INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION, Vol. 9 William A. Darity, ed., Detroit: Macmillan Reference, 2007
Posted: 18 Jan 2010
Date Written: 2007
Behavioral economics is a branch of economics which distinguishes itself from contemporary (neoclassical) economics by its presumption that the realism of behavioral and institutional assumptions are substantively important to the modelling of the economic agent. The contributions of Hebert Simon, Daniel Kahneman and Amos Tversky have made significant contributions to the development of contemporary behavioral economics. There are two main perspectives within behavioral economics. The first, which follow the work of psychologists Kahneman and Tversky, attempts to demonstrate the extent to which human behavior deviates fro neoclassical forms. It concludes that human behavior is largely irrational but rationality can be learned. The other main perspective, sometimes referred to as "ecological rationality" assumes that human behavior is largely rational and intelligent given the constraints an individual may be faced with.
Conventional theory is enriched by behavioral economics through the introduction of modeling variables and parameters which provide more scientific causal and predictive analysis. This in turn opens the door wide open for reconstructing economic theory, engaging institutional analysis as a partner in model building and inviting public policy analysis to help better understand the constraints and incentive environments under which economic agents make rational choices.
Keywords: Behavioral economics, Economic agent, Human behavior, Rationality, Constraints
JEL Classification: D03
Suggested Citation: Suggested Citation