Behavioral economics is an approach to economic science that is grounded in looking at the behavior of people within an economic context and drawing conclusions from these empirical observations. Behavioral economics 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. Behavioral economics draws upon areas of neural science and evolutionary biology to present a picture to human decision making that is driven much more by irrational instincts, primordial motives such as hope, fear, and greed, that often bypass any kind of abstract isolated rational reasoning based on objective information. From the perspective of behavioral economics people’s rationality is bounded, meaning they can only think so much. They always exist within a context of space and time and are strongly limited by that particular context. Information is often incomplete and radical uncertainty may exist in outcomes. Due to this, agents often use heuristics and shortcuts in order to make decisions on incomplete information with limited cognitive capabilities.
Behavioral economics relates to complexity economics in that it provides us with models to understand how agents may act when we do away with the assumption of rationality.
Reply To: What is Behavioral EconomicsJoss Colchester2018-06-23T09:35:32+00:00