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April 17, 2005

What is Behavioral Economics?



"Behavioral economics [applies] scientific research on human and social cognitive and emotional [patterns] to better understand economic decisions and how they affect market prices, returns and the allocation of resources. The fields are primarily concerned with the rationality, or lack thereof, of economic agents. Behavioral models typically integrate insights from psychology with neo-classical economic theory... Behavioral analyses are mostly concerned with the effects of market decisions, but also those of public choice...

At the outset behavioral economics […] theories were developed almost exclusively from experimental observations and survey responses, though in more recent times real world data has taken a more prominent position. fMRI has also been used to determine which areas of the brain are active during various steps of economic decision making. Experiments simulating market situations such as stock market trading and auctions are seen as particularly useful as they can be used to isolate the effect of a particular [heuristic] upon behavior; observed market behavior can typically be explained in a number of ways, carefully designed experiments can help narrow the range of plausible explanations. Experiments are designed to be incentive compatible, with binding transactions involving real money [as] the norm. " (from Wikipedia)


*Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving by Richard H. Thaler; University of Chicago and NBER and Shlomo Benartzi; UCLA Anderson

*Behavioral Economics by Sendhil Mullainathan; MIT and NBER and Richard H. Thaler; University of Chicago and NBER

*Behavioral Economics and Institutional Innovation by Robert J. Shiller; Yale University

*Amos Tversky and the Ascent of Behavioral Economics by David Laibson; Harvard University and Richard Zeckhauser; Harvard University

Posted by DSN at April 17, 2005 05:15 PM