The evolution of behavioural economics

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Abstract

This survey of how behavioural economics has evolved over the past century and a quarter adopts a reflexive approach as it examines factors that have affected the uptake of different variants of behavioural economics. It begins with the behavioural dimension in Marshall’s work in 1890 and moves, via work in a similar spirit undertaken by members of the Oxford Economists’ Research Group, to the research programme of Herbert Simon and his colleagues, who created the behavioural theory of the firm. It considers how, despite Simon’s 1978 Nobel Prize, the behavioural theory of the firm did not get carried forward into the new behavioural economics that grew out of the work of Kahnema, Thalern and Tversky that focuses largely on the behaviour of individual consumers or players in financial markets. The paper also explores other behavioural approaches to the individual decision maker, from Keynes’s and Kataon’s work on consumer sentiment and Shackle’s potential surprise approach to choice under uncertainty, to the more Simon-inspired information processing and adaptive views of decision-making at the intersection of economics and marketing.