Behavioural Economics: Classical and Modern

In this paper, the origins and development of behavioural economics, beginning with the pioneering works of Herbert Simon (1953) and Ward Edwards (1954), is traced, described and (critically) discussed, in some detail. Two kinds of behavioural economics – classical and modern – are attributed, respectively, to the two pioneers. The mathematical foundations of classical behavioural economics is identified, largely, to be in the theory of computation and computational complexity; the corresponding mathematical basis for modern behavioural economics is, on the other hand, claimed to be a notion of subjective probability (at least at its origins in the works of Ward Edwards). The economic theories of behavior, challenging various aspects of 'orthodox' theory, were decisively influenced by these two mathematical underpinnings of the two theoriesClassical Behavioural Economics, Modern Behavioural Economics, Subjective Probability, Model of Computation, Computational Complexity. Subjective Expected Utility

The Role of Behavioural Economics in Energy and Climate Policy

This article explores how behavioural economics can be applied to energy and climate policy. We present an overview of main concepts of behavioural economics and discuss how they differ from the assumptions of neoclassical economics. Next, we discuss how behavioural economics applies to three areas of energy policy: (1) consumption and habits, (2) investment in energy efficiency, and (3) provision of public goods and support for pro-environmental behaviour. We conclude that behavioural economics seems unlikely to provide the magic bullet to reduce energy consumption by the magnitude required by the International Energy Agency's “450” climate policy scenario. However it offers new suggestions as to where to start looking for potentially sustainable changes in energy consumption. We believe that the most useful role within climate policy is in addressing issues of public perception of the affordability of climate policy and in facilitating the creation of a more responsive energy demand, better capable of responding to weather-induced changes in renewable electricity supply

A better understanding of the behavioural constraints that people face will help policy makers to more effectively target public policy interventions that aim to change their actions

Government interventions often have very different outcomes to those desired by policy makers. Joan Costa Font argues that the development of behavioural economics offers a means to more thoroughly examine the behavioural constraints faced by those who are targeted by specific policies. Behavioural economics is not only better equipped to account for failures but if applied to public policy, it could also give rise to more effective public sector intervention

What is Behavioural Economics Like?

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? We discuss the problems with the nature of these claims in the lights of the goals of Behavioural Economics: to improve economics’ realisticness and to be considered mainstream. We argue that, under sensible interpretations of Loss Aversion and Endowment Effect, Behavioural Economics is neither more realistic than, nor part of the mainstream.Behavioural Economics, Decision-Making, Endowment Effect, Loss Aversion, Uncertainty

Applying Behavioural Economics to International Development Policy

behavioural economics, policy

Behavioural economics perspectives: Implications for policy and financial literacy

This paper summarizes and highlights different approaches to behavioural economics. It includes a discussion of the differences between the “old” behavioural economics school, led by scholars like Herbert Simon, and the “new” behavioural economics, which builds on the work of Daniel Kahneman and Amos Tversky and is best exemplified by Richard Thaler and Cass Sunstein’s recent book, Nudge. These important currents in behavioural economics are also contrasted with the conventional economic wisdom. The focus of this comparative analysis is to examine the implications of these different approaches in behavioural economics for financial literacy

‘Nudging’ behaviours in healthcare: insights from behavioural economics

Since the creation of the Behavioural Insight Team in 2010, the word ‘nudge’ has become a popular one in social and public policy. According to policymakers and managers, applications of behavioural economics to public sector management results in increased policy efficiency and savings. This article offers a critical perspective on the topic, and discusses how the application of behavioural economics can foster innovative healthcare management. It first reviews behavioural economics principles and demonstrates how these can be used in healthcare management. Second, it discusses the methodological aspects of applying behavioural economics principles. Finally, limitations and current issues within the field are discussed

Book review: misbehaving: the making of behavioural economics

Reviewer Adam Oliver finds that Richard Thaler’s new book, Misbehaving: The Making of Behavioural Economics, covers the core concepts of behavioural economics, but finds that this book is more a ‘personal intellectual history, supplemented by stories, anecdotes and occasional reposts to past combatants’ that misses two important issues ‘relating to suggestions for the future development of behavioural economics’

Experiential Learning with Experiments

This paper discusses the implementation of experiential learning techniques in a behavioural economics class. In order to deepen students' understanding of both behavioural economics and the experimental approach to research students in the course developed and conducted variants of economic experiments. We believe that the process of designing and implementing the experiments fostered a better understanding of the material than simply participating in classroom experiments would have done. Students worked in small groups to develop their versions of the experiments. Thus, the complete process promoted genuine active learning by engaging the students both individually and collectively.

Psychology for Economists

Orthodox economics focuses on the analysis of the way the economic force or motivation operates, thereby abstracting from the functioning of other primary forces or motivations, such as the social and the psychic motivation. By assuming perfect rationality psychic problems are ignored. This text discusses six approaches in psychology . cognitive, behaviourist, biological, psychodynamic, humanistic and social psychology - to find out what orthodox economics needs in order to extend its analysis with the more realistic idea of imperfect rationality. In this discussion the state of the art of behavioural economics in included.orthodox economics, psychology, behavioural economics, imperfect rationality