Abstract

THALER, Richard H.. Behavioral economics: Past, present, and future. Rev.econ.inst. [online]. 2018, vol.20, n.38, pp.9-43. ISSN 0124-5996.  https://doi.org/10.18601/01245996.v20n38.02.

"Behavioral economics" attempts to incorporate insights from other social sciences, especially psychology, in order to enrich the standard economic model. Tne interest in the psychology of human behavior returns economics to its earliest roots. Adam Smith talked about such key concepts as loss aversion, overconfidence, and self-control. Nevertheless, the modern version of behavioral economics introduced in the 1980s met with resistance by some economists, who preferred to retain the standard neo-classical model. Tney introduced several arguments for why psychology could safely be ignored. In this essay I show that these arguments have been rejected, both theoretically and empirically, so it is time to move on. Ten new approach should include two different kinds of theories: normative models that characterize the optimal solution to specific problems and descriptive models that capture how humans actually behave. Tne latter theories will incorporate some variables I call supposedly irrelevant factors, which can improve the explanatory power of economic models.

JEL: A12, B29, D91.

Keywords : behavioral economics; human behavior; normative models; descriptive models; supposedly irrelevant factors.

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