Behavioral economics

Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors in the decisions of individuals or institutions, and how these decisions deviate from those implied by classical economic theory. Behavioral economics is primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology, neuroscience and microeconomic theory. The study of behavioral economics includes how market decisions are made and the mechanisms that drive public opinion. Behavioral economics began as a distinct field of study in the 1970s and '80s, but can be traced back to 18th-century economists, such as Adam Smith, who deliberated how the economic behavior of individuals could be influenced by their desires. The status of behavioral economics as a subfield of economics is a fairly recent development; the breakthroughs that laid the foundation for it were published through the last three decades of the 20th century. Behavioral economics is still growing as a field, being used increasingly in research and in teaching. Early classical economists included psychological reasoning in much of their writing, though psychology at the time was not a recognized field of study. In The Theory of Moral Sentiments, Adam Smith wrote on concepts later popularized by modern Behavioral Economic theory, such as loss aversion. Jeremy Bentham, a Utilitarian philosopher in the 1700s conceptualized utility as a product of psychology. Other economists who incorporated psychological explanations in their works included Francis Edgeworth, Vilfredo Pareto and Irving Fisher. A rejection and elimination of psychology from economics in the early 1900s brought on a period defined by a reliance on empiricism. There was a lack of confidence in hedonic theories, which saw pursuance of maximum benefit as an essential aspect in understanding human economic behavior. Hedonic analysis had shown little success in predicting human behavior, leading many to question its viability as a reliable source for prediction.

About this result

This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.

Related publications (20)

Related people (10)

Related concepts (114)

Related courses (27)

Related lectures (134)

Related MOOCs (4)

This course examines the supply of energy from various angles: available resources, how they can be combined or substituted, their private and social costs, whether they can meet the demand, and how t

Mainly based on the discussion of peer reviewed academic papers, the course introduces non economists to the main types of applied models used in environmental economic analysis: linear programming, p

The aim of this course is to expose EPFL bachelor students to some of the main areas in financial economics. The course will be organized around six themes. Students will obtain both practical insight

Technology Strategy in Dynamic Environments: A Computational Analysis of the Automation of Routines, the Organization of AI, and the Evaluation of Technology Risk

In this dissertation, I develop theory and evidence to argue that new technologies are central to how firms organize to create and capture value. I use computational methods such as reinforcement lear

EPFL2022

Temporal stability of stimulus representation increases along rodent visual cortical hierarchies

Liviu Soltuzu

Cortical representations of brief, static stimuli become more invariant to identity-preserving transformations along the ventral stream. Likewise, increased invariance along the visual hierarchy shoul

NATURE RESEARCH2021

Informational frictions in financial markets

Erik Hapnes

This thesis consists of three chapters on informational frictions in financial markets. The chapters analyze problems related to markets' ability to guide real investment, and what drives liquidity. B

EPFL2021

Smart Specialisation

This course deals with innovation policies for regional development. It provides numerous perspectives regarding the concept of smart specialisation and presents the tools and methods necessary for de

Spécialisation intelligente

Ce cours traite des politiques d’innovation pour le développement régional. Il fournit de multiples éclairages sur le concept de spécialisation intelligente et présente les outils et les méthodes pour

Planification des mobilités

Planification des mobilités est un cours conçu autour des enjeux environnementaux, économiques, territoriaux et sociaux qui sont liés à la mobilité aujourd’hui. Au-delà du transport, la mobilité englo

Explores social influence, democracy, individual autonomy, equality, and decision-making models.

Explores Bayesian Knowledge Tracing and latent variables for tracing student knowledge and making predictions.

Delves into human decision-making beyond rationality, exploring concepts like the decoy effect.

Sunk cost

In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered. Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken. In other words, a sunk cost is a sum paid in the past that is no longer relevant to decisions about the future.

Prospect theory

Prospect theory is a theory of behavioral economics and behavioral finance that was developed by Daniel Kahneman and Amos Tversky in 1979. The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics. Based on results from controlled studies, it describes how individuals assess their loss and gain perspectives in an asymmetric manner (see loss aversion). For example, for some individuals, the pain from losing

1,000 could only be compensated by the pleasure of earning

2,000.

Behavioral economics