A synthesis of behavioural and mainstream economics

2007

Abstract: Behavioural Economics' milestones, Endowment Effect and Loss Aversion, have been recognized as' well documented,''robust,'and'important'even by the critics. But well documented, robust, and important what? Are these stylized facts, theoretical constructs, or psychological truths? Do they express genuine preferences or are they judgement mistakes?

Rationality in Economics: Alternative Perspectives, 1998

principle will also prove useful in that, because of its roots in an older tradition of interpretive sociology, it will allow us to connect some intriguing new developments in behavior and cognition with a recognizable version of economic explanation. By thus walking both very old and very new ground, I hope to delimit a trail that others may find attractive. As I have argued elsewhere, Popper's principle is ultimately part of a larger European tradition associated with names like Max Weber and Alfred Schütz (Langlois 1986b, 1990). In that tradition, one analyzes social processes by assuming that agents (1) act appropriately or reasonably in the situation in which they find themselves. Put his way, the method of situational analysis, as it is called, is a broad and widely applicable one. Popper (1966, 1967) embraces a version of situational analysis as an antidote to what he calls psychologism, the view that one can explain all social processes solely by reference to the psychological states of individuals. (2) By contrast with psychologism, says Popper, situational analysis is able to explain "the unintended social repercussions of intentional human actions" (Popper 1966, p 95). Unlike psychology, economics and kindred social sciences are not about explaining the behavior of individuals; rather, they are about how individual behavior leads to larger social patterns and institutions, an idea that goes back at least to Smith and the Scottish Enlightenment. Understanding-or predicting, if one really believes that possible-the behavior of the agent is thus a means to an end rather than an end in itself. Moreover, for Popper, one benefit of situational analysis is that knowledge of the agent's situation can compensate in large measure for detailed knowledge of the agent's psychology: the "logic of the situation" may largely dictate behavior, and the psychology-or even the "rationality"-needed to make sense of the agent's actions (as one element in the explanation of unintended social phenomena) may be "trivial" (Popper 1966, p. 97). Notice, however, that, although both the situation and the theory of behavior needed to make sense of action in the situation may indeed be trivial, they also may well not be trivial. In the hands of Alfred Schütz and his followers (Schütz 1967; Schütz and Luckmann 1973), the approach from situational analysis often implies quite complex situations. In economics, however, it moved in a rather more narrow direction. Neoclassical rationality. Popper contended (e. g., 1966, p. 97) that situational analysis is in fact the method of economics. I return to this claim below. What is indisputable, however, is that there has long been in economics a tendency to see rationality as a logical rather than a psychological principle. Although we may trace this tendency to Menger (McCulloch 1977), it was probably Lionel Robbins's Nature and Significance of Economic Science (1932) that fully ensconced in the minds of economists the idea that their science is about the logic of means and ends rather than about the psychology of utility. Given a framework of means and ends, the agent's behavior reflects the solution to a logical problem of allocation. It was not a difficult leap to associate this logical problem with the mathematical problem of optimization, a leap that Walras and his followers had in fact already made. (3) The neoclassical rationality assumptions are well known, and it may seem unnecessary even to repeat them. I propose, however, to recast my description in a rather idiosyncratic way that will help highlight certain criticisms on which I want to focus below. The basic neoclassical model, I argue, combines the following four elements. Self-interest. Omniscience ("complete information"). Conscious deliberation (or an "as if" equivalent). The representative agent. The first two of these are much discussed; the third and forth elements are less often noticed. Self interest. The assumption of self-interest has come under intense criticism, traditionally from outside economics, although increasingly from within as well. In my view, however, self interest is a red herring. By self-interested behavior one really means purposeful behavior. And, as Viktor Vanberg points out,

American Economic Review

Behavioral economics has become an important and integrated component of modern economics. Behavioral economists embrace the core principles of economics—optimization and equilibrium—and seek to develop and extend those ideas to make them more empirically accurate. Behavioral models assume that economic actors try to pick the best feasible option and those actors sometimes make mistakes. Behavioral ideas should be incorporated throughout the first-year undergraduate course. Instructors should also considering allocating a lecture (or more) to a focused discussion of behavioral concepts. We describe our approach to such a lecture, highlighting six modular principles and empirical examples that support them.

ResearchGate, 2023

Behavioral Economics is the study of psychology as it relates to the economic decision-making processes of individuals and institutions. Behavioral economics is often related with normative economics. It draws on psychology and economics to explore why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models.

The mainstream conception of economic action as rational maximizing has been under attack at least since Veblen. What has been lacking, however, is an alternative-or at least partly alternative-account that remedies many of the faults to which critics point without at the same time obliterating the many tangible benefits of the mainstream approach. This essay argues that a new model of action may be emerging that qualifies as such a (partial) alternative. In what follows, I examine both the strong and weak forms of the rational-behavior model as well as several recent competitors. THE RATIONALITY PRINCIPLE As a point of orientation, I will begin with Karl Popper's well-known rationality principle. This will provide a framework and a language with which to discuss both rationality and the methodology of economics. Popper's principle will also prove • In writing this paper, I benefited from the comments ofChrysostomos Mantzavinos as well as of the participants in the conference on "Abandoning the Hypothesis of Omniscience in Economics: What are the Implications?" January

There are two reasons to go beyond Behavioral Economics. The first reason is that humans, as presented by this school, do not explain many critical economic problems. Behavioral Economics is not an alternative paradigm to traditional economics. It is only one of the New Schools of thought, that has risen due to the failure of the contemporary Neoclassical School to show that markets have a unique maximum welfare full employment equilibrium. Therefore, in order to delimit Behavioral Economics ́ contributions we need to look at the whole paradigm in economics, which today includes: the contemporary neoclassical paradigm plus all the New Schools of thought. The second reason is that humans, as described by Behavioral Economics, are not a good representation of mans ́ evolutionary characteristics. For Behavioral Economics, humans are emotional beings which often do not know what is best for them, and need the help of the government to make the choices which are truly convenient; and they display altruistic and social cooperative behavior, even in monetary transactions. But evolutionarily we are neither design to be emotional or rational, nor to be selfish or altruistic and socially cooperative. We are design to be flexible for survival purposes, and to display a wide range of behaviors.

This paper aims to represent the special characteristics of rational economics in comparison to the case of behavioral economics. Therefore, this analysis represents these issues and shows the main differences between the two concepts. The mainstream is to show the crucial attributes of both of them and the differences between them. Behavioral economics also take into account subjective characteristics, while rational economics is based more on mathematical norms, but there are also approaches that allow both behavioral economics and behavioral economics as feedback systems can find the most appropriate model.

Behavior & Law Journal, 10(1), 41-56, 2024

The purpose of this article is to present, delimit, and integrate the proposals of economic behavior and behavioral economics, including their axioms, heuristics, and biases, to advance research in this field. The article recommends applying first economic and then psychological issues, in that strict order, for epistemological, legal and practical reasons. Based on human action or praxeology, the process of economic decision making and doing is graphed, thesein turn frame systems of thought with their different heuristics, the latter of which are the cause of systematic errors called biases.

Experimental Economics, 2006

Behavioral economics has grown significantly in importance and prevalence within the economics profession over the last couple of decades. Most economics departments now include researchers conducting behavioral research, and most economics journals regularly publish behavioral work. Behavioral economics is generally defined as using evidence and constructs from neighboring social sciences, especially about limits on computation, willpower, and self-interest, to inform economic analysis (e.g., . While many of these constructs come from psychology, other social sciences have much to contribute as well (see . For instance, anthropological research has provided important insights into the understanding of how social institutions and interactions shape strategic behavior (see . Behavioral economics can often be defined by goals and methods. Behavioral research usually seeks to develop theory that is consistent with realistic aspects of human judgment and decision making, such as bounded rationality and non-egoistic motives. As a result, most behavioral research is based on the careful comparison between theoretical predictions and the actual behavior of individuals and the outcomes observed in economic environments. Put differently, behavioral economics seeks to inform economics and economic theory by how people and economic institutions actually behave. Importantly, most behavioral economists have the goal, not of developing an alternative to economic theory and methods, but instead to incorporate new assumptions and methods into mainstream economics research. Thus, the

Philosophy of Economic Behavior, 2019

Economics aims for greater accuracy in its models and predictions. The human being aims a complete satisfaction of his unlimited desires. How to find the profitable equilibrium of this relationship? This is the question that the Philosophy of Economic Behavior aims to respond, having as focus the homo oeconomicus of flesh and blood with his singular characteristic of “quasi rational” decision-maker, however influenced by emotion. Thinking of the homo oeconomicus from his point of view as an individual in the world, despite all the influences he suffers from being in the world. The purpose of the research was that of defining the point of departure, the very beginning of something that unfolds itself as the questions arise. The possibilities of approach are as much as they allow the act of questioning. After all, philosophizing is always keeping the old themes alive with brand new questions.