The rise of behavioral approaches in economics has been one of most
significant developments in the study of economic decision-making in
recent years. The increasingly acknowledged failings of standard models
of choice to explain economic decisions has prompted economists to
incorporate into their analysis psychological insights into individual
behavior, such as social cognitive and emotional biases. This book
introduces the topic of behavioral economics to a beginning readership,
explaining its approach and methodology and assessing its successes and
weaknesses.
The book begins by tracing the evolution of the field from its origins
in Adam Smith's moral sentiments through the work of Herbert Simon to
Daniel Kahneman and Richard Thaler today. The book explores how
behavioral economics has advanced our understanding of human preferences
including notions of fairness, reciprocity, and inequality aversion, and
the mental processes involved in decision making, which vary with the
complexity of the decision and the ability of the decision-maker to
process the information. The decision-making of individuals within
social and economic groups is explored, including financial
practitioners and what this can mean for financial markets. Finally the
book looks at the ways in which findings from behavioral economics have
been used to alter the decisions people make, such as the nudge
approach, and the ethics of such persuasion.
