![]() These thinkers have had enormous influence on modern policy-not least through advising the policy-making teams of the then US President Barak Obama and the then UK Prime Minister David Cameron. Thaler is most famous for his work on behavioral finance and behavioral public policy-commonly known as “nudging,” named after his best-selling book with legal scholar Cass Sunstein-the book this year celebrating its tenth anniversary (Thaler and Sunstein, 2008). The second was the award of the 2017 Nobel to behavioral economist Richard Thaler, who has written colorfully about his contributions in his book Misbehaving (Thaler, 2106). Smith-an experimental economist whose insights and tools inspired behavioral economists even though experimental economics is not behavioral economics. The first milestone was the award of the 2002 Nobel Prize jointly to economic psychologist Daniel Kahneman, alongside Vernon L. Most of the excitement about behavioral economics has bubbled-up in the past ten or so years. The Pastīehavioral economics may seem to many observers to be a new thing, for better or worse. Together, they enable us powerfully to understand what and how real people think, choose, and decide in ways that no single academic discipline has managed before-generating not only new theoretical insights but also new practical and policy insights that, at best, have the power to change livelihoods, prosperity, and well-being across a range of dimensions. Together, the subjects are uniquely insightful. Without the psychology, economics lacks external consistency and intuitive appeal. Without economics, the psychology lacks analytical structure and direction-especially in describing everyday decision-making. Neither the economics nor the psychology can stand alone. Modern behavioral economists have taken this further by bringing together rich insights from psychology to capture how economic incentives and motivations are changed, often fundamentally, by psychological influences. Herbert Simon made some early progress in re-conceptualizing rationality in economics-via his concept of “bounded rationality”, that is, rationality bounded by constraints in information available or in cognitive processing ability (Simon, 1955). But it also addresses the fundamental flaw in non-behavioral economics: its highly restrictive conception of rationality, based on assumptions of agents able easily to apply mathematical tools in identifying the best solutions for themselves or their businesses. It brings together economists’ powerful analytical tools, traditionally applied in a restricted way to unraveling the economic incentives and motivations driving us all. Why? Because behavioral economics combines a unique collection of insights from social science. Even in the silos of academia, most applied research teams-most obviously other social scientists but also natural scientists, from neuroscientists through to behavioral ecologists, computer scientists and engineers-are keen to bring behavioral economists into the multidisciplinary teams so that they can connect their research with insights from behavioral economics. ![]() Lessons from behavioral economics are informing relationships between employers and employees. Commercial businesses are using it to inform their marketing strategies. Governments are embedding behavioral insights into policy. Today, it seems as though everyone is talking about behavioral economics. ![]() These all illustrate how behavioral economics provides businesses and policy makers with a rich understanding of how real people think, choose, and decide. This article explores the evolution of behavioral economics and some key behavioral insights about incentives and motivations social influences-including social learning, peer pressure, and group-think heuristics and biases decision-making under risk and uncertainty present bias and procrastination and nudging policy tools. ![]() It combines a diverse range of insights from across the social sciences-including economists’ powerful analytical tools alongside rich evidence about real human behavior from other social sciences-especially psychology and sociology. Consolidated by the award of the 2017 Economics Nobel Prize to behavioral economist Richard Thaler, behavioral economics is enjoying a golden age. ![]()
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