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Behavioural Economics

Behavioural Economics takes account of the social, cognitive, emotional and evolutionary factors which influence decision-making. The field developed over the last few decades in the recognition that people frequently make decisions that are, economically speaking, 'irrational'. Therefore these decisions do not follow the predictions of traditional economic models.

The field traces back to Nobel laureate Herbert Simon's claim that people could not always make logical decisions because they possessed a "bounded rationality." This means people have limited information and face cognitive constraints when solving problems. Another cornerstone of Behavioural Economics is Prospect theory, developed by Amos Tversky and Nobel laureate Daniel Kahneman. Other notable researchers and theorists include George Akerlof, Richard Thaler and Gary Becker. Overall, Behavioural Economics offers a holistic understanding of human decision-making.

 

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