Behavioral Economics

by

Guy Hochman, Shahar Ayal

• LAST REVIEWED: 29 May 2015
• LAST MODIFIED: 29 May 2015
• DOI: 10.1093/obo/9780199828340-0089

Introduction

Behavioral economics is concerned with the impact of psychological factors (e.g., motives, emotions) on economic decision making. Clearly, any economic decision is related to individual behavior. However, standard economics portrays individuals as rational agents who are self-interested and seek to maximize their personal utility. By contrast, behavioral economics recognizes that people do not always make rational decisions and thus aims to explain how and why people make the (rational and irrational) economic decisions they do. The field of behavioral economics emerged in response to an upsurge in well-documented behavioral anomalies and marked deviations from the standard economic models. By examining cognitive, emotional, and social aspects of the decision process, behavioral economics tries to predict actual behavior and provide important insights about the forces that shape economic decision making. In this sense, behavioral economics is more a school of thought than a distinct subfield of economics. Behavioral economics deals with such crucial questions as the type of choices that people make (and why they make them), how incentives affect behavior, the role of the format in which information is presented in the formation of preferences, ways in which people allocate money among different pools, and how people manage their savings as well as their debt accounts. Behavioral economics is a relatively new science that is nevertheless deeply rooted in older streams of decision making research. However, while the more general field of judgment and decision making is concerned with basic behavioral research that is more general and can be applied to diverse fields, behavioral economics is more specific to economic problems and principles. As such, it is more focused on providing practical policies and interventions that are aimed to help people become better decision makers. The sources included here represent a mix of recent and older work. The majority of the books, chapters, and articles cited here should provide interested readers with the opportunity to learn about this fascinating field and enable more experienced readers to discover recent advances and milestones in a field that fulfills a real need in today’s era of economic upheaval.

General Overviews

Several texts provide an interesting and comprehensive overview on behavioral economics and the development of the field. Most of these texts, including Camerer, et al. 2004; Angner and Loewenstein 2012; Camerer 2006; and Mullainathan and Thaler 2001, present a broad, general overview of the field with an extended historical background. In addition, Camerer, et al. 2004 is an outstanding collection of some of the best professional articles in the field of behavioral economics. Especially fascinating is the first chapter (Behavioral economics: Past, present, future) by Camerer and Loewenstein, which provides an excellent introduction to the field. Diamond and Vartiainen 2007 is a collection of essays that outlines the latest developments in behavioral economics and its implications. Tomer 2007 is a journal article that identifies the different schools of behavioral economics and compares them to mainstream economics. Rabin 1998 is a journal article that discusses some of the major psychological findings that have impacted economic decision making and how psychological research contributes to the field of behavioral economics. Samson 2014 is a recent guide and introductory text to behavioral economics.

• Angner, Erik, and George F. Loewenstein. 2012. Behavioral economics. In Handbook of the philosophy of science. Vol. 13, Philosophy of economics. Edited by Uskali Mäki, 641–689. Amsterdam: Elsevier.

  An extremely comprehensive and interesting overview of behavioral economics. The chapter discusses different aspects of behavioral economics, experimental methods, and current developments and directions. An excellent resource for those who are interested in the field of behavioral economics.

• Camerer, Colin F. 2006. Behavioral economics. In Advances in economics and econometrics: Theory and application, Ninth World Congress of the Economic Society. Vol. 2. Edited by Richard Blundell, Whitney K. Newey, and Torsten Persson, 181–214. Cambridge, UK: Cambridge Univ. Press.

  DOI: 10.1017/CCOL0521871522

  An interesting chapter that provides an extensive overview of behavioral economics, the theory and philosophy behind it, and its main themes and experimental tools. Accessible to all audiences; provides an excellent introduction to the field of behavioral economics.

• Camerer, Colin F., George F. Loewenstein, and Matthew Rabin, eds. 2004. Advances in behavioral economics. Princeton, NJ: Princeton Univ. Press.

  A collection of articles that covers the main topics in behavioral economics. An excellent resource for those who want to learn what behavioral economics is all about, or to keep abreast of developments in the field. For students, professional researchers, and anyone with an interest in economic behavior.

• Diamond, Peter, and Hannu Vartiainen, eds. 2007. Behavioral economics and its applications. Princeton, NJ: Princeton Univ. Press.

  This edited volume includes essays by some of the world’s leading figures in behavioral economics and mainstream economics. The chapters provide an excellent overview of the main branches of behavioral economics, and the text is a great resource for both students and scholars in psychology, sociology, and economics.

• Mullainathan, Sondhil, and Richard H. Thaler. 2001. Behavioral economics. In International encyclopedia of the social and behavioral sciences. Vol. 2. Edited by Neil J. Smelser and Paul B. Baltes, 1094–1099. Oxford: Pergamon.

  This book chapter discusses the importance of behavioral economics in understanding economic decision making. It highlights the way individuals deviate from standard economic models.

• Rabin, Matthew. 1998. Psychology and economics. Journal of Economic Literature 36:11–46.

  An excellent review of key psychological findings that demonstrate deviations from rational economic models, and how they relate to economic decision making. Aimed at students and professionals. Available online by subscription.

• Samson, Aline, ed. 2014. The behavioral economics guide. 1st ed.

  Provides an overview and general introduction to behavioral economics in a clear and engaging way. A good source for anyone who wishes to learn about the field. Available online.

• Tomer, John F. 2007. What is behavioral economics? Journal of Socio-Economics 36:463–479.

  DOI: 10.1016/j.socec.2006.12.007

  This article defines the characteristics of behavioral economics and provides an overview of the different strands in the field. Each strand is carefully compared to mainstream economics. The article is primarily for graduate students and researchers.