Behavioral Economics
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Abstract
We will finish the course with a couple of observations about behavioral economics. Behavioral economics is a (relatively) recent development in economics which uses insights from experimental economics and psychology to critique the standard models of economics behavior that we have discussed so far. The idea is that, by improving our models of economic behavior, we will improve our understanding of the way that economies work. One word of warning before we begin in order to be useful, it is not enough for the behavioral economist to show that existing models are wrong. Of course they are wrong. As we discussed at the start of the course, the world is a complicated place, and human behavior is particularly complicated. We can only hope that our models are crude, but useful approximations of the way that people actually behave. In my opinion, a behavioral observation has to fulfil (at least ) the following two criteria to be interesting