, we all succumb to biases and make decisions that deviate from the standards of rationality assumed by economists. In other words, we misbehave. Dismissed at first by economists as an amusing sideshow, the study of human miscalculations and their effects on markets now drives efforts to make better decisions in our lives, our businesses, and our governments.

Listen to Richard Thaler on Misbehaving: the making of behavioural economics

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Behavioural economics incorporates the study of psychology into the analysis of the decision-making behind an economic outcome, such as the factors leading up to a consumer buying one product instead of another.

The US academic Richard Thaler won the Nobel prize in economics on Monday for his pioneering work in this field. The Royal Swedish Academy of Sciences, which awarded the £845,000 prize, praised Thaler for incorporating psychological assumptions into analyses of economic decision-making.

Unlike the field of classical economics, in which decision-making is entirely based on cold-headed logic, behavioural economics allows for irrational behaviour and attempts to understand why this may be the case. The concept can be applied in miniature to individual situations, or more broadly to encompass the wider actions of a society or trends in financial markets...

Continue reading Richard Partington's article: What is behavioual economics?

Further Reading

Behavioral economics, along with the related sub-field behavioral finance, studies the effects of psychological, social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and resource allocation, although not always that narrowly, but also more generally, of the impact of different kinds of behavior, in different environments of varying experimental values.

Behavioral economics is primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology, neuroscience, and microeconomic theory; in so doing, these behavioral models cover a range of concepts, methods, and fields...

Continue reading the Wikipedia article on Behavioural Economics

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Related Topics

If you’re interested in behavioural economics, check out some of the following related topics for more resources:

 Cognitive BiasesDecision TheoryEconomicsNudges | Psychology | Rationality

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