Psychological observations are by now well integrated into economics, especially in the theory of finance, as can also be seen in the Nobel Prize awarded to Thaler. On the contrary, Simon’s attempt to reforge economic theory on the paradigm of bounded rationality failed. Starting from the birth of the neoclassical paradigm, we’ll describe the attempt to give it psychological foundations with a direct measurement of utility, then the axiomatic turn of the paradigm and its first anomalies. We’ll then (...) sum up the debate on rationality, taking place in the group of economists led by Simon, which brought to the rational expectations hypothesis. Finally, we’ll discuss the development of behavioral economics and its progressive acceptance in economic theory. This historical reconstruction allows us to understand the actual hard core of the neoclassical paradigm and the growing need of the paradigm for practical flexibility that determines how to choose arguments, methods and evidence that can be useful to its development, including psychological ones. (shrink)

Stakeholder theorists distinguish between normative stakeholders, those who gain moral standing by making contributions to the firm, and derivative stakeholders, those who can constrain the corporate association even though they make no contribution. The board of directors has the legal authority to distinguish among these stakeholder groups and to distribute rights and obligations among these stakeholder groups. To be sure, this stakeholder formulation appropriately seizes on the firm’s voluntary, associative character. Yet, the firm’s constituents contribute assets and incur risks to (...) participate in market, economic activities. And, as such, the firm’s “stakeholders” must share an imperfect language to assist in making two key economic decisions: (1) who are the legitimate and who are the derivative stakeholders; and (2) who should sit on the board? Still, stakeholder theorists have good reason to be skeptical of neoclassical economics. Its assumptions that all act opportunistically and that all can calculate rationally and fully hardly correspond to studies on the managerial experience of corporate coordination. However, advances in behavioral law and economics now provide a cogent economic logic that readily fits into a stakeholder mode. In brief, we argue that (1) the firm’s economic purpose designates legitimacy to core stakeholders, to those who add value, assume unique risk, and can incur harm; (2) the board serves as the principal who coordinates these core stakeholders to sustain competitive advantage and new wealth creation; and (3) state incorporation law, Delaware in particular, reinforces the board’s function. These, in turn, supply selection criteria for board membership. We aim to synchronize concepts from behavioral law and economics with stakeholder theory. (shrink)

ABSTRACTBehavioral economics may be considered as neoclassical behavioral economics, which adopts a neoclassical normative model of rationality and explains bias a...

This paper examines issues of ontology and methodology in behavioral economics: the attempt to increase the explanatory and predictive power of economic theory by providing it with more psychologically plausible foundations. Of special interest is the epistemological status of neoclassical economic theory within behavioral economics, the runaway success story of contemporary economics. Behavioral economists aspire to replace the fundamental assumptions of orthodox, neoclassical economic theory. Yet, behavioral economists have gone out of (...) their way to praise those very assumptions. Matthew Rabin, for example, writes that behavioral economics “is not only built on the premise that [orthodox] economic methods are great, but also that most mainstream economic assumptions are great.” These apparently contradictory attitudes toward neoclassical theory raises the question of what, exactly, its epistemological status within behavioral economics is. This paper argues that the paradox can be resolved, and the question answered, by thinking of the epistemological status of neoclassical theory within behavioral economics in terms of Max Weber’s ideal types: analytical constructs that are not intended to be descriptively true of anything but which nevertheless can be used for a variety of theoretical purposes. The analysis is consistent with many of the insights from the philosophical literature on models in science and has important implications for the practice of economics—behavioral and neoclassical—as well as for the very nature of rationality. (shrink)

Drawing on current debates at the frontiers of economics, psychology, and political philosophy, this book explores the challenges that arise for liberal democracies from a confrontation between modern technologies and the bounds of human rationality. With the ongoing transition of democracy's underlying information economy into the digital space, threats of disinformation and runaway political polarization have been gaining prominence. Employing the economic approach informed by behavioral sciences' findings, the book's chief concern is how these challenges can be addressed (...) while preserving a commitment to democratic values and maximizing the epistemic benefits of democratic decision-making. The book has two key strands: it provides a systematic argument for building a behaviorally informed theory of democracy; and explores how scientific knowledge on quirks and bounds of human rationality can inform the design of resilient democratic institutions. Drawing these together, the book explores the centrality of the rationality assumption in the methodological debates surrounding behavioral sciences as exemplified by the dispute between neoclassical and behavioral economics; the role of rationality in democratic social choice; behaviorally informed paternalism as a response to the challenge of irrationality; and non-paternalistic avenues to increase the resilience of the democratic institutions towards political irrationality This book is invaluable reading for anyone interested in behavioral economics and sciences, political philosophy and the future of democracy. (shrink)

This paper discusses the development of the field of economic methodology during the last few decades emphasizing the early influence of the "shelf" of Popperian philosophy and the division between neoclassical and heterodox economics. It argues that the field of methodology has recently adopted a more naturalistic approach focusing primarily on the "new pluralist" subfields of experimental economics, behavioral economics, neuroeconomics, and related subjects.

The article aims to demonstrate that the nudge theory suffers from three main weaknesses stemming from its theoretical dependence on behavioural economics. The first two weaknesses endanger the paternalistic goal, whereas the third does not justify the libertarian attribute. The first weakness lies in the incomplete realistic characterisation of behavioural economics theory that is the central theoretical pillar of Nudge theory. The second weakness is even more relevant. The normative model of behavioural economics is neoclassical rationality. (...) It can be applied to choices in conditions of risk, when it is possible to forecast the probability of the outcomes of one’s choices. On the contrary the real life problems are inside a complex and uncertain environment. In an uncertain environment the neoclassical algorithms are no longer valid, in that they postulate the knowledge of the probability of the outputs. Thus errors and bias, as observed in behavioural economics, are not such in many instances, but they are instead adaptive and therefore rational responses to the context of decision-making. Therefore nudge theory that pursues the normative paternalistic objective of neutralising the bias and judgement errors discovered by behavioural economics and putting paternalistically the citizen on the right track, is in fact proceeding in the wrong direction. The last weakness concerns an assumption of Nudge theory about the duality of mind. System 1 represents the intuitive mind, while System 2 corresponds to the analytical one. System 1 tends to make decisions quickly and unconsciously, while System 2 follows a slow and conscious process. Biases and judgement errors are mainly generated by System 1. However, System 2 may later intervene to correct them. From this premise, the Nudge theory affirms its libertarian character. In this paper I will argue that the dualism of the mind would not entail the reversibility of some nudges, particularly of default states. In this way the fundamental pillar is weakened to justify the libertarian character of the nudge theory. (shrink)

Abstract: Don Ross’ Economic Theory and Cognitive Science (2005) provides an elaborate philosophical defense of neoclassical economics. He argues that the central features of neoclassical theory are associated with what he calls the Robbins-Samuelson argument pattern and that it can be reconciled with recent developments in experimental and behavioral economics, as well as contemporary cognitive science. This paper argues that Ross’ Robbins-Samuelson argument pattern is not in the work of either Robbins or Samuelson and in (...) many ways is in conflict with their own versions, and defenses, of neoclassical theory. (shrink)

Positive and negative feelings were central to the development of economics, especially in utility theory in classical economics. While neoclassical utility theory ignored feelings, behavioral economics more recently reintroduced feelings in utility theory. Beyond feelings, economic theorists use full-fledged specific emotions to explain behavior that otherwise could not be understood or they study emotions out of interest for the emotion itself. While some analyses display a strong overlap between psychological thinking and economic modelling, in most (...) cases there is still a large gap between economic and psychological approaches to emotion research. Ways how to reduce this gap are discussed. (shrink)

In this study, Don Ross explores the relationship of economics to other branches of behavioral science, asking, in the course of his analysis, under what interpretation economics is a sound empirical science. The book explores the relationships between economic theory and the theoretical foundations of related disciplines that are relevant to the day-to-day work of economics -- the cognitive and behavioral sciences. It asks whether the increasingly sophisticated techniques of microeconomic analysis have revealed any deep (...) empirical regularities -- whether technical improvement represents improvement in any other sense. Casting Daniel Dennett and Kenneth Binmore as its intellectual heroes, the book proposes a comprehensive model of economic theory that, Ross argues, does not supplant, but recovers the core neoclassical insights, and counters the caricaturish conception of neoclassicism so derided by advocates of behavioral or evolutionary economics. Because he approaches his topic from the viewpoint of the philosophy of science, Ross devotes one chapter to the philosophical theory and terminology on which his argument depends and another to related philosophical issues. Two chapters provide the theoretical background in economics, one covering developments in neoclassical microeconomics and the other treating behavioral and experimental economics and evolutionary game theory. The three chapters at the heart of the argument then apply theses from the philosophy of cognitive science to foundational problems for economic theory. In these chapters, economists will find a genuinely new way of thinking about the implications of cognitive science for economics, and cognitive scientists will find in economic behavior, a new testing site for the explanations of cognitive science. (shrink)

The classical view of "rational man" as the unit of analysis for economic behavior and marketplace exchange has been changed by the late twentieth century with the help of behavioral economics that considers predictable irrationality as a normal mode of behavior. Instead of revising neoclassical economics to fit contemporary economic crises, it is recommended to follow Adam Smith's original concerns for the social setting of individual behavior and to treat economic crises with pragmatic flexibility rather than (...) with dogmatic ideology. (shrink)

Monetary intelligence theory asserts that individuals apply their money attitude to frame critical concerns in the context and strategically select certain options to achieve financial goals and ultimate happiness. This study explores the dark side of monetary Intelligence and behavioral economics—dishonesty. Dishonesty, a risky prospect, involves cost–benefit analysis of self-interest. We frame good or bad barrels in the environmental context as a proxy of high or low probability of getting caught for dishonesty, respectively. We theorize: The magnitude and (...) intensity of the relationship between love of money and dishonest prospect may reveal how individuals frame dishonesty in the context of two levels of subjective norm—perceived corporate ethical values at the micro-level and Corruption Perceptions Index at the macro-level, collected from multiple sources. Based on 6382 managers in 31 geopolitical entities across six continents, our cross-level three-way interaction effect illustrates: As expected, managers in good barrels, mixed barrels, and bad barrels display low, medium, and high magnitude of dishonesty, respectively. With high CEV, the intensity is the same across cultures. With low CEV, the intensity of dishonesty is the highest in high CPI entities —the Enron Effect, but the lowest in low CPI entities. CPI has a strong impact on the magnitude of dishonesty, whereas CEV has a strong impact on the intensity of dishonesty. We demonstrate dishonesty in light of monetary values and two frames of social norm, revealing critical implications to the field of behavioral economics and business ethics. (shrink)

Behavioral economics has rejuvenated economic theory and deepened the bonds between economic theory and the other social sciences. Neoclassical economics does not depend on individual preferences being self-regarding. Moreover, in market contexts, laboratory experiments indicate that traditional theory works well. Behavioral economic findings thus enrich and expand neoclassical economics rather than undermining it. In particular, social norms are an emergent property of human sociality, and exist as macrosocial structures that are not reducible to (...) the preferences of individuals. Behavioral economists are not theorists, but rather experimentalists. With few exceptions, they do not provide, nor aim to provide, cogent models for the phenomena they discover. Far from downplaying “inconvenient facts,” as is the practice of traditional economic theory, behavioral economists relish finding novel forms of individual decision-making and strategic behavior. (shrink)

There is now considerable evidence that economics is undergoing significant change in which a collection of new research programs all at odds in important respects with standard neoclassical economics is increasingly dominating the economics research frontier (Davis 2006b). These new programs include game theory, evolutionary economics, behavioral economics, experimental economics, agent‐based complexity economics and neuroeconomics. All raise new issues for economics, and contest long‐held assumptions. Such a development, however, naturally raises (...) questions about the nature and direction of economic methodology. Whereas economics investigates the economy, economic methodology investigates economics (as does the history of economics). Thus a significant re‐direction of economics suggests there may be a need for an associated re‐direction in the focus and concerns of economic methodology. (shrink)

Monetary Intelligence theory asserts that individuals apply their money attitude to frame critical concerns in the context and strategically select certain options to achieve financial goals and ultimate happiness. This study explores the bright side of Monetary Intelligence and behavioral economics, frames money attitude in the context of pay and life satisfaction, and controls money at the macro-level and micro-level. We theorize: Managers with low love of money motive but high stewardship behavior will have high subjective well-being: pay (...) satisfaction and quality of life. Data collected from 6586 managers in 32 cultures across six continents support our theory. Interestingly, GDP per capita is related to life satisfaction, but not to pay satisfaction. Individual income is related to both life and pay satisfaction. Neither GDP nor income is related to Happiness. Our theoretical model across three GDP groups offers new discoveries: In high GDP entities, “high income” not only reduces aspirations—“Rich, Motivator, and Power,” but also promotes stewardship behavior—“Budget, Give/Donate, and Contribute” and appreciation of “Achievement.” After controlling income, we demonstrate the bright side of Monetary Intelligence: Low love of money motive but high stewardship behavior define Monetary Intelligence. “Good apples enjoy good quality of life in good barrels.” This notion adds another explanation to managers’ low magnitude of dishonesty in entities with high Corruption Perceptions Index. In low GDP entities, high income is related to poor Budgeting skills and escalated Happiness. These managers experience equal satisfaction with pay and life. We add a new vocabulary to the conversation of monetary intelligence, income, GDP, happiness, subjective well-being, good and bad apples and barrels, corruption, and behavioral ethics. (shrink)

This book contains perspectives of world-renowned scholars from the fields of law, economics, and political science about the relationship between law and norms. The authors take different approaches by using a wide variety of perspectives from law, legal history, neoclassical economics, new institutional economics, game theory, political science, cognitive science, and philosophy. The essays examine the relationship between norms and the law in four different contexts. Part One consists of essays that use the perspectives of cognitive (...) science and behavioral economics to analyze norms that influence the law. In Part Two, the authors use three different types of common property to examine cooperative norms. Part Three contains essays that deal with the constraints imposed by norms on the judiciary. Finally, Part Four examines the influence formal law has on norms. (shrink)

I am a behavioral economist, who is interested in both behavioral sciences and economic behavior. By the term “economic behavior” I refer to the calculative reasoned domain of economic analysis, whereas by “behavioral economics” I address aspects of human feelings, emotions and everything that is not captured by the “rational” paradigm. Evidently, erroneous calculations, as well as unhinged sentiments lead to economic losses, and every change in the economics of the world has both calculative and (...) behavioral sides to it. In what follows, we examine these two sides of behavior in relation to the COVID-19 pandemic by drawing on contemporaneous data, forecasts, and images. Each side of behavior reveals distinctive insights, and intriguingly, not all outcomes count as loss. As we face this crisis, there is a clear environmental gain that we would be smart to preserve post pandemic. (shrink)

Metaphors “highlight and hide” different aspects of phenomena. A behavioral economic metaphor for excessive consumption highlights the contextual features of behavioral-environment relations. Can the behavioral momentum metaphor generate a representation of context that is at least as useful as that generated by behavioral economics? Maybe, maybe not; or maybe a mixed metaphor will do a better job than either alone.

Behavioral economics has potential to offer novel solutions to some of today's most pressing public health problems: How do we persuade people to eat healthy and lose weight? How can health professionals communicate health risks in a way that is heeded? How can food labeling be modified to inform healthy food choices? Behavioral Economics and Public Health is the first book to apply the groundbreaking insights of behavioral economics to the persisting problems of health (...) behaviors and behavior change. In addition to providing a primer on the behavioral economics principles that are most relevant to public health, this book offers details on how these principles can be employed to mitigating the world's greatest health threats, including obesity, smoking, risky sexual behavior, and excessive drinking. With contributions from an international team of scholars from psychology, economics, marketing, public health, and medicine, this book is a trailblazing new approach to the most difficult and important problems of our time. (shrink)

Different applications of synthetic biology are alike in that their possible negative consequences are highly uncertain, potentially catastrophic, and perhaps irreversible; therefore, they are also alike in that public attitudes about them are fertile ground for behavioral economic phenomena. Findings from behavioral economics suggest that people may not respond to such applications according to the normal rules of economic evaluation, by which the value of an outcome is multiplied by the mathematical probability that the outcome will occur. (...) Possibly, then, synthetic biology applications challenge the normative postulates of the standard approach, too.I want to first consider how some of the phenomena described by behavioral economists—and behavioral scientists more broadly—might affect people's perceptions of the uncertainties associated with synthetic biology. My analysis will be far from complete, however, because behavioral economics is essentially the study of human behavior, and thus its reach is potentially vast and its development longstanding and ongoing. Nonetheless, I hope to give an indicative perspective on how some aspects of behavioral economics might affect the assessment and perceived acceptability of synthetic biology. I will then consider the issue of agency. Should policy‐makers respect people's reactions to synthetic biology when those reactions are known to be driven by behavioral economic phenomena rather than following the normative postulates of rational choice theory? Or should policy‐makers dismiss these reactions as inherently biased? I will argue that the normative force of these human reactions (probably) depends on phenomenon and context. (shrink)

Governments and non-govermental organizations (NGOs) that plan projects to conserve the environment and alleviate poverty often attempt to modify rural livelihoods by halting activities they judge to be destructive or inefficient and encouraging alternatives. Project planners typically do so without understanding how rural people themselves judge the value of their activities. When the alternatives planners recommend do not replace the value of banned activities, alternatives are unlikely to be adopted, and local people will refuse to participate. Human behavioral ecology (...) and behavioral economics may provide useful tools for generating and evaluating hypotheses for how people value economic activities in their portfolios and potential alternatives. This is demonstrated with a case example from southwestern Madagascar, where plans to create a Mikea Forest National Park began with the elimination of slash-and-burn maize agriculture and the encouragement to plant labor-intensive manioc instead. Future park plans could restrict access to wild tuber patches, hunting small game, and fishing. The value of these activities is considered using observational data informed by optimal foraging theory, and experimental data describing people’s time preference and covariation perception. Analyses suggest that manioc is not a suitable replacement for maize for many Mikea because the two crops differ in terms of labor requirements, delay-to-reward, and covariation with rainfall. Park planners should promote wild tuber foraging and stewardship of tuber patches and the anthropogenic landscapes in which they are found. To conserve small game, planners must provide alternative sources of protein and cash. Little effort should be spent protecting lemurs, as they are rarely eaten and never sold. (shrink)

In this article, I critically respond to Herbert Gintis's criticisms of the behavioral-economic foundations of Ken Binmore 's game-theoretic theory of justice. Gintis, I argue, fails to take full account of the normative requirements Binmore sets for his account, and also ignores what I call the ‘scale-relativity’ considerations built into Binmore 's approach to modeling human evolution. Paul Seabright's criticism of Binmore, I note, repeats these oversights. In the course of answering Gintis's and Seabright's objections, I clarify and extend (...) Binmore 's theory in a number of respects, integrating it with Kim Sterelny's and Don Ross's recent work on the evolution of people as cultural entities. The account also yields a novel basis for choosing between socialism and what Binmore calls ‘whiggery’ as normative political programs. Key Words: theory of justice • bargaining theory • evolutionary game theory • human evolution • Ken Binmore • Herbert Gintis • Kim Sterelny. (shrink)

This paper focuses on tacit versus explicit uses of plural performance metrics as a primary methodological characteristic. This characteristic usefully distinguishes two schools of normative analysis and their approaches to normative interpretations of bounded rationality. Both schools of thought make normative claims about bounded rationality by comparing the performance of decision procedures using more than one performance metric. The consistency school makes tacit reference to performance metrics outside its primary axiomatic framework, but lexicographically promotes internal axiomatic consistency as the primary, (...) and in most cases sufficient, normative outcome with which to undertake welfare comparisons. The consistency school's axiomatization program, in both neoclassical and behavioral forms, pre-commits to welfare interpretations that follow a hierarchy of rationalities based on the stringency of restrictions that different axiomatizations impose on choice data. In contrast, the ecological rational.. (shrink)

Behavioral paternalism raises deep concerns that do not arise in traditional welfare economics. These concerns stem from behavioral paternalism’s acceptance of the defining axioms of neoclassical rationality for normative purposes, despite having rejected them as positive descriptions of reality. We argue that behavioral paternalists have indeed accepted neoclassical rationality axioms as a welfare standard; that economists historically adopted these axioms not for their normative plausibility, but for their usefulness in formal and theoretical modeling; that (...) broadly rational individuals might fail to satisfy the axioms for various reasons, making them unpersuasive as normative criteria; and that even if their violation did constitute irrationality, that would not justify paternalists’ choosing among inconsistent preferences to define an individual’s “true” preferences. (shrink)

Drawing on behavioral economics, nudges (policy interventions based on choice architecture) have the capacity to strategically shape policymaking, subtly guiding individual behavior by adjusting their decision environment. Applied to enhance vaccinations, boost retirement savings, or promote healthy habits, these interventions align with consensus-defined well-being. As governments adopt nudges, scholars have explored their role in fostering virtues. This paper argues that nudges have the potential to efficiently contribute to virtuous development by instilling and sustaining habits, respecting individual choice, and (...) ensuring deliberation. It introduces the concept of virtue nudges, emphasizing the alignment of habits with virtues for targeted behavioral change and the formation of morally virtuous habits. (shrink)

Corruption involves greed, money, and risky decision-making. We explore the love of money, pay satisfaction, probability of risk, and dishonesty across cultures. Avaricious monetary aspiration breeds unethicality. Prospect theory frames decisions in the gains-losses domain and high-low probability. Pay dissatisfaction (in the losses domain) incites dishonesty in the name of justice at the individual level. The Corruption Perceptions Index, CPI, signals a high-low probability of getting caught for dishonesty at the country level. We theorize that decision-makers adopt avaricious love-of-money aspiration (...) as a lens and frame dishonesty in the gains-losses domain (pay satisfaction-dissatisfaction, Level 1) and high-low probability (CPI, Level 2) to maximize expected utility and ultimate serenity. We challenge the myth: Pay satisfaction mitigates dishonesty across nations consistently. Based on 6500 managers in 32 countries, our cross-level three-dimensional visualization offers the following discoveries. Under high aspiration conditions, pay dissatisfaction excites the highest- (third-highest) avaricious justice-seeking dishonesty in high (medium) CPI nations, supporting the certainty effect. However, pay satisfaction provokes the second-highest avaricious opportunity-seizing dishonesty in low CPI entities, sustaining the possibility effect—maximizing expected utility. Under low aspiration conditions, high pay satisfaction consistently leads to low dishonesty, demonstrating risk aversion—achieving ultimate serenity. We expand prospect theory from a micro and individual-level theory to a cross-level theory of monetary wisdom across 32 nations. We enhance the S-shaped Curve to three 3-D corruption surfaces across three levels of the global economic pyramid, providing novel insights into behavioral economics, business ethics, the environment, and responsibility. (shrink)

Until recently, economics conceived of poverty solely as a lack of material resources. This view likely captures the reality of poverty experienced by many people around the globe. However, two waves of behavioral economics demonstrate that the narrowing of people’s external environments may change people themselves: poverty lowers the quality of decision-making and poverty and oppression may depress the capacity to aspire. Poverty and a history of oppression also change how individuals are perceived. To overcome these effects (...) may require helping people acquire new mental models. This essay discusses key findings from behavioral economics, the implications for agency, and some interventions with promising outcomes. We hope to inspire scholars and policymakers to think more deeply about the nature of poverty and oppression and to consider policies that target the psychological and sociological factors that create cycles of poverty. (shrink)

Hausman and McPherson provide an evidential defense of welfare economics, arguing that preferences are not constitutive of welfare but nevertheless provide the best evidence for what promotes welfare. Behavioral economics identifies several ways in which some people's preferences exhibit anomalies that are incoherent or inconsistent with rational choice theory. I argue that the existence of these behavioral anomalies calls into question the evidential defense of welfare economics. The evidential defense does not justify preference purification, or (...) eliminating behavioral anomalies before conducting welfare analysis. But without doing so, the evidential defense yields implausible welfare implications. I discuss how the evidential defense could be modified to accommodate behavioral anomalies. (shrink)

I argue in this text that the economic mind is a culturally hegemonic, naturalistic interpretation of the behavior produced by the revolutionary nature of the economic and technical developments of the nineteenth and early twentieth centuries. Despite persistent criticism, people fulfilled the predictions of the economic model of a human being for so long that they committed an attribution error and took it to be the adequate vision of human nature. Neoclassical economic theory played a significant, even if involuntary, (...) role in the spread of this illusion. I also claim that the concept of economic mind—as the dominant interpretation of human nature—currently functions as a self-fulfilling prophecy, reproducing behaviors that would have a chance to change (refuting the theory developed on their basis), were it not for the popularity of this concept as commonsensical definition of human nature. (shrink)

It is a common misconception that individuals act rationally and according to their interests—numerous examinations of human psychology have proven that this is not the case (Tversky and Kahneman 1...

Principles of Behavioral Economics, written by an acknowledged leader in the field, provides a comprehensive introduction to one of the most exciting areas of modern economics. It demonstrates how models of economic theory can be enriched by using interdisciplinary insights from psychology, sociology, evolutionary biology, and neuroscience to build the basis for a more empirically supported set of economic principles. Unique in its level of rigor and lucidity, the book highlights the important link between theoretical and empirical (...) economics by demonstrating the usefulness of a range of data sources such as observational data, lab data, survey data, and neuroeconomic data. This field-defining textbook argues that behavioral economics is not just a supplement to mainstream economics. Taking behavioral economics seriously requires a total rethink, and eventual transformation, of every area of economics. (shrink)

Slight absolute changes in the Shanghai Stock Exchange Index (SHSE) corresponded to the city’s immediate increases in coronary heart disease deaths and stroke deaths. Significant fluctuations in the Shenzhen Stock Exchange Index (SZSE) corresponded to the country’s minor, delayed death rates. Investors deal with money, greed, stock volatility, and risky decision-making. Happy people live longer and better. We ask the following question: Who are the investors with the highest and most sustainable stock happiness, and why? Monetary wisdom asserts: Investors apply (...) their deep-rooted values (avaricious love-of-money aspiration and locus of control, Level 2) as a lens to frame critical concerns in the proximal-immediate (Shanghai Stock Exchange Index changes, Level 1) and the omnibus-distal contexts (domicile: city vs. country, Level 2) to maximize expected utility (portfolio changes, Level 1) and ultimate serenity (stock happiness, Level 1). We collected multilevel data—the longitudinal SHSE and 227 private investors’ daily stock happiness and portfolio changes for 36 consecutive trading days in four regions of China. Investors had an average liquid asset of $76,747.41 and $54,660.85 in stocks. This study is not a “one-shot” game with “nothing at stake.” We classified Shanghai and Beijing as the city and Shenzhen and Chongqing as the country. Our cross-level 3-D visualization reveals that regardless of SHSE volatility, investors with low aspiration, external control, and country domicile enjoy the highest and most sustainable stock happiness with minimum fluctuations. Independently, investors with low aspiration, external control, and country domicile tend to make fewer portfolio changes than their counterparts. Behaviorally, less is more, debunking the myth—risky decisions excite stock happiness. Our longitudinal study expands prospect theory, incorporates attitude toward money, and makes robust contributions to behavioral economics and business ethics. We help investors and ordinary citizens make happy, healthy, and wealthy decisions. Most importantly, the life you save may be your own. (shrink)

Despite their popularity, dual process accounts of human reasoning and decision-making have come under intense scrutiny in recent years. Cognitive scientists and philosophers alike have come to question the theoretical foundations of the ‘standard view’ of dual process theory and have challenged the validity and relevance of evidence in support of it. Moreover, attempts to modify and refine dual process theory in light of these challenges have generated additional concerns about its applicability and refutability as a scientific theory. With these (...) concerns in mind, this paper provides a critical review of dual process theory in economics, focusing on its role as a psychological framework for decision modeling in behavioral economics and neuroeconomics. I argue that the influx of criticisms against dual process theory challenge the descriptive accuracy of dualistic decision models in economics. In fact, the case can be made that the popularity of dual process theory in economics has less to do with the empirical success of dualistic decision models, and more to do with the convenience that the dual process narrative provides economists looking to explain-away decision anomalies. This leaves behavioral economists and neuroeconomists with something of a dilemma: either they stick to their purported ambitions to give a realistic description of human decision-making and give up the narrative, or they revise and restate their scientific ambitions. (shrink)

A powerful critique of nudge theory and the paternalist policies of behavioral economics, and an argument for a more inclusive form of rationality.

Values have a profound influence on the behaviour of all people, scientists included. Biodiversity is studied by ecologists, like myself, most of whom align with the “mission-driven” field of conservation biology. The mission involves the protection of biodiversity, and a set of contextual values including the beliefs that biological diversity and ecological complexity are good and have intrinsic value. This raises concerns that the scientific process might be influenced by biases toward outcomes that are aligned with these values. Retrospectively, I (...) have identified such biases in my own work, resulting from an implicit assumption that organisms that are not dependent on natural habitats effectively do not count in biodiversity surveys. Finding that anthropogenic forest disturbance reduces the diversity of plant species dependent on shady forests can thus be falsely equated with more general biodiversity loss. Disturbance might actually increase overall plant diversity. In this paper I ask whether ecologists share values that are unrepresentative of broader society, I discuss examples of potential value-driven biases in biodiversity science, and I present some hypotheses from behavioral economics on possible psychological underpinnings of shared values and preferences among ecologists. (shrink)

Adolescents have increasing discretionary income, expenditures, and purchasing power. Inventory shrinkage costs $123.4 billion globally to retail outlets. Adolescents are disproportionately responsible for theft and shoplifting. Both parents and peers significantly influence adolescents’ monetary values, materialism, and dishonesty as consumers. In this study, we develop a theoretical model involving teenagers’ social attachment and their consumer ethics, treat adolescents’ money attitude in the context of youth materialism as a mediator, and simultaneously examine the direct and indirect paths. Results of 1018 adolescents (...) illustrate that social attachment discourages unethical beliefs directly, but encourages it indirectly through monetary values. Our multi-group analyses demonstrate a novel paradox: The correlation between parental and peer attachments is smaller in France than in China, but similar across gender. Parents contribute more than peers to social attachment in France, but both carry equal weight in China. There is a negative direct path for the Chinese sample and for girls. Indirectly, parental attachment prevents French teenagers’ unethical beliefs, whereas peer attachment promotes boys’ unethical intention, supporting the notion—bad company corrupts good morals. Across both culture and gender, monetary attitude excites dishonesty consistently for all adolescents. A negative direct path exists for Chinese boys only. Overall, social attachment reduces unethical beliefs. Parental and peer supports shape teenagers’ monetary intelligence and ethical or unethical decision making, differently, across culture and gender. We provide theoretical, empirical, and practical implications to ethical parenting, peer attachment, monetary values, and business ethics. (shrink)

This book presents the “pleasure phenomenon” as the most important factor in individual and socio-cultural development. This study emphasizes the necessity of transformation of marketing in the 21st Century which would shift the focus from seeking pleasure to controlling desires in a way that would benefit self and society.

An original examination of the relevance of behavioral economics for the practice of medical ethics.

At a time when both scholars and the public demand explanations and answers to key economic problems that conventional approaches have failed to resolve, this groundbreaking handbook of original works by leading behavioral economists offers the first comprehensive articulation of behavioral economics theory. Borrowing from the findings of psychologists, sociologists, political scientists, legal scholars, and biologists, among others, behavioral economists find that intelligent individuals often tend not to behave as effectively or efficiently in their economic decisions (...) as long held by conventional wisdom. The manner in which individuals actually do behave critically depends on psychological, institutional, cultural, and even biological considerations. "Handbook of Contemporary Behavioral Economics" includes coverage of such critical areas as the Economic Agent, Context and Modeling, Decision Making, Experiments and Implications, Labor Issues, Household and Family Issues, Life and Death, Taxation, Ethical Investment and Tipping, and Behavioral Law and Macroeconomics. Each contribution includes an extensive bibliography. (shrink)

George Loewenstein is one of the pioneers of the rapidly growing field of behavioral economics. For over twenty years he has been working at the intersection of economics and psychology and is one of the few people of whom it can be said that their work is equally respected and well known within both disciplines. This book brings together a selection of his papers focusing on what he calls "exotic preferences"-- the disparate motives that drive human behavior. (...) Anoriginal introduction outlines Loewenstein's general approach to research, and there are short introductions to each paper outlining briefly when, how and why they came to be written, providing a fascinating and vivid insight into the process of intellectual creativity. (shrink)

We propose a triple test to evaluate the usefulness of behavioral economics models for public health policy. Test 1 is whether the model provides reasonably new insights. Test 2 is on whether these have been properly applied to policy settings. Test 3 is whether they are corroborated by evidence. We exemplify by considering the cases of social interactions models, self-control models and, in relation to health message framing, prospect theory. Out of these sets of models, only a correctly (...) applied prospect theory fully passes the tests at present. Specifically, in broad agreement with the evidence, a gain frame has positive implications for welfare encourages disease prevention activity, though this does not apply if the perceived probability of the bad health outcome is large enough. We see our tests as being useful to identify how much health policy weight policy makers should assign to specific behavioral economic models; they are also useful to verify what next steps would be most useful in further research. (shrink)

In their article “The Concept of Voluntary Consent,” Robert Nelson and colleagues (2011) argue for two necessary and jointly sufficient conditions for voluntary action: intentionality, and substantial freedom from controlling influences. They propose an instrument to empirically measure voluntariness, the Decision Making Control Instrument. I argue that (1) their conceptual analysis of intentionality and controlling influences needs expansion in light of the growing use of behavioral economics principles to change individual and public health behaviors (growing in part by (...) the designation of “The Science of Behavior Change” as a new National Institutes of Health [NIH] Roadmap Activity); and (2) that their measure of voluntariness that relies on self-perceived intentionality and extent of control is unreliable, given findings from behavioral economics and cognitive science that show that our perceptions about the intentionality and control of our own and others’ decisions and actions are remarkably skewed and un-insightful. (shrink)

Economists working on behavioral economics have been awarded the Nobel Prize four times in recent years. This book explores this innovative area and in particular focuses on the work of Harvey Leibenstein, one of the pioneers of the discipline. The topics covered in the book include agency theory; dynamic efficiency; evolutionary economics; X-efficiency; the effect of emotions, specifically affect on decision-making; market pricing; experimental economics; human resource management; the Carnegie School, and intra-industry efficiency in less developed (...) countries. (shrink)